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Note 14 – Borrowings
On May 14, 2024 (the “Closing Date”), we entered into a Loan and Security Agreement (the “Loan Agreement”), with several banks and other financial institutions or entities and Hercules Capital, Inc. (“Hercules Capital”), for a term loan facility of up to $125.0 million (the “Term Loan”), consisting of a term loan advance in the aggregate principal amount equal to $25.0 million on the Closing Date (the “Tranche 1 Advance”), and three further term loan advances available to the Company subject to certain terms and conditions in aggregate principal amounts of $25.0 million, $5.0 million and $30.0 million, respectively, and a term loan advance available in the sole discretion of the lenders and subject to certain terms and conditions in the aggregate principal amount of $40.0 million. The proceeds of the Term Loan will be used solely to repay related fees and expenses in connection with the Loan Agreement and for working capital and general corporate purposes.
The Term Loan attracts interest on the outstanding principal in the form of both cash and payment-in-kind (“PIK”) interest. The cash interest rate is the of the plus 1.15% and 9.65% and is paid monthly in arrears. The PIK interest rate is 2% per annum. The outstanding principal used to determine both the cash and PIK interest is inclusive of capitalized PIK interest. The Term Loan also attracts an End of Term Charge of 5.85% payable on maturity which is based on the aggregate original principal amount (i.e. excluding capitalized PIK interest).
The Term Loan matures on June 1, 2029 and payments are interest-only until the June 1, 2027 (the “Amortization Date”) after which the monthly payments include repayments of both principal and interest. The Amortization Date can be extended if certain criteria are met and the Company chooses to extend the date. The final Term Loan Maturity Date cannot be extended.
The Term Loan is secured by a lien on substantially all of Borrower’s existing or after-acquired assets, including intellectual property, subject to customary exceptions. In addition, the Loan Agreement contains customary closing and commitment fees, prepayment fees and provisions, events of default and representations, warranties and affirmative and negative covenants, including a financial covenant requiring the Company to maintain certain levels of cash in accounts subject to a control agreement in favor of Hercules Capital (the “Qualified Cash”) during the period commencing on January 1, 2025 (which initial commencement date is subject to adjustment if certain performance milestones are met) and at all times thereafter, provided that if the Company has achieved certain performance milestones, the amount of Qualified Cash is subject to certain reductions. The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants following any applicable cure period, the occurrence of certain events that could reasonably be expected to have a “material adverse effect” as set forth in the Loan Agreement, cross acceleration to third-party indebtedness and certain events relating to bankruptcy or insolvency. Each loan tranche has been identified as a separate unit of account within the scope of ASC 835-30 Imputation of interest, with the Tranche 1 Advance constituting a debt instrument and the remaining tranches being loan commitments.
On May 14, 2024, the Company drew down the Tranche 1 Advance of $25,000,000 and received proceeds of $24,500,000 after charges payable to Hercules Capital. The Tranche 1 Advance was initially recognized at $24,750,000. On August 13, 2024, the Company drew down the Tranche 2 Advance of $25,000,000 (the “Tranche 2 Advance,” and, together with the Tranche 1 Advance, “Tranches” and each a “Tranche”) and received proceeds of $25,000,000. The Tranche 2 Advance was initially recognized at $24,750,000. At September 30, 2024 the face value of the outstanding principal (including capitalized PIK interest) on the Term Loan (including both Tranches) was $50,263,000, less unamortized discount of $485,000 and plus accreted value of the End of Term Charge of $87,000 based on the imputed interest rate of 13.7%. No qualifying debt issuance costs were incurred in relation to either Tranche.
At September 30, 2024, the fair value of the Term Loan is a Level 2 measurement considered to approximate its book value of $50.3 million due to the short period of time since the Term Loan was entered into and the interest rates upon which the terms of the Term Loan were based, notably the Prime Rate, have not changed significantly since the Tranches were drawn.
The aggregate maturity of the term loan for the next five years from September 30, 2024 is as follows:
The payments included in the table include capitalized PIK interest, as this forms part of the principal balance to be repaid once incurred. Payments relating to cash interest and the End of Term Charge are excluded as they do not constitute repayments of the principal. |
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