Business Context and Reporting Period
This Form 8-K Current Report was filed by Cinedigm Corp. on April 23, 2015, with the earliest event reported on that date. The filing details a significant capital raise and debt restructuring executed in late April 2015. The company is incorporated in Delaware and operates with principal executive offices in New York.
Key Financial Metrics and Capital Structure
- Convertible Notes Offering: The Company consummated a private offering of $64,000,000 aggregate principal amount of 5.5% Convertible Senior Notes due 2035.
- Interest Rate: Notes bear interest semi-annually at an annual rate of 5.5%, commencing October 15, 2015.
- Conversion Terms: Initial conversion rate is 824.5723 shares of Class A common stock per $1,000 principal amount of Notes.
- Forward Stock Purchase Transaction: The Company agreed to purchase 11,791,384 shares of its Class A common stock for settlement on or about the fifth anniversary of the Notes issuance. Approximately $11.4 million of offering proceeds were used to fund this transaction.
- Stock Repurchase: The Company intends to use approximately $2.6 million of proceeds to repurchase 2,721,100 shares of Class A common stock from certain note purchasers.
- Credit Facility Amendment: Approximately $18.2 million of proceeds were used to repay the term loan under the Company's credit agreement. The revolving loan term was extended to March 31, 2018.
- Liquidity Covenant: The amended credit agreement includes a $5.0 million minimum liquidity covenant.
Material Changes Versus Prior Period
The filing represents a material change in the Company's capital structure and debt obligations:
- Debt Issuance: Addition of $64 million in senior unsecured convertible debt.
- Debt Repayment: Full repayment of the existing term loan under the credit facility using offering proceeds.
- Covenant Changes: Replacement of all previous financial covenants with a single debt service coverage ratio test (commencing June 30, 2016) and a minimum liquidity covenant.
- Collateral Release: Release of equity interests in subsidiaries that were previously pledged as collateral under the credit agreement.
- Interest Rate Adjustment: Revolving loans now bear interest at Base Rate + 3% or LIBOR + 4%, with a 1% floor.
Guidance, Outlook, and Risks
Management Commentary and Outlook: The Company utilized the proceeds to refinance existing debt, fund a forward stock purchase transaction to facilitate hedging for note holders, and repurchase shares. The forward transaction is expected to facilitate privately negotiated derivative transactions between the forward counterparty and note holders.
Risks and Contingencies:
- Conversion Risk: The Notes are convertible at the holder's option prior to maturity, subject to anti-dilution adjustments for stock splits and distributions, but not for future issuances of securities.
- Redemption and Repurchase: The Company may not redeem Notes prior to April 20, 2018. Holders have the option to require repurchase on April 20, 2020, 2025, and 2030, or upon a fundamental change.
- Default Provisions: Events of default may result in the immediate acceleration of principal and accrued interest. However, for certain reporting covenant failures, the sole remedy for up to 90 days is the right to receive additional interest.
- Lock-up: The Company agreed not to offer or sell Class A common stock (or convertible securities) for 90 days following the offering without the Initial Purchaser's consent.
Important Facts for Investor Verification
- Verify the exact closing date of the $64 million convertible notes offering (April 29, 2015) and the receipt of proceeds.
- Confirm the settlement terms and accounting treatment of the Forward Stock Purchase Transaction involving 11,791,384 shares.
- Review the amended Credit Agreement to understand the new debt service coverage ratio test and the $5.0 million minimum liquidity requirement.
- Monitor the Company's ability to meet the 130% conversion price threshold required for the Company to redeem the Notes after April 20, 2018.
- Check for any subsequent filings regarding the release of collateral and the status of the repurchased shares.