Long Term Debt

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Long Term Debt

Long Term Debt

Hayfin Term Loan Agreement

On June 30, 2020, the Company entered into a Loan Agreement with, among others, Hayfin Services, LLP, (“Hayfin”) an affiliate of Hayfin Capital Management LLP (the “Hayfin Loan Agreement”), which was funded (the “Hayfin Loan Transaction”) on July 2, 2020 (the “Closing Date”) and provided the Company with a senior secured term loan in an aggregate amount of $50 million (the “Term Loan”) and an additional delayed draw term loan (the “DD TL”, collectively, the “Credit Facilities”) in the form of a committed but undrawn facility. The Term Loan and the DD TL mature on June 30, 2025 (the “Maturity Date”). Interest is payable on the Term Loan and the DD TL for the balances outstanding quarterly through the Maturity Date. No principal payments on either the Term Loan or the DD TL are due and payable until the Maturity Date.

The Term Loan and DD TL, which are senior secured obligations, were entered into together with the sale of the Company’s Series B Convertible Preferred Stock (as defined and described in Note 10, “Equity”) in an aggregate amount of up to $100 million (collectively, the “Financing Transactions”) in order to:

(1)     refinance the outstanding indebtedness (the “Refinancing”) under the Loan Agreement, dated as of June 10, 2019 (as amended and restated, the “BT Term Loan Agreement”), among the Company, the lenders and Blue Torch Finance LLC as administrative agent and collateral agent for such lenders,

(2)     pay fees and expenses incurred with certain financing transactions, and

(3)     finance the working capital, capital expenditures, and other general corporate purposes of the Company.

The interest rate applicable to any borrowings under the Term Loan accrues at a rate equal to LIBOR (subject to a floor of 1.5%) plus a margin of 6.75% per annum (the “Margin”). If LIBOR is unavailable, the loan will carry interest at the Margin plus the greatest of the Prime Rate, the Federal Funds Rate plus 0.5% per annum, and 2.5%. The Margin is eligible for a reduction depending on the Total Net Leverage Ratio for the quarter; as follows:

•6.5% per annum if the Total Net Leverage Ratio (as defined in the Hayfin Loan Agreement) is less than 2.0x but greater than or equal to 1.0x, or

•6.0% per annum if the Total Net Leverage Ratio is less than 1.0x.

An additional 3.0% margin is applied to the interest rate in the event of default as defined by the Hayfin Loan Agreement. At issuance and as of March 31, 2021, the Term Loan carried an interest rate of 8.3%.

The Credit Facilities contain financial covenants requiring the Company, on a consolidated basis, to maintain the following:

•Maximum Total Net Leverage Ratio of 4.5x through June 30, 2021, further reduced to 4.0x thereafter for the life of the loans, required to be calculated on a quarterly basis.

•Minimum Liquidity (as defined in the Hayfin Loan Agreement) of $10 million, an at-all times, financial covenant tested monthly.

The Credit Facilities also specify that any prepayment of the Term Loan, voluntary or mandatory, as defined in the Term Loan Agreement, will subject MiMedx to a prepayment premium applicable as of the date of the prepayment:

•On or before the first anniversary of the Closing Date:

◦A make-whole premium, equal to the greater of:

▪5% of the principal balance repaid, and

▪102% of the principal balance plus interest that would have been accrued from the repayment date to 12 months following the Closing Date.

•After the first anniversary of the Closing Date but on or before the second anniversary of the Closing Date: 2% of the principal balance repaid.

•After the second anniversary of the Closing Date: 1% of the principal balance repaid.

•After the third anniversary of the Closing Date: 0% of the principal balance repaid.

The Loan Agreement also includes events of default customary for facilities of this type, and upon the occurrence of such events of default, subject to customary cure rights, all outstanding loans under the Credit Facilities may be accelerated or the lenders’ commitments terminated. The mandatory prepayments are also required in the event of a change in control, incurring other indebtedness, certain proceeds from disposal of assets and insured casualty event. Annually, beginning with the fiscal year ending December 31, 2021, the Company is required to prepay the outstanding loans based on the percentage of the Excess Cash Flow (as defined in the Hayfin Loan Agreement), if such is generated, with the percentage determined based on the Total Net Leverage thresholds.

Hayfin maintains a first-priority security interest in substantially all of the Company’s assets.

Original issue discount and deferred financing costs incurred as part of the Financing Transactions were allocated between the sale of the Series B Convertible Preferred Stock and the Hayfin Term Loan on the basis of the relative fair values of the transactions. The costs allocated to the Hayfin Term Loan were further allocated between the Term Loan and the DD TL on the basis of the maximum potential principal outstanding between the Credit Facilities. A summary of the allocation of the deferred financing costs and original issue discount between the Term Loan and the DD TL on July 2, 2020 was as follows (amounts in thousands):

	July 2, 2020
	Term Loan		DD TL		Total
	Long term debt		Other current assets
Original issue discount	$	333	$	167	$	500
Deferred financing costs	2,169		1,084		3,253

Deferred financing costs and original issue discount associated with the Term Loan are amortized using the effective interest method through the Maturity Date. The amortization of such amounts are presented as part of interest expense, net on the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021. Unamortized deferred financing costs and original issue discount associated with the Term Loan are presented as a reduction to the principal balance on the Term Loan as part of long term debt, net on the unaudited condensed consolidated balance sheet as of March 31, 2021.

Deferred financing costs and original issue discount associated with the DD TL are amortized using the straight line method through the earlier of the expiration of the DD TL commitment term on June 30, 2021, or the date the balance of the DD TL is funded. To the extent that there are unamortized deferred financing costs or original issue discount associated with the DD TL will be amortized using the effective interest method through the Maturity Date. Amortization of these amounts are presented as part of interest expense, net on the unaudited condensed consolidated statement of operations for the three months ended March 31, 2021. Unamortized deferred financing costs and original issue discount associated with the DD TL are presented as other current assets on the unaudited condensed consolidated balance sheet as of March 31, 2021. In addition, the DD TL is subject to an additional commitment fee of 1% per annum of the amount undrawn, which is recognized as interest expense. The DD TL was not drawn upon as of March 31, 2021.

The balances of the Term Loan as of March 31, 2021 and December 31, 2020 were as follows (amounts in thousands):

	March 31, 2021		December 31, 2020
Outstanding principal	$	50,000	$	50,000
Deferred financing costs	(1,908)		(1,996)
Original issue discount	(293)		(307)
Long term debt	$	47,799	$	47,697

Interest expense related to the Term Loan, included in interest expense, net in the unaudited condensed consolidated statements of operations, was as follows (amounts in thousands):

	Three Months Ended March 31,
	2021
Stated interest	$	1,031
Amortization of deferred financing costs	89
Accretion of original issue discount	13
Interest expense	$	1,133

Interest expense related to the DD TL, included in interest expense, net in the unaudited condensed consolidated statements of operations, was as follows (amounts in thousands):

	Three Months Ended March 31,
	2021
Commitment fee	$	63
Amortization of deferred financing costs	271
Accretion of original issue discount	41
Interest expense	$	375

Principal payments on the Term Loan as of March 31, 2021 are as follows:

Year ending December 31,	Principal
2021 (excluding the three months ended March 31, 2021)	$	—
2022	—
2023	—
2024	—
2025	50,000
Thereafter	—
Total long term debt	$	50,000

As the Company has not borrowed on the DD TL as of March 31, 2021, there are no principal payments owed on the DD TL.

As of March 31, 2021, the fair value of the Term Loan was $51.4 million. This valuation was calculated based on a series of Level 2 and Level 3 inputs, including a discount rate based on the credit risk spread of debt instruments of similar risk character in reference to U.S. Treasury instruments with similar maturities, with an incremental risk premium for risk factors specific to the Company. To derive the fair value of the Term Loan, the remaining cash flows associated with the Term Loan were discounted to March 31, 2021 using this discount rate.

Blue Torch Term Loan

On June 10, 2019, the Company entered into the BT Term Loan Agreement with the subsidiaries of the Company as guarantors and party thereto from time to time, the lenders party thereto from time to time and Blue Torch Finance LLC (“Blue Torch”), as administrative agent and collateral agent, pursuant to which the full amount of $75 million was borrowed and funded (the “BT Term Loan”). The proceeds from the BT Term Loan were used (i) for working capital and general corporate purposes and (ii) to pay transaction fees, costs and expenses incurred in connection with the BT Term Loan and the related transactions. The BT Term Loan would have matured on June 20, 2022 and was repayable in quarterly installments of $0.9 million; the balance was due on June 20, 2022. Blue Torch maintained a first-priority security interest in substantially all the Company’s assets. The BT Term Loan was issued net of the original issue discount of $2.3 million. The Company also incurred $6.7 million of deferred financing costs.

On April 22, 2020, the Company amended its BT Loan Agreement with Blue Torch. The amendment provided for an increase in the maximum Total Leverage Ratio, which was a quarterly test, for the remainder of 2020, and also provided for a reduction in the minimum Liquidity requirement from April 2020 through and including November 2020. In connection with the amendment, the Company agreed to pay a one-time fee of $0.7 million, added to the principal balance, and a 1 percentage point increase in the interest rate to LIBOR plus 9%.

On July 2, 2020, a portion of the proceeds from each of the sales of the Company’s Series B Convertible Preferred Stock and the borrowings from the Hayfin Loan Transaction were used to repay the outstanding balance of principal, accrued but unpaid interest, and prepayment premium under the BT Loan Agreement. In connection with the repayment of the BT Term Loan, the Company terminated the BT Loan Agreement. The Company has no continuing obligations related to the BT Term Loan.

Interest expense related to the BT Term Loan, included in interest expense, net in the unaudited condensed consolidated statements of operations was as follows (amounts in thousands):

	Three Months Ended March 31,
	2020
Interest on principal balance	$	1,840
Accretion of original issue discount	167
Amortization of deferred financing costs	491
Total BT Term Loan interest expense	$	2,498