Business Context and Reporting Period
CareDx, Inc. filed this Form 8-K on January 30, 2015, to report the entry into a new material definitive agreement and the termination of a prior agreement. The company is incorporated in Delaware and operates from Brisbane, California.
Key Financial Metrics and Debt Structure
- New Debt Facility: Entered into a Loan and Security Agreement with East West Bank for a secured term loan facility of up to $20.0 million.
- Initial Drawdown: Borrowed $16.0 million ("Draw A") on January 30, 2015.
- Optional Drawdown: May borrow an additional $4.0 million ("Draw B") between July 2015 and December 31, 2015, subject to revenue conditions.
- Interest Rate: Floating rate of 2.00% plus the greater of 3.25% or the prime rate.
- Repayment Terms: Principal payable in 36 equal monthly installments starting January 1, 2016. If revenue targets are met, repayment accelerates to 30 monthly installments starting July 1, 2016.
- Equity Component: Issued warrants to purchase 34,483 shares of common stock at an exercise price of $6.96 per share (1.5% of Draw A).
- Fees: Paid a $160,000 facility fee for Draw A; a $40,000 fee applies if Draw B is utilized.
- Collateral: Secured by substantially all assets, excluding intellectual property.
Material Changes Versus Prior Period
The company repaid in full all outstanding amounts under its previous Loan and Security Agreement dated August 15, 2012, with Oxford Finance LLC and Silicon Valley Bank. This new facility replaces the prior indebtedness.
Guidance, Covenants, and Risks
- Financial Covenants: The company must maintain net product revenues of at least 80% of board-approved projections on a trailing six-month basis. Additionally, expenses must not exceed 20% of board-approved projections on a trailing six-month basis.
- Use of Proceeds: Funds are designated for working capital and general corporate purposes.
- Restrictions: The agreement includes negative covenants limiting asset dispositions, mergers, acquisitions, additional debt, liens, dividends, and stock repurchases.
- Default Consequences: Events of default include payment failures, covenant breaches, and material adverse changes. Upon default, interest rates may increase by 5.0%, and the lender may declare all obligations immediately due.
Investor Verification Checklist
- Verify the company's ability to meet the 80% net product revenue target to avoid covenant breaches and accelerate repayment terms.
- Confirm the impact of the new debt service obligations on future cash flow projections.
- Review the dilution effect of the issued warrants (34,483 shares) and potential future warrants if Draw B is exercised.
- Assess the restrictions on corporate flexibility imposed by the negative covenants regarding acquisitions and additional debt.