Business Context and Reporting Period
CareDx, Inc. filed a Form 8-K on March 1, 2018, reporting the entry into a material definitive agreement and the notification of intent to prepay existing debt. The company is an emerging growth company incorporated in Delaware.
Key Financial Metrics and Agreements
- New Financing: Entered into a commitment letter for a term loan facility of up to $35.0 million with Perceptive Credit Holdings II, LP.
- Loan Structure:
- Tranche A: $15.0 million or $25.0 million (at Company's election) available upon closing.
- Tranche B: Up to $10.0 million available within one year of closing, contingent on achieving specific product revenue targets.
- Maturity: Five years from the closing date.
- Interest: Variable LIBOR-based rate; interest-only payments until the third anniversary, followed by principal and interest.
- Default Rate: Additional 3.00% interest upon default.
- Collateral: Secured by substantially all company assets and a pledge of 65% of the equity interests of CareDx International AB.
- Debt Repayment: Notified JGB Collateral LLC of intent to prepay outstanding 9.5% OID Senior Secured Debentures in full on April 13, 2018.
- Prepayment Terms: Repayment includes full principal, accrued interest, and an 8% prepayment premium.
Material Changes
The filing represents a significant shift in the company's capital structure. The company is replacing existing high-cost debt (9.5% OID debentures) with a new term loan facility. The new facility introduces performance-based conditions for the second tranche of funding and extends the maturity timeline to five years, compared to the 2020 maturity of the debentures being retired.
Outlook, Risks, and Contingencies
- Use of Proceeds: Funds will be used for general corporate purposes and to repay indebtedness to JGB, FastPartner AB, Mohammed Al Amoudi, and Danske Bank A/S.
- Conditions Precedent: The new loan is subject to customary conditions, including the absence of a material adverse effect and the execution of definitive documentation.
- Expiration: The commitment letter expires on April 15, 2018, if the closing does not occur by that date.
- Costs: The company must reimburse fees and expenses and issue a warrant to purchase common stock to the lender.
- Revenue Targets: Access to the second tranche ($10.0 million) is contingent on meeting specific product revenue targets within one year of the first tranche funding.
Investor Verification Checklist
- Verify the execution of definitive loan documentation before the April 15, 2018 expiration of the commitment letter.
- Confirm the specific product revenue targets required to unlock the $10.0 million Tranche B funding.
- Review the definitive loan agreement for specific financial covenants and the exact terms of the warrant issuance.
- Monitor the successful prepayment of the JGB debentures on April 13, 2018, including the 8% premium payment.
- Assess the impact of the new LIBOR-based variable interest rate on future interest expense compared to the fixed 9.5% OID rate.