Business Context and Reporting Period
Company: iRhythm Technologies, Inc.
Filing Type: Form 8-K (Current Report)
Reporting Date: October 29, 2018 (Event Date: October 23, 2018)
Context: The Company entered into a new credit facility with Silicon Valley Bank to refinance existing debt and secure working capital.
Key Financial Metrics and Debt Structure
New Debt Facility (Silicon Valley Bank):
- Term Loan Facility: $35,000,000 principal outstanding as of filing date.
- Revolving Line of Credit: $25,000,000 availability (subject to borrowing base); $0 outstanding on closing date.
- Letter of Credit: $6,923,577.92 issued on October 24, 2018, to secure lease payments.
- Term Loan Interest Rate: Floating rate, greater of (Prime Rate - 0.75%) or 4.25%.
- Revolving Loan Interest Rate: Floating rate, greater of Prime Rate or 5.00%.
- Maturity Dates: Term Loan matures October 1, 2023; Revolving Line matures August 1, 2023.
- Principal Repayment: No principal payments required until November 1, 2020; followed by 36 equal monthly payments.
- Final Payment: $1,750,000 required upon maturity or termination.
Material Changes vs. Prior Period
Debt Refinancing:
- Terminated Agreement: Pharmakon Loan Agreement (dated December 4, 2015) terminated on October 24, 2018.
- Repayment Amounts: Total cash outflow to retire Pharmakon debt included:
- $33,140,615.49 principal (including accrued/capitalized interest).
- $209,897.84 accrued and unpaid interest.
- $1,500,000 additional consideration.
- $1,000,253.02 prepayment premium.
- Interest Rate Impact: Management expects the new floating interest rate to be significantly lower than the rate under the Pharmakon Loan Agreement.
Guidance, Risks, and Covenants
Covenants and Restrictions:
- Financial Covenants: Must maintain a minimum liquidity ratio or minimum adjusted EBITDA.
- Operational Covenants: Restrictions on asset disposal, change of control, mergers, incurring additional debt, paying dividends, and repurchasing equity.
- Collateral: Obligations secured by a lien on substantially all assets (excluding intellectual property).
Prepayment and Termination Fees:
- Prepayment Fee: 3.0% (Year 1), 2.0% (Year 2), or 1.0% (Year 3+). Waived if refinanced with Silicon Valley Bank and no default exists.
- Termination Fee: 1.0% of the Revolving Line.
- Anniversary Fee: 0.15% of the Revolving Line annually.
Risks: Events of default include non-payment, covenant violations, bankruptcy, and material adverse changes. Default may trigger acceleration of all obligations.
Investor Verification Checklist
- Verify the exact interest rate spread under the new Term Loan compared to the terminated Pharmakon agreement to quantify interest savings.
- Confirm the Company's current liquidity position and ability to meet the minimum liquidity ratio or adjusted EBITDA covenants.
- Review the "Final Payment" obligation of $1,750,000 and its impact on cash flow at maturity.
- Assess the utilization of the $25,000,000 Revolving Line and the impact of the $6.9M letter of credit on available borrowing capacity.
- Monitor for any waivers of prepayment fees if the Company seeks to refinance again before maturity.