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Borrowings

3 Months Ended

Mar. 31, 2023

Long-term debt consisted of the following at March 31, 2023 and December 31, 2022 (in thousands):


	March 31, 2023		December 31, 2022
Senior Secured Term Loan (1, 2) (due February 24, 2028)	$	505,217	$	503,481
Revolving Loans (3) (due February 24, 2027)	48,200		48,200

Less: unamortized debt issuance costs	(10,693)		(11,137)
Less: unamortized original issue discount	(8,587)		(8,944)
Total debt, net	534,137		531,600
Less: current portion of long-term debt	—		—
Long-term debt, net	$	534,137	$	531,600

(1) Interest rate of 12.6% and 12.1% at March 31, 2023 and December 31, 2022, respectively, with interest payable in designated installments at a variable interest rate. The effective interest rate for the Senior Secured Term Loan was 13.7% and 13.1% at March 31, 2023 and December 31, 2022, respectively.

(2) Beginning in the third quarter of 2022, the Company elected to pay a portion of its interest in-kind on its Senior Secured Term Loan by capitalizing and adding such interest to the principal amount of the debt. As of March 31, 2023, the Company recognized paid in-kind interest in the amount of $5.2 million.

(3) Interest rate of 8.8% and 8.3% at March 31, 2023 and December 31, 2022, respectively, with interest payable in designated installments at a variable interest rate.

2022 Credit Agreement

On February 24, 2022 (the "Refinancing Date"), the Company entered into various financing arrangements to refinance its previous long-term debt (the "2022 Debt Refinancing"). As part of the 2022 Debt Refinancing, ATI Holdings Acquisition, Inc. (the "Borrower"), an indirect subsidiary of ATI Physical Therapy, Inc., entered into a credit agreement among the Borrower, Wilco Intermediate Holdings, Inc. ("Holdings"), as loan guarantor, Barclays Bank PLC, as administrative agent and issuing bank, and a syndicate of lenders (the "2022 Credit Agreement"). The 2022 Credit Agreement provides a $550.0 million credit facility (the "2022 Credit Facility") that is comprised of a $500.0 million senior secured term loan (the "Senior Secured Term Loan") which was fully funded at closing and a $50.0 million "super priority" senior secured revolver (the "Revolving Loans") with a $10.0 million letter of credit sublimit.

The 2022 Credit Facility refinanced and replaced the Company's prior credit facility for which Barclays Bank PLC served as administrative agent for a syndicate of lenders. The Company paid $555.0 million to settle its previous term loan (the "2016 first lien term loan"). The Company accounted for the transaction as a debt extinguishment and recognized $2.8 million in loss on debt extinguishment during the three months ended March 31, 2022 related to the derecognition of the remaining unamortized deferred financing costs and unamortized original issue discount in conjunction with the debt repayment. The loss on debt extinguishment associated with the repayment of the 2016 first lien term loan has been reflected in other expense (income), net in the condensed consolidated statements of operations.

In connection with the 2022 Debt Refinancing, the Company also entered into a preferred stock purchase agreement, consisting of senior preferred stock with detachable warrants to purchase common stock for an aggregate stated value of $165.0 million (collectively, the “Preferred Stock Financing”). See Note 10 - Mezzanine and Stockholders' Equity for further information regarding the Preferred Stock Financing.

The Company capitalized debt issuance costs totaling $12.5 million related to the 2022 Credit Facility as well as an original issue discount of $10.0 million, which are amortized over the terms of the respective financing arrangements.

The Senior Secured Term Loan matures on February 24, 2028 and bears interest, at the Company's election, at a base interest rate of the Alternate Base Rate ("ABR"), as defined in the agreement, plus an applicable credit spread, or the Adjusted Term Secured Overnight Financing Rate ("SOFR"), as defined in the agreement, plus an applicable credit spread. The credit spread is determined based on a pricing grid and the Company's Secured Net Leverage Ratio. The Company may elect to pay 2.0% interest in-kind at a 0.5% premium during the first year under the agreement. The Company elected to pay a portion of its interest in-kind beginning in the third quarter of 2022. As of March 31, 2023, borrowings on the Senior Secured Term Loan bear interest at 3-month SOFR, subject to a 1.0% floor, plus 7.25% plus the 0.5% paid-in-kind interest premium.

The Revolving Loans are subject to a maximum borrowing capacity of $50.0 million and mature on February 24, 2027. Borrowings on the Revolving Loans bear interest, at the Company's election, at a base interest rate of the ABR, as defined in the agreement, plus an applicable credit spread, or the Adjusted Term SOFR Rate, as defined in the agreement, plus an applicable credit spread. The credit spread is determined based on a pricing grid and the Company's Secured Net Leverage Ratio. In December 2022, the Company drew $48.2 million in Revolving Loans. As of March 31, 2023, $48.2 million in Revolving Loans were outstanding and bearing interest at 3-month SOFR plus a credit spread of 4.1%.

The Company capitalized issuance costs of $0.5 million related to the Revolving Loans. Unamortized issuance costs of $0.2 million related to the revolving loans under the 2016 credit agreement were added to the balance of unamortized issuance costs to be amortized over the term of the Revolving Loans pursuant to debt extinguishment accounting guidance. Commitment fees on the Revolving Loans are payable quarterly at 0.5% per annum on the daily average undrawn portion for the quarter and are expensed as incurred. The balances of unamortized issuance costs related to the Revolving Loans were $0.6 million as of March 31, 2023, and $0.6 million as of December 31, 2022.

The 2022 Credit Facility is guaranteed by certain of the Company’s subsidiaries and is secured by substantially all of the assets of Holdings, the Borrower and the Borrower’s wholly owned subsidiaries, including a pledge of the stock of the Borrower, in each case, subject to customary exceptions.

The 2022 Credit Agreement contains customary covenants and restrictions, including financial and non-financial covenants. The financial covenants require the Company to maintain $30.0 million of minimum liquidity, as defined in the agreement, at each test date through the first quarter of 2024. Additionally, beginning in the second quarter of 2024, the Company must maintain a Secured Net Leverage Ratio, as defined in the agreement, not to exceed 7.00:1.00. The net leverage ratio covenant decreases in the third quarter of 2024 to 6.75:1.00 and further decreases in the first quarter of 2025 to 6.25:1.00, which remains applicable through maturity. The financial covenants are tested as of each fiscal quarter end for the respective periods. As of March 31, 2023, the Company is in compliance with its minimum liquidity financial covenant.

The 2022 Credit Facility contains customary representations and warranties, events of default, reporting and other affirmative covenants and negative covenants, including requirements related to the delivery of independent audit reports without certain going concern qualifications, limitations on indebtedness, liens, investments, negative pledges, dividends, junior debt payments, fundamental changes and asset sales and affiliate transactions. Failure to comply with the 2022 Credit Facility covenants and restrictions could result in an event of default under the 2022 Credit Facility, subject to customary cure periods. In such an event, all amounts outstanding under the 2022 Credit Facility, together with any accrued interest, could then be declared immediately due and payable.

Under the 2022 Credit Facility, the Company may be required to make certain mandatory prepayments upon the occurrence of certain events, including: an event of default, a prepayment asset sale or receipt of net insurance proceeds in excess of $15.0 million, or excess cash flows exceeding certain thresholds. A prepayment asset sale includes dispositions at fair market value, and net insurance proceeds is generally defined as insurance proceeds received on a covered loss or as a result of assets taken under the power of eminent domain, net of costs related to the matter.

The Company had letters of credit totaling $1.8 million and $1.8 million under the letter of credit sub-facility on the revolving credit facility as of March 31, 2023 and December 31, 2022, respectively. The letters of credit auto-renew on an annual basis and are pledged to insurance carriers as collateral.

Aggregate maturities of long-term debt at March 31, 2023 are as follows (in thousands):


2023 (remainder of year)	$	—
2024	—
2025	—
2026	—
2027	48,200

Thereafter	505,217
Total future maturities	553,417
Unamortized original issue discount and debt issuance costs	(19,280)
Total debt, net	$	534,137

Amended and Restated Transaction Support Agreement

On April 17, 2023, the Company entered into (i) an Amended and Restated Transaction Support Agreement (the "A&R TSA") to that certain Transaction Support Agreement, dated as of March 15, 2023, by and among the Company and certain of the Company’s affiliates, certain of its first lien lenders under the 2022 Credit Agreement (the “First Lien Lenders”), the administrative agent under the 2022 Credit Agreement, holders of its Series A Senior Preferred Stock (the “Preferred Equityholders”) and holders of the majority of its common stock (collectively, the “Parties”), (ii) Amendment No. 2 (the “Credit Agreement Amendment”) to the Company’s Credit Agreement, dated as of February 24, 2022, by and among the Borrower, Holdings, as loan guarantor, Barclays Bank PLC, as administrative agent and issuing bank, and the lenders party thereto (the “2022 Credit Agreement” and together with the Credit Agreement Amendment, the “Credit Agreement”), (iii) a Second Lien Note Purchase Agreement (the “Note Purchase Agreement”), by and among the Company, Wilco Holdco, Inc. (“Wilco”), Holdings, the Borrower, the purchasers from time to time party thereto (the “Purchasers”) and Wilmington Savings Fund Society, FSB, as purchaser representative and (iv) certain other definitive agreements relating to the comprehensive transaction to enhance the Company’s liquidity (the “Transaction,” and such documents referred to collectively as the “Signing Date Definitive Documents”).

Transaction Support Agreement

The A&R TSA sets forth the principal terms of a comprehensive transaction to enhance the Company’s liquidity. Pursuant to the A&R TSA, the Company and the Parties agreed to and appended thereto substantially final forms of the remaining definitive documents (together with the Signing Date Definitive Documents, the “Definitive Documents”) and subject to the terms and conditions thereof, the Parties have agreed to support, act in good faith and take all steps reasonably necessary and desirable to consummate the transactions referenced therein by the Outside Closing Date. Specifically, the Company has agreed, subject to stockholder approval of the Transaction, to a delayed draw new money financing in which the Company (i) may cause to be issued to the Purchasers an aggregate principal amount of $25.0 million (the “Delayed Draw Amounts”) in the form of a new stapled security, comprised of (A) second lien PIK convertible notes (the “Notes”) and (B) shares of Series B Preferred Stock (the "Series B Preferred Stock"), which will provide the holder thereof with voting rights such that the holders thereof will have the right to vote on an as-converted basis as if the conversion occurred at an initial price per share equal to the average closing price for the five trading days immediately preceding the date on which the Note Purchase Agreement was signed (the “NYSE Minimum Price”), (ii) will facilitate the exchange of $100.0 million of the aggregate principal amount of the term loans under the 2022 Credit Agreement held by certain of the Preferred Equityholders for Notes and Series B Preferred Stock and (iii) will agree to certain other changes to the terms of the 2022 Credit Agreement, including modifications of the financial covenants thereunder. Holders of the Notes will also receive additional Notes upon the in-kind payment of interest on any outstanding Notes. The Notes will be convertible into shares of Class A common stock, par value $0.0001 per share, of the Company (“Common Stock”) at a fixed conversion price of $0.25 (subject to adjustment as provided in the Note Purchase Agreement, the “Conversion Price”).

In addition, as part of the Transaction, (1) the Preferred Equityholders’ preexisting rights as holders of the Company’s Series A Senior Preferred Stock to designate and elect one director to the Company’s board of directors (the “Board”) will be revised to provide that (a) the Preferred Equityholders have the right to appoint three additional directors to the Board (resulting in the right of the Preferred Equityholders to appoint a total of four directors to the Board) until such time after the closing date of the Transaction (the "Closing Date") that the Lead Purchaser (in each case, as defined in certain of the transaction agreements entered into in connection with the original issuance of the Series A Preferred Stock) ceases to hold at least 50.1% of the Series A Preferred Stock held by it as of the Closing Date, one of whom must be unaffiliated with (and independent of) the Preferred Equityholders and who must meet the definition of “independent” under the listing standards of the New York Stock Exchange, and by the SEC; and (b) all such designee directors of the Preferred Equityholders will be subject to consideration by the Board (acting in good faith and consistent with their review of other Board candidates) and (2) the provision in the certificate of designation of the Company’s Series A Senior Preferred Stock that eliminated the Preferred Equityholders’ director designation rights upon the Company’s achievement of certain amounts of EBITDA will be deleted (and the equivalent provision in that certain Investors’ Rights Agreement, dated as of February 24, 2022, by and among the Company and the Preferred Equityholders listed therein, will also be deleted).

In addition, the A&R TSA contains certain representations, warranties and other agreements by the Company and the Parties. The Company’s and the Parties’ obligations under the A&R TSA are, and the closing of the Transaction is, subject to various customary terms and conditions set forth therein, including the execution and delivery of definitive documentation and approval by the Company’s stockholders.

Credit Agreement Amendment

The Credit Agreement Amendment provides, among other things, (i) a reduction of the thresholds applicable to the minimum liquidity financial covenant under the 2022 Credit Agreement for certain periods, (ii) a waiver of the requirement to comply with the Secured Net Leverage Ratio financial covenant under the 2022 Credit Agreement for the fiscal quarters ending June 30, 2024, September 30, 2024 and December 31, 2024 and a modification of the levels and certain component definitions applicable thereto in the fiscal quarters ending after December 31, 2024, (iii) an extension of the minimum liquidity financial covenant for the fiscal quarters in which the Secured Net Leverage Ratio financial covenant was waived, (iv) a waiver of the requirement for the Company to deliver audited financial statements without certain going concern qualifications for the years ended December 31, 2022, December 31, 2023, and December 31, 2024, (v) an increase in the interest rate payable on the existing term loans and revolving loans until the achievement of a specified financial metric and (vi) board representation and observer rights and other changes to the governance of the Company.

Note Purchase Agreement and Series B Preferred Stock

The Note Purchase Agreement contains customary representations, warranties, conditions and indemnification obligations by each party thereto. The representation, warranties and covenants contained therein were made only for the purposes of the Note Purchase Agreement, and as of specific dates, were solely for the benefit of the parties to such agreement and are subject to certain limitations set forth therein.

Draws. Draws on the Delayed Draw Amounts will be available beginning immediately on the Closing Date and ending on the date that is 18 months after the Closing Date, the Company may request either (i) two draws in an amount of $12.5 million each, or (ii) one draw in an amount of $25.0 million, subject in each case to, (a) projected liquidity at any time during the 6-month period following the date of the relevant draw being below either (i) $20 million or (ii) the prevailing minimum liquidity covenant threshold, as determined by reference to the Credit Agreement and (b) the consent of at least a majority of the disinterested directors on our Board. The Note Purchase Agreement also provides, subject to certain conditions (including the receipt of commitments therefor) and consent rights outlined in the Note Purchase Agreement for the ability of the Company to issue up to an additional $150.0 million in Notes. Proceeds of the Notes may be used for general corporate purposes, subject to certain exceptions.

Interest. The Notes will bear interest at a rate of 8.00% per annum, payable quarterly in-kind in the form of additional Notes by capitalizing the amount of such interest on the outstanding principal balance of the Notes in arrears on each interest payment date.

Maturity. The Notes will mature on August 24, 2028, unless earlier repurchased or converted.

Conversion. The Notes may be converted, in whole or in part (if the portion to be converted is $1,000 principal amount or an integral multiple thereof), at the option of the holder, into shares of Common Stock based on the Conversion Price.

Forced Conversion. On or after the second anniversary of the Closing Date, the Company may, at its option, from time to time, elect to convert a portion of the outstanding Notes into the number of shares of Common Stock issuable upon conversion based on the Conversion Price then in effect, subject in each case to the satisfaction of the conditions contained in the Note Purchase Agreement.

Adjustments to Conversion Price. The Conversion Price is subject to adjustment as a result of certain events including, but not limited to, certain issuances of Common Stock as a dividend or distribution, issuances of rights, options or warrants to purchase Common Stock at a price per share less than the average closing price per share of Common Stock for the ten trading days preceding the date of announcement of such issuance, effecting a share split or combination of the shares of Common Stock, issuance of a cash dividend or distribution and other issuances for a consideration per share less than the Conversion Price.

Guarantees; Collateral; Ranking. The Notes will be guaranteed by Wilco, Holdings, the Borrower, and the subsidiaries of ATI Holdings Acquisition, Inc. that guaranty the obligations under the Credit Agreement. The Notes will be secured by the same collateral that secures the obligations under the Credit Agreement.

Pursuant to the terms of an intercreditor and subordination agreement, the Notes (and the guarantees thereof) will rank junior in right of payment to the obligations under the Credit Agreement, and the liens on the collateral securing the Notes will rank junior to the liens on such collateral securing the obligations under the Credit Agreement.

Other Covenants. The Note Purchase Agreement includes affirmative and negative covenants (other than financial covenants) that are substantially consistent with the Credit Agreement, as well as customary events of default.

Voting. The Company will issue to each holder of Notes shares of Series B Preferred Stock in an amount equal to the quotient (rounded down to the nearest whole number) obtained by dividing (A) the amount paid by such holder to the Company for the Notes by (B) $1,000, resulting in more votes per share of Series B Preferred Stock than one share of Common Stock. Notwithstanding that one share of Series B Preferred Stock shall represent more votes than one share of Common Stock, the holders of shares of Series B Preferred Stock shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any stockholders' meeting in accordance with the bylaws of the Company, shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted, and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series B Preferred Stock held by each holder could be converted) shall be rounded down to the nearest whole share of Series B Preferred Stock.

The Series B Preferred Stock shall not have any dividend or redemption rights and, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of Series B Preferred Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after satisfying any senior payment obligations and before any payment in respect of any Common Stock, an amount per share of Series B Preferred Stock equal to $0.0001.

The Series B Preferred Stock shall be governed in all respects by Delaware law.

The Transaction is subject to the execution of the Definitive Documents, as well as customary closing conditions. In addition, the closing of the Transaction and the matters contemplated by each of the A&R TSA, Credit Agreement Amendment and Note Purchase Agreement, are subject in each case to approval by the Company’s stockholders.

There is no assurance that the Transaction will be consummated on the terms as described above, on a timely basis or at all.