FreightCar America, Inc. (NASDAQ: RAIL) (“FreightCar America” or
the “Company”) announced the final strategic steps to reposition
its business for long-term growth.
Highlights:
-
Completed transaction and now owns 100% of its new Castaños, Mexico
manufacturing operation (“Castaños”), where all future railcar
manufacturing is expected to be based by February 2021
-
Enters into new $40 million secured term loan agreement with a
global investment management firm (“Lender”), with funding subject
to the satisfaction of certain conditions, to strengthen balance
sheet and drive its growth strategy
-
Will welcome two new members to its board of directors including
Jesus Gil, General Manager of the Castaños joint venture and an
owner of Fabricaciones y Servicios de Mexico SA. de C.V.
(“Fasemex”), who will also become the Company’s new Vice President
of Operations, and a future representative from the Lender
following the closing of the new capital plan
-
Announces plan to host a virtual special meeting of stockholders
necessary to complete the term loan funding by late November
-
Will host a special call to review its go forward strategy at 8:30
a.m. (Eastern Daylight Time) tomorrow, October 20, 2020
“Today is an exciting day and new beginning for
FreightCar America as we announce the last steps in our plan to
reposition the business for long-term growth,” said Jim Meyer,
President and Chief Executive Officer. “We exit a prolonged period
when our business was hampered by high costs, sustained losses and
a generally challenged competitive position. We now enter a new
chapter, where our business will be supported by a single new
production facility designed specific to our needs, a highly
experienced and cost competitive workforce, and a significantly
enhanced competitive profile that includes a $25 million reduction
in annual fixed costs achieved through the closures of our two
facilities in Cherokee, Alabama (“Shoals”) and Roanoke,
Virginia.”
Meyer added, “To support this new competitive
positioning, we are announcing two critical
transactions. The first involved the completion of the
previously announced plan to acquire the remaining portion of the
Castaños joint venture and I’m happy to report that Fasemex and the
Gil Family have sold us their 50% ownership in exchange for roughly
2.26 million shares of our common stock. Given their successful
history in the industry, we are excited to welcome the Gils to our
team, to our board and as stockholders of our company. Next, we
need to bolster our balance sheet and build capital to support the
next phase of our expansion plans at the Castaños facility. Thus,
we are announcing a new $40 million secured term loan with a
well-respected global investment management firm. As a part of this
transaction, our new term loan lender will receive, subject to our
stockholders’ approval, a warrant to purchase up to 23% of the
Company’s outstanding common stock, after giving effect to such
issuance, at a nominal price. Additionally, one of their
representatives will join our board following stockholder approval
of the warrant.”
Meyer concluded, “We have announced a series of
aggressive and proactive actions over the last few weeks to
significantly change the competitive position of FreightCar America
and emerge from the industry downturn and COVID-pandemic as a truly
unique player in the railcar industry. While we had made
significant progress in improving our business profile over the
last few years, our financial and competitive path forward was
uncertain. Today’s announcements mark the successful completion of
many months of hard work and planning by our team, and most
importantly, the repositioning of the business to thrive in the
future. Our goal remains to become the lowest cost, highest quality
producer of railcars in our industry. We will be resoundingly more
competitive in 2021 and beyond, and we will be in one of the best
positions that we’ve ever been in to grow and add value for all of
our stakeholders following the completion of these last steps. I
look forward to working with our stockholders to finalize this
repositioning work, which will shift our investment thesis and
long-term opportunity moving forward.”
Castaños, Mexico
Joint
Venture Interest
Acquisition Completed
On October 16, 2020, FreightCar America acquired
Fasemex’s 50% ownership in the Castaños, Mexico joint venture in
exchange for 2,257,234 shares of FreightCar America’s common stock.
FreightCar America now owns 100% of its new Castaños, Mexico
operation, where all of FreightCar America’s railcar manufacturing
is expected to be based by February 2021. FreightCar America and
the Gil Family have previously invested over $35 million in
Castaños, which is the newest purpose-built railcar manufacturing
facility in North America. The plant currently has two production
lines and additional lines will be added as industry demand ramps
up.
The Company continues to forecast a $25 million
reduction in fixed costs as a result of reduced rent and other
fixed overhead that it expects to achieve at Castaños compared to
its manufacturing footprint at the start of this year.
In addition, the Company expects to have an improved labor and
variable cost position with this facility. Lastly, FreightCar
America has already hired a highly skilled, competitive workforce
with substantial industry expertise at the plant.
Jesus Gil, general manager of the new Castaños
railcar manufacturing operation and an owner of Fasemex, will be
retained as Vice President of Operations of the Company and will be
responsible for overseeing operations of the Mexico facility. Mr.
Gil will also join FreightCar America’s board of directors later
this month. Mr. Gil has 30 years of experience in manufacturing,
primarily in the railcar industry. He was previously part of the
successful greenfield startups and managed operations for two of
FreightCar America’s primary competitors. He was also the former
Chief Executive Officer of Grupo Industrial Monclova, a leading
industrial consortium that specializes in manufacturing for the
industrial, energy, and mining industries.
Recapitalization Plan
to Support Future Growth
FreightCar America has entered a new $40 million
secured term loan credit agreement with a global investment
management firm, with funding subject to the satisfaction of
certain conditions. Following the closing of the transaction, the
Company expects to have a stronger balance sheet and ample
liquidity to drive its growth strategy and complete the buildout of
its Castaños production line expansion. The new credit agreement
includes the issuance of a warrant to the Lender to purchase up to
23% of the Company’s outstanding common stock at a future date
(after giving effect to such issuance), at a strike price equal to
$0.01 per share. The term loan will be secured by a first lien on
all assets other than working capital assets and will have a term
ending five years following funding of the loan. Funding of the
term loan is subject to the approval by FreightCar America’s
stockholders of the issuance of the common stock issuable upon the
Lender’s future exercise of the warrant. The secured loan agreement
and the issuance of the warrant were unanimously approved by the
Company’s board of directors.
FreightCar America will host a virtual special
meeting of stockholders to consider and vote upon a proposal to
approve the issuance of up to 23% of its issued and outstanding
common stock issuable upon the exercise of the warrant in
accordance with Nasdaq Listing Rules 5635(b) and 5635(d). That
meeting will be held in a virtual format only, via live webcast on
the Internet, by late November 2020. Following stockholder
approval, a representative of the Lender will be added to
FreightCar America’s board of directors.
Special Call & Webcast
Information
The Company will host a conference call and live
webcast on Tuesday, October 20, 2020 at 8:30 a.m. (Eastern Daylight
Time) to discuss today’s announcements. Investors, analysts, and
members of the media interested in listening to the live
presentation are encouraged to join a webcast of the call,
available on the Company’s website at:
Event URL:
http://public.viavid.com/index.php?id=142096
Interested parties may also participate in the
call by dialing 877-407-0789 or 201-689-8562 and should use
conference code 13712254. Please dial in approximately 10 to 15
minutes prior to the start time of the call to ensure your
participation. An audio replay of the conference call will be
available beginning at 11:30 a.m. (Eastern Daylight Time) on
Tuesday, October 20, 2020 until 11:59 p.m. (Eastern Daylight Time)
on Tuesday, November 3, 2020. To access the replay, please dial
844-512-2921 or 412-317-6671. The replay pass code is 13712254. An
audio replay of the call will be available on the Company’s website
within two days following the earnings call.
About FreightCar America
FreightCar America, Inc. manufactures a wide
range of railroad freight cars, supplies rail car parts and leases
freight cars through its FreightCar America Leasing Company
subsidiaries. FreightCar America designs and builds high-quality
rail cars, including bulk commodity cars, covered hopper cars,
intermodal and non-intermodal flat cars, mill gondola cars, coil
steel cars, boxcars, coal cars and also specializes in the
conversion of rail cars for repurposed use. It is headquartered in
Chicago, Illinois and has facilities in the following locations:
Cherokee, Alabama; Castaños, Mexico; Johnstown, Pennsylvania; and
Shanghai, People’s Republic of China. More information about
FreightCar America is available on its website at
www.freightcaramerica.com.
Forward-Looking
Statements
This press release may contain statements
relating to our expected financial performance and/or future
business prospects, events and plans that are “forward-looking
statements” as defined under the Private Securities Litigation
Reform Act of 1995. Forward-looking statements represent our
estimates and assumptions only as of the date of this press
release. Our actual results may differ materially from the results
described in or anticipated by our forward-looking statements due
to certain risks and uncertainties. These potential risks and
uncertainties include, among other things: risks relating to the
potential financial and operational impacts of the COVID-19
pandemic; the Shoals facility, including the facility not meeting
internal assumptions or expectations and unforeseen liabilities
from Navistar; the risk that our stockholders may not approve the
issuance of the warrant or that the term loan may not be funded;
the cyclical nature of our business; adverse economic and market
conditions; fluctuating costs of raw materials, including steel and
aluminum, and delays in the delivery of raw materials; our ability
to maintain relationships with our suppliers of railcar components;
our reliance upon a small number of customers that represent a
large percentage of our sales; the variable purchase patterns of
our customers and the timing of completion, delivery and customer
acceptance of orders; the highly competitive nature of our
industry; the risk of lack of acceptance of our new railcar
offerings by our customers; and other competitive factors. We
expressly disclaim any duty to provide updates to any
forward-looking statements made in this press release, whether as a
result of new information, future events or otherwise.
Important Information
This material may be deemed to be solicitation
material in respect of the special meeting to be held in the near
future. In connection with the special meeting, the Company will
file a preliminary proxy statement with the United States
Securities and Exchange Commission (the “SEC”) and will file a
definitive proxy statement with the date and time of such meeting
as soon as possible thereafter. BEFORE MAKING ANY VOTING OR
INVESTMENT DECISIONS, INVESTORS AND SECURITY HOLDERS ARE URGED TO
READ THE PRELIMINARY PROXY STATEMENT AND ANY OTHER RELEVANT
DOCUMENTS FILED WITH THE SEC, BECAUSE THEY CONTAIN IMPORTANT
INFORMATION ABOUT THE SPECIAL MEETING. The definitive proxy
statement will be mailed to stockholders who are entitled to vote
at the special meeting. Stockholders will also be able to obtain a
copy of the definitive proxy statement free of charge by directing
a request to the Company’s Vice President Finance, Chief Financial
Officer, Treasurer and Corporate Secretary. In addition, the
definitive proxy statement will be made available free of charge at
the SEC’s website, www.sec.gov.
Investor & Media Contact
Alpha IR GroupJoe Caminiti or Elizabeth
Steckel312-445-2870RAIL@alpha-ir.com
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