Tecogen’s New Line of Credit Accelerates Expansion and Growth

Late February 2018, Tecogen Inc. (NASDAQ: TGEN – $3.36 & Fra: 2T1 – €2.59) signed a term sheet with a commercial lender regarding a credit facility that would permit the Company to borrow up to $10 million.

The Company has now finalized this revolving line of credit agreement with Webster Business Credit Corporation. The funds borrowed are available based on Tecogen’s accounts receivables, raw materials, and finished goods, and are payable on the third anniversary of the closing date of the agreement.

The line of credit has an interest rate of LIBOR plus 3.00%. Consequently, at today’s LIBOR rate, the Company pays a little less than 5.00% interest on its borrowings.

Webster Business Credit provides asset based financing for middle market businesses based in the United States. It typically enables access to liquidity and capital needs based borrowers’ receivables, inventory, machinery, equipment, and real estate. Webster Business Credit is one of the top 25 lenders in this industry in the United States.

The credit facility was immediately used to pay back a note, due to a related party, in the amount of $850,000, plus the accrued interest. This was the final debt that Tecogen had outstanding. Note that as a result of the Company’s financial success, it was able to retire a convertible note to Michaelson Capital Special Fund LP of $3,150,000 plus interest in the previous quarter.

In the coming months and quarters however, the $10 million line of credit will also be used to further increase the growth that Tecogen is experiencing. Part of this growth is driven by Tecogen’s ability to build and ship equipment, such as CHPs and chillers, quickly. So having enough finished machinery in inventory to turn over orders quickly is key!

In addition, the funds offer the Company the possibility to take on larger orders. Especially public projects were difficult for Tecogen to participate in, as they required posting a surety bond. These bonds secure the contractor’s promise to perform the contract in accordance with its terms and conditions, at the agreed upon price, and within the time allowed. Tecogen, however, didn’t have the financial means to post these bonds, which often run into the millions of dollars. Now, thanks to the line of credit, the Company does have the ability to participate in the bidding process for these large projects.

Moreover, the revolving credit also gives Tecogen enough financial flexibility to move full steam ahead with its development of the Ultera for the automotive and fork truck markets.

Patent For Ultera Emissions Technology

In other news, Tecogen was notified that the European Patent Office intents to grant a patent for the Company’s Ultera emissions technology. This patent will give Tecogen exclusive control over the Ultera technology in Europe when it files for national protection in countries such as the United Kingdom, Ireland, France, and Germany.

Obtaining patent protection in Europe for Ultera is a critical milestone for Tecogen as the Company continues to move forward with its emissions control technology. In recent quarters, the Company was able to demonstrate significant emissions reductions in stationary engines, gasoline powered vehicles, and fork trucks thanks to the use of the Ultera.

Next to Europe, Tecogen has also filed for, or been granted, patents for this technology in Australia, Brazil, Canada, China, Costa Rica, Dominican Republic, India, Japan, Mexico, New Zealand, Republic of Korea, Singapore, and South Africa.

Conclusion

The outlook for Tecogen has never been more promising. The core business of selling, installing and servicing cogeneration and chiller systems is profitable, scalable and provides a fundamental revenue and profit stream.

In addition, its Ultera emissions technology, whether it’s upgrading existing stationary engine systems, retrofitting fork trucks to reach near zero emissions, or improving gasoline vehicle emissions, promises tremendous upside for the Company.

Finally, the $10 million line of credit allows the Company to take on larger projects, expand into new markets, and increase its efforts in developing the Ultera emissions control technology for both fork truck and automobile applications. Recommendation: BUY.

Smallcaps.us Advice: BuyPrice Target: $9.41Latest Company Report (pdf)
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