What: Shares of fuel cell company Plug Power Inc (NASDAQ:PLUG) dropped 10% on Monday after the company announced terms of a new loan.
So what: Generate Lending is providing a $30 million secured term loan facility that will have an interest rate of 12% and a term of one year -- $12.5 million is available immediately and the rest will be available if certain conditions are met or under the lender's discretion.
The interest rate is incredibly high given the low interest rate environment in general. There's also an increase in the interest rate to 14% in the case of default.
Now what: Plug Power's management says it will be able to reach breakeven by the end of 2016, but that will require more capital to increase production as well as reducing costs. The loan may be necessary to reach these goals, but it also comes at a very high price. Investors should keep an eye on how results are progressing on March 10, when fourth-quarter financials are released. Moving closer to cash flow breakeven could make this loan a costly but temporary move with lower-cost financing on the horizon. But continued losses and greater financing needs could be devastating for the company long term.