Business Context and Reporting Period
This Form 8-K Current Report, dated April 7, 2020, covers events occurring on April 1, 2020, and April 6, 2020, for Inspired Entertainment, Inc. (INSE). The filing addresses a material default under the company's Senior Facilities Agreement (SFA) and the subsequent entry into an Extended Grace Period Letter Agreement to mitigate immediate acceleration of debt.
Key Financial Metrics and Liquidity
- Cash and Cash Equivalents: Approximately £39 million (approx. $48 million USD) as of March 31, 2020. This figure includes amounts previously drawn under the secured revolving facility.
- Overdue Interest Payments: £5,674,745.77 and €3,088,125.00 became due on April 1, 2020, but were not paid.
- Default Interest Rates: Accruing at 7.75% per annum on Euro-denominated amounts and 8.25% per annum on Sterling-denominated amounts (applicable margin plus 1.0%).
- Debt Structure: The SFA involves lenders including Nomura International plc and Macquarie Corporate Holdings Pty Limited (UK Branch), with Lucid Agency Services Limited as agent.
Material Changes and Events
On April 1, 2020, the company's indirect subsidiary, Gaming Acquisitions Limited, failed to make scheduled interest payments, constituting a "Trigger Event" and a Default under the SFA. Consequently, on April 6, 2020, the company entered into an amendment to the SFA granting an "Extended Grace Period."
- Grace Period Extension: The period to cure payment defaults for interest was extended from three business days to 75 calendar days.
- New Covenants: The amendment imposes weekly budget reporting (including a 13-week cash flow forecast), a minimum liquidity covenant, and restrictions on asset disposals and new indebtedness.
- Commitment Transfers: The agreement permits lenders to transfer commitments to nominated entities.
Outlook, Risks, and Contingencies
The company is negotiating a further "Amendment & Restatement" of the SFA based on a Term Sheet. Key proposed changes include capitalizing the overdue interest, increasing the margin on facilities, resetting leverage covenants, and increasing mandatory prepayments from Excess Cash Flow.
- Condition Precedent: Execution of the full Amendment & Restatement is contingent upon Inspired raising at least £30,000,000 through the sale or issuance of equity and/or subordinated indebtedness.
- Acceleration Risk: If the company fails to remedy the default during the Extended Grace Period or fails to enter into the Amendment & Restatement, lenders holding 66.67% of total commitments may accelerate all obligations under the SFA.
- Legal Jurisdiction: The Amendment is governed by English law.
Investor Verification Checklist
- Verify the status of the proposed £30 million equity or subordinated debt raise required to finalize the debt restructuring.
- Monitor the company's ability to meet the new weekly reporting and minimum liquidity covenants during the 75-day grace period.
- Assess the impact of the increased default interest rates and potential margin increases on future cash flow.
- Review the attached Term Sheet (Exhibit 10.1) for specific details on the proposed leverage covenant reset and capitalization of interest.