Business Context and Reporting Period
This Form 8-K Current Report was filed by Savara Inc. (formerly Mast Therapeutics, Inc.) on April 27, 2017. The filing details significant changes to the Company's capital structure, including the amendment of an existing loan agreement, the entry into a new term loan facility, the issuance of warrants, and the establishment of an at-the-market equity offering program.
Key Financial Metrics and Agreements
- New Debt Facility: Entered into a $15.0 million term loan facility with Silicon Valley Bank (SVB) on April 28, 2017, to be advanced in two tranches of $7.5 million each.
- Debt Terms: Interest rate is the prime rate plus 4.25%. Maturity date is March 1, 2021. A final payment of 6.0% of the aggregate principal is required.
- Prepayment Penalties: 3.0% if prepaid within the first year, 2.0% in the second year, and 1.0% thereafter.
- Equity Warrants: Issued two warrants to SVB and its affiliate to purchase up to 24,725 shares each at an exercise price of $9.10 per share.
- Equity Offering: Established an "at-the-market" (ATM) offering program with H.C. Wainwright & Co., LLC to sell up to $18.0 million of common stock. The sales agent receives a 3.0% commission.
- Collateral: The SVB loan is secured by substantially all Company assets, excluding intellectual property.
Material Changes Versus Prior Period
- Termination of Prior Agreement: Terminated the existing Sales Agreement with Cowen and Company, LLC dated August 21, 2015.
- Refinancing: The new SVB Loan Agreement is contingent upon the payoff and termination of the existing Hercules Loan Agreement.
- Amendment of Existing Debt: Executed a Sixth Amendment to the Hercules Loan Agreement to permit specific investments in the subsidiary, Savara ApS.
- Administrative Change: The CUSIP number for the Company's common stock changed from 80511Q106 to 805111101.
Outlook, Risks, and Contingencies
- Covenants: The SVB agreement includes restrictive covenants limiting asset dispositions, change of control, mergers, acquisitions, and additional indebtedness.
- Events of Default: Includes payment defaults, covenant breaches, material adverse changes, bankruptcy, and cross-defaults. Default triggers an interest rate increase of 5.0% above the applicable rate.
- Use of Proceeds: Loan proceeds from the SVB facility are designated for general corporate purposes.
- Contingency: The effectiveness of the SVB Loan Agreement is subject to customary closing conditions, specifically the termination of the Hercules Loan Agreement.
Investor Verification Checklist
- Confirm the successful payoff and termination of the Hercules Loan Agreement to validate the closing of the SVB facility.
- Review the full text of the SVB Loan Agreement and Warrant Agreement, which are scheduled to be filed in the Form 10-Q for the period ended March 31, 2017.
- Monitor the Company's utilization of the $18.0 million ATM offering program and the associated 3.0% commission impact on net proceeds.
- Verify compliance with the new restrictive covenants regarding asset disposition and additional indebtedness.