Business Context and Reporting Period
Coherus BioSciences, Inc. (CHRS) filed a Current Report on Form 8-K dated January 5, 2022. The filing details the entry into a new senior secured term loan facility and the simultaneous termination of a prior credit agreement to restructure the company's debt obligations.
Key Financial Metrics and Debt Structure
- New Debt Facility: A senior secured term loan facility of up to $400.0 million, inclusive of a $100.0 million uncommitted additional facility.
- Tranche A Funding: $100.0 million funded on January 5, 2022.
- Tranche B Funding: $100.0 million committed, to be funded by April 1, 2022, contingent on repayment of 8.2% Senior Convertible Notes due March 2022.
- Tranche C & D Funding: $50.0 million each, available at the company's option between April 1, 2022, and March 17, 2023, contingent on FDA approvals for product candidates CHS-007 and CHS-201.
- Interest Rate: 8.25% plus three-month LIBOR (with a 1.00% LIBOR floor).
- Maturity Date: Fifth anniversary of the Tranche A Closing Date (January 5, 2027), or October 15, 2025, if specific convertible note conditions are met.
- Repayment Terms: Principal repayment begins after the 48-month anniversary of the Tranche A Closing Date in five equal quarterly payments.
- Costs: 2.00% funding fee on total committed amounts; prepayment fees range from 1.00% to 3.00% depending on timing, plus a "make-whole" amount for early prepayment.
- Debt Repaid: $81.9 million outstanding under the Prior Loan Agreement was fully prepaid.
Material Changes Versus Prior Period
The company replaced its existing Credit Agreement dated January 7, 2019, which had a maturity date of January 7, 2025, with a new facility extending the maturity horizon to 2027 (subject to conditions). The new agreement increases the total potential borrowing capacity from the prior outstanding balance of $81.9 million to up to $400.0 million. The new facility introduces specific revenue covenants requiring minimum trailing twelve-month net sales starting at $200 million, increasing to $210 million by March 30, 2024, and up to $300 million by December 31, 2024.
Guidance, Risks, and Covenants
- Use of Proceeds: Tranche A proceeds were used to repay the Prior Loan Agreement. Tranche B proceeds are designated to repay, repurchase, or redeem the 8.2% Convertible Senior Subordinated Notes due 2022. Remaining proceeds are for general corporate and working capital requirements.
- Collateral: The loan is secured by a lien on substantially all tangible and intangible assets, including intellectual property.
- Covenants: The agreement includes negative covenants restricting additional indebtedness, liens, investments, mergers, asset sales, and dividend declarations. It also includes affirmative covenants regarding minimum net sales.
- Events of Default: Includes failure to make payments, bankruptcy, insolvency, or covenant breaches, which may trigger acceleration of obligations.
- Change of Control: Triggers mandatory prepayment of Term Loans within ten business days.
Investor Verification Checklist
- Verify the company's ability to meet the minimum trailing twelve-month net sales covenants ($200M - $300M) to avoid default.
- Confirm the status of the 8.2% Senior Convertible Notes due March 2022, as Tranche B funding is contingent on their repayment.
- Monitor FDA approval timelines for CHS-007 (toripalimab) and CHS-201 (ranibizumab biosimilar), as these are conditions for Tranche C and D funding.
- Assess the impact of the 8.25% + LIBOR interest rate and prepayment fees on future cash flow projections.
- Review the full text of the Loan Agreement (Exhibit 10.1) for detailed definitions of "Change of Control" and specific restrictions on capital stock repurchases.