Business Context and Reporting Period
This Form 8-K Current Report was filed by Alphatec Holdings, Inc. on November 6, 2018, with the report date of November 8, 2018. The filing primarily addresses the entry into a new material definitive credit agreement and the termination of a prior credit agreement. Additionally, the company references its financial results for the quarter ended September 30, 2018, which were announced via a press release on November 8, 2018.
Key Financial Metrics and Capital Structure
- New Term Loan: Entered into a $35.0 million secured term loan with Squadron Medical Finance Solutions LLC.
- Interest Rate: LIBOR + 8% per annum (approximately 10.3% at the time of filing).
- Repayment Terms: Interest-only payments through April 2021; principal payments of $10 million in 29 equal monthly installments beginning June 2021; a $25 million balloon payment due at maturity on November 6, 2023.
- Debt Repayment: Repaid in full the outstanding balance under the Globus Medical, Inc. Credit Agreement with a final payment of $29.2 million (principal and accrued interest).
- Existing Revolving Facility: Maintains a facility with MidCap Funding IV allowing up to $22.5 million based on eligible accounts receivable.
- Equity Issuance: Issued a warrant to purchase up to 845,000 shares of common stock at an exercise price of $3.15 per share.
Material Changes Versus Prior Period
The most significant material change is the restructuring of the company's debt profile. The company replaced its credit facility with Globus Medical, Inc. with a new term loan from Squadron Medical Finance Solutions LLC. This transaction increased the company's secured term debt obligations while simultaneously extinguishing the prior debt obligation of $29.2 million. Additionally, the company amended its existing MidCap Facility to extend the effectiveness of financial covenants from April 2019 to April 2020 and extended the minimum liquidity covenant through March 2020.
Guidance, Outlook, Risks, and Unusual Items
- Covenants: The new Credit Agreement includes a minimum liquidity covenant through March 2020 and a fixed charge covenant ratio starting April 2020. It also restricts the company's ability to incur additional debt, make investments, or pay dividends without consent.
- Collateral: The new loan is secured by a first lien on substantially all assets (excluding accounts receivable, which secure the MidCap Facility on a first lien basis). The Term Loan holds a second lien position on accounts receivable.
- Board Observer Rights: Squadron has the right to designate a non-voting observer to attend Board of Directors meetings for the duration of the unpaid obligations.
- Warrant Terms: The warrant issued to Squadron is immediately exercisable with a seven-year term and includes price-based weighted average anti-dilution adjustments.
- Events of Default: Include payment defaults, covenant breaches, bankruptcy, and a change of control. A default under the MidCap Facility also triggers a default under the new Credit Agreement.
- Financial Results: The filing references a press release for the quarter ended September 30, 2018, but does not contain specific revenue, profit, or cash flow figures within the text of this 8-K.
Investor Verification Checklist
- Verify the exact amount of cash proceeds received from the $35.0 million Squadron Term Loan after accounting for any fees or discounts.
- Review the attached press release (Exhibit 99.1) for specific Q3 2018 revenue, net income, and cash flow figures, as they are not detailed in this filing.
- Confirm the current status of the company's liquidity to ensure compliance with the minimum liquidity covenant required through March 2020.
- Assess the impact of the 10.3% interest rate on future interest expense and EBITDA.
- Monitor the potential dilution impact of the 845,000 warrant shares if exercised at the $3.15 strike price.