Business Context and Reporting Period
Company: Lifecore Biomedical, Inc. (LFCR)
Filing Type: Form 8-K (Current Report)
Date of Report: May 22, 2023
Context: The Company entered into a series of material definitive agreements with Alcon Research, LLC ("Alcon") and BMO Harris Bank, N.A. ("BMO") to refinance existing debt, secure new term loans, amend revolving credit facilities, and execute equipment sale-leaseback transactions. These actions also coincide with an amended supply agreement for sodium hyaluronate.
Key Financial Metrics and Agreements
- Term Loan Facility: $140.0 million in term loans funded in full on May 22, 2023, maturing May 22, 2029.
- Interest Rate (Term Loan): Fixed at 10% per annum. Interest is payable-in-kind (PIK) for the first three years; thereafter, 3% is payable in cash with the remainder PIK.
- Revolving Credit Facility: Maximum availability reduced to the lesser of $40.0 million (less reserves) or the borrowing base (reduced by an additional $4.0 million).
- Amendment Fee: $1.2 million payable to BMO ($800,000 immediate, $400,000 deferred).
- Equipment Sale and Leaseback: Sale of $10.0 million of equipment to Alcon with a leaseback option to repurchase within 7 years or upon capacity expansion.
- Liquidity Covenant: Minimum Consolidated Liquidity of $4.0 million required at the end of each fiscal quarter.
Material Changes Versus Prior Period
- Debt Refinancing: The new Term Loan Credit Agreement fully refinanced and terminated the prior Credit and Guaranty Agreement dated December 31, 2020, with Goldman Sachs Specialty Lending Group, L.P.
- Credit Facility Restructuring: The Revolving Credit Agreement was amended to reduce the borrowing base and maximum availability, waive existing defaults, and implement cash dominion.
- Asset Restructuring: $10.0 million of production equipment was sold and leased back, altering the balance sheet composition regarding fixed assets and liabilities.
- Supplier Relationship: An Amended and Restated Supply Agreement with Alcon was executed, extending the term to December 31, 2033, with automatic two-year renewals.
Guidance, Risks, and Contingencies
- Prepayment Penalties: Upon a Change of Control, the Company may be required to repay the Term Loan plus the greater of 15% of borrowings or $20.0 million.
- Default Triggers: Uncured defaults under the Supply Agreement constitute an event of default under the Term Loan, potentially requiring repayment of 120% of all borrowings.
- Covenants: The Term Loan includes negative covenants limiting debt, liens, investments, and restricted payments. The Revolving Loan includes a springing minimum fixed charge coverage ratio of 1.00 to 1.00, not tested until the fiscal quarter ending February 28, 2024.
- Collateral: The Term Loan is secured by a first priority security interest in equipment, fixtures, real property, and intellectual property.
Investor Verification Checklist
- Verify the Company's ability to maintain the $4.0 million minimum liquidity covenant.
- Assess the impact of the 10% interest rate and PIK structure on future cash flow and effective debt burden.
- Review the terms of the Supply Agreement to understand the risks associated with the 120% repayment trigger upon supply default.
- Confirm the status of the $1.2 million amendment fee payment and its impact on immediate liquidity.
- Monitor the borrowing base calculations for the Revolving Credit Facility given the $4.0 million reduction.