Caredx, Inc. current report, 01 March 2018

Business Context and Reporting Period

CareDx, Inc. filed a Form 8-K on March 1, 2018, reporting the entry into a material definitive agreement and the notification of intent to prepay existing debt. The company is an emerging growth company incorporated in Delaware.

Key Financial Metrics and Agreements

  • New Financing: Entered into a commitment letter for a term loan facility of up to $35.0 million with Perceptive Credit Holdings II, LP.
  • Loan Structure:
    • Tranche A: $15.0 million or $25.0 million (at Company's election) available upon closing.
    • Tranche B: Up to $10.0 million available within one year of closing, contingent on achieving specific product revenue targets.
    • Maturity: Five years from the closing date.
    • Interest: Variable LIBOR-based rate; interest-only payments until the third anniversary, followed by principal and interest.
    • Default Rate: Additional 3.00% interest upon default.
  • Collateral: Secured by substantially all company assets and a pledge of 65% of the equity interests of CareDx International AB.
  • Debt Repayment: Notified JGB Collateral LLC of intent to prepay outstanding 9.5% OID Senior Secured Debentures in full on April 13, 2018.
  • Prepayment Terms: Repayment includes full principal, accrued interest, and an 8% prepayment premium.

Material Changes

The filing represents a significant shift in the company's capital structure. The company is replacing existing high-cost debt (9.5% OID debentures) with a new term loan facility. The new facility introduces performance-based conditions for the second tranche of funding and extends the maturity timeline to five years, compared to the 2020 maturity of the debentures being retired.

Outlook, Risks, and Contingencies

  • Use of Proceeds: Funds will be used for general corporate purposes and to repay indebtedness to JGB, FastPartner AB, Mohammed Al Amoudi, and Danske Bank A/S.
  • Conditions Precedent: The new loan is subject to customary conditions, including the absence of a material adverse effect and the execution of definitive documentation.
  • Expiration: The commitment letter expires on April 15, 2018, if the closing does not occur by that date.
  • Costs: The company must reimburse fees and expenses and issue a warrant to purchase common stock to the lender.
  • Revenue Targets: Access to the second tranche ($10.0 million) is contingent on meeting specific product revenue targets within one year of the first tranche funding.

Investor Verification Checklist

  • Verify the execution of definitive loan documentation before the April 15, 2018 expiration of the commitment letter.
  • Confirm the specific product revenue targets required to unlock the $10.0 million Tranche B funding.
  • Review the definitive loan agreement for specific financial covenants and the exact terms of the warrant issuance.
  • Monitor the successful prepayment of the JGB debentures on April 13, 2018, including the 8% premium payment.
  • Assess the impact of the new LIBOR-based variable interest rate on future interest expense compared to the fixed 9.5% OID rate.