Convertible debt

3 Months Ended

Mar. 31, 2024

Debt Disclosure [Abstract]

Convertible debt

Convertible debt

As at	March 31, 2024		December 31, 2023
KSP Convertible Notes (a)	$	103.0	$	99.1
Glencore Convertible Notes (b)	344.7		189.0
Total convertible debt at end of the period	$	447.7	$	288.1

The KSP Convertible Notes and the A&R Glencore Convertible Notes are all unsecured debt instruments and the Glencore Senior Secured Convertible Note is a secured debt instrument. The amount of maturities and sinking fund requirements for convertible debt instruments, with interest components rolled into principal, for each of the next five years are as follows:

March 31, 2025	$	—
March 31, 2026	—
March 31, 2027	163.4
March 31, 2028	314.5
March 31, 2029	130.9
Total	$	608.8

(a)KSP Convertible Notes

As at	March 31, 2024		December 31, 2023
Principal of convertible note at beginning of period	$	119.3	$	110.2
Issuance of convertible notes	—		9.1
Principal of convertible notes at end of the period	$	119.3	$	119.3
Conversion feature at beginning of period	$	—	$	6.0
Fair value (gain) loss on embedded derivative	0.1		(6.0)
Conversion feature at end of period	$	0.1	$	—
Debt component at beginning of the period	$	99.1	$	85.4
Debt component issued	—		9.1
Accrued interest paid in kind	—		(9.1)
Accrued interest expense	3.8		13.7
Debt component at end of period	$	102.9	$	99.1
Total KSP convertible debt at end of period	$	103.0	$	99.1

On September 29, 2021, the Company entered into a Note Purchase Agreement (the “KSP Note Purchase Agreement”) with Spring Creek Capital, LLC (an affiliate of Koch Strategic Platforms, LLC, being a subsidiary of Koch Investments Group) and issued an unsecured convertible note (the “KSP Convertible Note”) for a principal amount of $100 million to Spring Creek Capital, LLC. The KSP Convertible Note will mature on September 29, 2026, unless earlier repurchased, redeemed or converted. Interest on the KSP Convertible Note is payable semi-annually, and Li-Cycle is permitted to pay interest on the KSP Convertible Note in cash or by payment in-kind (“PIK”), at its election. Initially, interest payments made in cash were based on an interest rate of LIBOR plus 5.0% per year, and PIK interest payments were based on an interest rate of LIBOR plus 6.0% per year, with a LIBOR floor of 1% and a cap of 2%. Since July 1, 2023, as the LIBOR interest rate is no longer published, under the terms of the KSP Note Purchase Agreement, the interest rate is instead based on the sum of the Secured Overnight Financing Rate (“SOFR”) and the average spread between the SOFR and LIBOR during the three-month period ending on the date on which LIBOR ceases to be published, subject to a floor of 1% and cap of 2%. On March 25, 2024, the Company amended the KSP Note Purchase Agreement to modify the interest rate terms of the KSP Convertible Note, by removing the SOFR floor of 1% and cap of 2% and including penalty interest upon an event of default consistent with the penalty interest provision of the Glencore Senior Secured Convertible Note. The amendment was accounted for as a debt modification in accordance with ASC 470-50 - Debt Modifications or Extinguishments and no gain or loss was recognized. After the amendment, the effective interest rate of the KSP Convertible Note is 18.7%.

The PIK election results in the issuance of a new note under the same terms as the KSP Convertible Note, issued in lieu of interest payments with an issuance date on the applicable interest date. On May 1, 2022, Spring Creek Capital, LLC assigned the KSP Convertible Note and the PIK note outstanding at that time to an affiliate, Wood River Capital, LLC. The Company has elected to pay interest by PIK since the first interest payment date of December 31, 2021. The KSP Convertible Note and the PIK notes issued thereunder are referred to collectively as the “KSP Convertible Notes”, and as at March 31, 2024, comprised the following:

Note	Date Issued	Amount Issued
Initial KSP Note	September 29, 2021	$	100.0
PIK Note	December 31, 2021	1.8
PIK Note	June 30, 2022	4.1
PIK Note	December 31, 2022	4.3
PIK Note	June 30, 2023	4.4
PIK Note	December 31, 2023	4.7
Total		$	119.3

At the option of the holder, the KSP Convertible Notes may be converted into common shares of the Company at a conversion price of $13.43, subject to customary anti-dilutive adjustments. If the Company’s share price is equal to or greater than $17.46, for a period of twenty consecutive days, the Company can force conversion of the KSP Convertible Notes at an amount equal to the sum of principal, accrued but unpaid interest, plus any make-whole amount which equal to the undiscounted interest that would have been payable from the date of conversion to the maturity date. At the Company’s option at any time, the Company

can also redeem all of the KSP Convertible Notes at any time for a cash purchase price equal to 130% of the principal plus unpaid interest until maturity. The conversion feature under the KSP Convertible Notes has been recorded as a bifurcated embedded derivative liability since the conversion ratio does not always result in a conversion of a fixed dollar amount of liability for a fixed number of shares due to the optionality of the interest rate utilized on conversion at the Company’s option. The KSP Convertible Notes are also subject to redemption upon a change of control event or an event of default. Under an event of default, redemption happens upon occurrence of an event at the holder’s discretion. Under a change of control event, mandatory redemption happens upon occurrence of an event. Both the change of control and event of default options under the KSP Convertible Notes have been recorded as bifurcated embedded derivative liabilities as the redemption price triggered by these features represents a substantial premium over the principal amount. The bifurcated embedded derivatives are measured at fair value bundled together as a single compound embedded derivative. As at March 31, 2024, no conversions or redemptions had taken place.

The fair value of the compound embedded derivative upon issuance of the KSP Convertible Notes was determined to be a liability of $27.7 million whereas the remaining $72.3 million, net of transaction costs of $1.6 million, was allocated to the principal portion of the debt. During the three months ended March 31, 2024, the Company recognized a fair value loss of $0.1 million on the embedded derivatives (for the three months ended March 31, 2023: loss of $0.2 million). The embedded derivatives were valued using the Binomial Option Pricing Model. The assumptions used in the model were as follows:

	(Issuance date) September 29, 2021	December 31, 2023	March 31, 2024
Risk free interest rate	1.1%	4.2%	4.7%
Expected life of options	5.0 years	3.8 years	2.5 years
Expected dividend yield	0.0%	0.0%	0.0%
Expected stock price volatility	66%	63%	71%
Share Price	$12.56	$4.76	$1.03

Expected volatility was determined by calculating the average implied volatility of a group of listed entities that are considered similar in nature to the Company.

(b)Glencore Convertible Notes

As at	March 31, 2024		December 31, 2023
Principal of convertible note at beginning of period	$	225.3	$	208.1
Issuance of convertible notes	75.0		17.2
Principal of convertible note at end of period	$	300.3	$	225.3
Conversion feature at beginning of period	$	0.4	$	16.5
Change in the period:
Fair value gain for the year ended December 31, 2023	—		(16.1)
Fair value loss on the conversion features embedded in the A&R Glencore Convertible Notes from January 1, 2024 to March 25, 2024	1.8		—
Extinguishment of the conversion feature embedded in the A&R Glencore Convertible Notes as part of the modification	(2.2)		—
Issuance of conversion feature embedded in Glencore Senior Secured Convertible Note	59.0		—
Issuance of the conversion feature embedded in the A&R Glencore Convertible Notes as part of the modification	99.2		—
Fair value loss on the conversion features from March 26, 2024 to March 31, 2024	21.9		—
Conversion feature at end of period	$	180.1	$	0.4
Debt component at beginning of period	$	188.6	$	164.9
Change in the period:
Issuance of debt component	—		17.2
Accrued interest paid in kind	—		(17.2)
Accrued interest expense for the year ended December 31, 2023	—		23.7
Accrued interest and accretion expense from January 1, 2024 to March 25, 2024	5.9		—
Extinguishment of the debt component related to A&R Glencore Convertible Notes as part of the modification	(194.5)		—
Issuance of debt component of the Glencore Senior Secured Convertible Note	48.0		—
Issuance of the debt component of the A&R Glencore Convertible Notes as part of the modification	124.4
Transaction costs	(8.4)		—
Accrued interest expense from March 26, 2024 to March 31, 2024	0.6		—
Debt component at end of period	$	164.6	$	188.6
Total Glencore convertible debt at end of period	$	344.7	$	189.0
Reconciliation of net change in Convertible debt to Debt extinguishment loss in the three months ended March 31, 2024
Extinguishment of the conversion feature embedded in the A&R Glencore Convertible Notes as part of the modification	$	(2.2)
Issuance of conversion feature embedded in Glencore Senior Secured Convertible Note	59.0
Issuance of the conversion feature embedded in the A&R Glencore Convertible Notes as part of the modification	99.2
Total change in the conversion features	156.0
Extinguishment of the debt component related to A&R Glencore Convertible Notes as part of the modification	(194.5)
Issuance of debt component of the Glencore Senior Secured Convertible Note	48.0
Issuance of the debt component of the A&R Glencore Convertible Notes as part of the modification	124.4
Total change in the debt components	(22.1)
Total net change in convertible debt in the three months ended March 31, 2024	133.9
Proceeds from convertible debt	(75.0)
Debt extinguishment loss	$	58.9

On May 31, 2022, the Company issued an unsecured convertible note (the “Glencore Unsecured Convertible Note”) for a principal amount of $200 million to Glencore Ltd., a subsidiary of Glencore plc (LON: GLEN). The Glencore Unsecured Convertible Note will mature on May 31, 2027 unless there is an earlier repurchase, redemption or conversion. Interest on the

Glencore Unsecured Convertible Note is payable semi-annually, with Li-Cycle permitted to pay interest on the Glencore Unsecured Convertible Note in cash or by payment in-kind (“PIK”), at its election. Interest payments made in cash are based on an interest rate of the SOFR for a tenor comparable to the relevant interest payment period plus 0.42826% (the “Floating Rate”) plus 5% per annum if interest is paid in cash and plus 6% per annum if interest is paid in PIK. The Floating Rate has a floor of 1% and a cap of 2%. The PIK election results in the issuance of a new note under the same terms as the initial Glencore Unsecured Convertible Note, issued in lieu of interest payments with an issuance date on the applicable interest date. The effective interest rate of the Glencore Unsecured Convertible Note is 13.5%.

On March 25, 2024, the Company amended, restated and consolidated, the Glencore Unsecured Convertible Note and the PIK notes issued thereunder, such that they were split into two tranches and certain terms of the Glencore Unsecured Convertible Note and the PIK notes issued thereunder were amended, effective from the occurrence of: (a) for the first tranche (the “First A&R Convertible Note”), the earliest of the date that is one month after the effectiveness and initial funding, if any, of a project loan financing for the Rochester Hub, and December 31, 2024, and (b) for the second tranche (the “Second A&R Convertible Note” and together with the First A&R Convertible Note, the “A&R Glencore Convertible Notes”), the earliest of (i) the first commercial production from the Rochester Hub, (ii) construction costs exceeding the construction budget set forth in the project loan financing, and (iii) June 1, 2026 (each such date in the case of the foregoing clauses (a) and (b), an applicable “Modification Date”). Upon the occurrence of the applicable Modification Date, the terms of the applicable A&R Convertible Note shall automatically be modified to be consistent with the corresponding provisions of the Glencore Senior Secured Convertible Note (as defined and described below): the maturity will be amended to be five (5) years from the applicable Modification Date, the interest rate will be amended to match the interest rate applicable to the Glencore Senior Secured Convertible Note, mandatory redemption will be required (including, from the applicable Modification Date, the amount equal to a specified percentage of the excess cash flow generated by the Company and its subsidiaries for the applicable fiscal year (less certain deductions and subject to pro rata application to certain other debt of the Company) in a pro rata amount across the A&R Glencore Convertible Notes (to the extent the applicable Modification Date with respect thereto has occurred) and the Glencore Senior Secured Convertible Note), and the Company will provide guarantees and pari passu security for the A&R Glencore Convertible Notes on substantially the same terms with the Glencore Senior Secured Convertible Note. In addition, at each Modification Date, the conversion price for the applicable A&R Glencore Convertible Notes will be adjusted to be the lesser of (x) an amount determined on the basis of a 30-Day VWAP (volume weighted average trading price) having a reference date equal to the applicable Modification Date plus a 25% premium per share, and (y) $9.95 per share. The amendment was accounted for as a debt extinguishment in accordance with ASC 470-50 - Debt Modifications or Extinguishments and the Company recorded $58.9 million as a debt extinguishment loss presented in the unaudited condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2024. After the amendment, the effective interest rate of the A&R Glencore Convertible Notes and Glencore Senior Secured Convertible Note is 20.6%.

On March 25, 2024, the Company issued a senior secured convertible note (the “Glencore Senior Secured Convertible Note”) for an aggregate principal amount of $75 million to Glencore Canada Corporation, a subsidiary of Glencore plc (LON: GLEN). The Glencore Senior Secured Convertible Note will mature on March 25, 2029, unless there is an earlier repurchase, redemption or conversion. Interest on the Glencore Senior Secured Convertible Note is payable semi-annually, with Li-Cycle permitted to pay interest on the Glencore Senior Secured Convertible Note in cash or by PIK, at its election. Interest payments made in cash are based on an interest rate of the SOFR for a tenor comparable to the relevant interest payment period plus 5% per annum if interest is paid in cash or plus 6% per annum if interest is paid in PIK. In the case that an event of default has occurred and is continuing, the interest rate will be the rate stated above, plus one percent (1%) per annum (which additional 1% will be payable in cash). The PIK election results in the capitalization of the interest by adding such interest amounts to the aggregate outstanding principal balance of the Glencore Senior Secured Convertible Note then outstanding on the applicable Interest Date.

All obligations of the Company with respect to the Glencore Senior Secured Convertible Note are guaranteed by Li-Cycle Corp., Li-Cycle Americas Corp., Li-Cycle U.S. Inc., Li-Cycle Inc., and Li-Cycle North America Hub, Inc (the “Issuance Date Note Guarantors”), each a subsidiary of the Company. Li-Cycle Europe AG and Li-Cycle Germany GmbH (the “Post-Closing Guarantors” and together with the Issuance Date Guarantors, collectively the “Note Guarantors”), both subsidiaries of the Company, are required to guaranty all obligations of the Company with respect to the Glencore Senior Secured Convertible Note as Note Guarantors within a certain time period following the issuance of the Glencore Senior Secured Convertible Note. The Company and the Issuance Date Note Guarantors have also granted perfected, first priority security interests (subject to customary exceptions and permitted liens) in all of their respective assets, including intellectual property and a pledge of the equity interests of each other Note Guarantor to secure the obligations of the Company with respect to the Glencore Senior Secured Convertible Note. Within a certain time period following the issuance of the Glencore Senior Secured Convertible Note, the Post-Closing Guarantors are required to grant a perfected, first priority security interest (subject to customary exceptions and permitted liens) in all intra-group receivables owing to them and over all bank accounts held by such entities in their respective jurisdictions of organization and Li-Cycle Europe AG is require to further pledge its equity interests in Li-Cycle Germany GmbH to secure the obligations of the Company with respect to the Glencore Senior Secured Convertible Note.

The Company has elected to pay interest by PIK since the first interest payment on the Glencore Unsecured Convertible Note on November 30, 2022. The First A&R Glencore Note, the Second A&R Glencore Note and the Glencore Senior Secured Convertible Note are referred to collectively as the “Glencore Convertible Notes”, and as at March 31, 2024, comprised the following:

Note	Date Issued	Amount Issued
First A&R Glencore Note	March 25, 2024	$	116.6
Second A&R Glencore Note	March 25, 2024	114.6
Glencore Senior Secured Convertible Note	March 25, 2024	75.0
Total		306.2

At the option of the holder, the A&R Glencore Convertible Notes may be converted into common shares of the Company at a conversion price which shall be adjusted to be the lesser of (x) an amount determined on the basis of a 30-Day VWAP (volume weighted average trading price) having a reference date equal to applicable Modification Date plus a 25% premium, and (y) $9.95 per share (the current conversion price of the A&R Glencore Convertible Notes), subject to customary anti-dilutive adjustments. At the option of the holder, the Glencore Senior Secured Convertible Note may be converted into common shares of the Company at a conversion price of $0.53 per share. The conversion feature under the Glencore Convertible Notes has been recorded as an embedded derivative liability as the conversion ratio does not always result in a conversion of a fixed dollar amount of liability for a fixed number of shares due to the optionality of the interest rate utilized on conversion at the Company’s option. The A&R Glencore Convertible Notes are also subject to redemption upon a change of control event or an event of default. Under an event of default, redemption happens upon occurrence of an event at the holder’s discretion. Under a change of control event, mandatory redemption happens upon occurrence of an event. The Glencore Senior Secured Convertible Note is subject to redemption at any time by payment of the required redemption payment. Commencing with the delivery of the financial statements for the fiscal year ending December 31, 2026, the Company will be required to redeem a portion of the outstanding principal amount of the Glencore Senior Secured Convertible Note in an amount equal to a specified percentage of the excess cash flow generated by the Company and its subsidiaries for the applicable fiscal year (less certain deductions and subject to pro rata application to certain other debt of the Company). The Company is also required to redeem the Glencore Senior Secured Convertible Note in the event of certain continuing events of default upon request by the holder, certain bankruptcy-related events of default and upon a change of control transaction, unless in each case, the Glencore Senior Secured Convertible Note is first converted by the holder. The change of control, event of default, and mandatory redemption provisions under the Glencore Convertible Notes have been recorded as bifurcated embedded derivative liabilities. The bifurcated embedded derivatives are measured at fair value bundled together as a single compound embedded derivative. As at March 31, 2024, no conversion or redemption had taken place.

In connection with any optional redemption, and with respect to the Glencore Senior Secured Convertible Note and A&R Glencore Convertible Notes, any mandatory redemption and provided that the applicable holder has not elected to convert the Glencore Convertible Notes into common shares, the Company must issue warrants (the “Glencore Warrants”) to the applicable holder on the optional redemption date or receipt of notice of redemption, as applicable, that entitle the holder to acquire, until the end of the applicable exercise period, a number of common shares equal to the principal amount of the Glencore Convertible Notes being redeemed divided by the then applicable conversion price. The initial exercise price of the Glencore Warrants will be equal to the conversion price as of the applicable redemption date.

The fair value of the embedded derivative liability upon issuance of the Glencore Convertible Notes was determined to be $46.2 million with the remaining $153.8 million, net of transaction costs of $1.3 million, allocated to the initial amortized cost of the host debt instrument. During the three months ended March 31, 2024, the Company recognized a fair value loss of $21.9 million on the embedded derivatives (three months ended March 31, 2023: loss of $0.5 million). The embedded derivatives were valued using the Finite Difference Method. The assumptions used in the model were as follows:

	(Issuance date) May 31, 2022	December 31, 2023	March 31, 2024
Risk free interest rate	2.9%	4.2%	4.1% to 5.3%
Expected life of options	5.0 years	4.4 years	5.0 to 7.2 years
Expected dividend yield	0.0%	0.0%	0.0%
Expected stock price volatility	68%	63%	71%
Share Price	$8.15	$4.76	$1.03

Expected volatility was determined by calculating the average implied volatility of a group of listed entities that are considered similar in nature to the Company.