Debt

9 Months Ended

Mar. 31, 2023

Debt

Debt

Note 10. Debt

The filing of the Chapter 11 Cases constituted an event of default that accelerated all of our debt obligations. As such, we have reclassified all debt obligations to debt due within a year on our Consolidated Balance Sheet as of March 31, 2023. Pursuant to Section 362 of the Bankruptcy Code, the filing of the Chapter 11 Cases automatically stayed most actions against or on behalf of the Company Parties, including actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company Parties’ property. To facilitate the Restructuring, on May 1, 2023, the Amended ABL Credit Agreement was terminated (other than with respect to provisions regarding Letters of Credit, as defined in the Amended ABL Credit Agreement, that remain outstanding and customary obligations that expressly survived by their terms).

For information about subsequent events related to the termination of the Amended ABL Credit Agreement, the Restructuring Support Agreement, the Chapter 11 Cases and the Prepackaged Plan, see Note 20 “Subsequent Events.”

Debt, net, prior to the filing of the Chapter 11 Cases, consisted of the following:

	March 31,		June 30,
(In thousands)	2023		2022
7.75% Senior Secured Notes	$	350,000	$	350,000
Unamortized discount and other debt issuance costs		(3,798)		(4,599)
7.75% Senior Secured Notes, net		346,202		345,401
Second Lien Secured Loan Facility ($190.0M Principal, $5.7M Exit Fee, and $30.2M and $22.0M accrued PIK interest at March 31, 2023 and June 30, 2022 respectively)		225,892		217,721
Unamortized discount and other debt issuance costs		(28,210)		(32,308)
Second Lien Secured Loan Facility, net		197,682		185,413
4.50% Convertible Senior Notes		86,250		86,250
Unamortized discount and other debt issuance costs		(1,743)		(2,116)
4.50% Convertible Senior Notes, net		84,507		84,134
$45.0 million Amended ABL Credit Facility		—		—
Total debt, net, due within one year	$	628,391	$	614,948

The weighted average interest rate for the three months ended March 31, 2023 and 2022 was 9.3% and 9.1%, respectively. The weighted average interest rate for the nine months ended March 31, 2023 and 2022 was 9.2% and 8.9%, respectively. As of March 31, 2023, the Company recorded interest payable of $16.6 million, which is included in the accrued expenses caption of the Consolidated Balance Sheets.

On April 22, 2021, the Company issued $350.0 million aggregate principal amount of the Secured Notes in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and outside the United States to persons other than U.S. persons in reliance upon Regulation S under the Securities Act. The Secured Notes bear interest semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2021, at a rate of 7.750% per annum in cash. The Secured Notes will mature on April 15, 2026, unless earlier redeemed or repurchased in accordance with their terms.

On April 5, 2021, the Company entered into an Exchange Agreement with certain participating lenders to exchange a portion of their existing Term B Loans for Second Lien Loans pursuant to a new $190.0 million Second Lien Credit Facility. On April 22, 2021, in connection with the issuance of the Secured Notes and the entrance into the Amended ABL Credit Facility, which is discussed further below, the exchange between the Company and the participating lenders was consummated. From the Closing Date until the one-year anniversary of the Closing Date, the Second Lien Loans bear 10.0% PIK interest. Thereafter, the Second Lien notes will bear 5.0% cash interest and 5.0% PIK interest until maturity, except to the extent the Company elects to pay all or portion of the PIK interest in cash. To date, the Company has not paid any PIK interest in cash. The Second Lien Loans will mature on July 21, 2026. In connection with the Second Lien Credit Facility, the Company issued to the Participating Lenders Warrants to purchase up to 2,070,000 shares of common stock of the Company at an exercise price of $27.52 per share. Refer to Note 13 “Warrants” for further information on the Warrants issued.

In connection with the Second Lien Credit Facility, the Company is required to maintain at least $5.0 million in a deposit account at all times subject to control by the Second Lien Collateral Agent, and a minimum cash balance of $15.0 million as of the last day of each month. At March 31, 2023, the Company classified the $5.0 million required deposit account balance as restricted cash, which is included in other assets caption in the Consolidated Balance Sheet. The Second Lien Credit Facility also contains an affirmative covenant requiring delivery of the Company’s year-end financial statements, accompanied by an audit opinion that is not qualified, subject to customary exceptions, as to the status of the Company as a going concern.

In addition to the Secured Notes Offering and the Second Lien Credit Facility, on April 22, 2021, the Company entered into the Amended ABL Credit Agreement, among the Company, certain of its wholly-owned domestic subsidiaries party thereto, as borrowers or as guarantors, Wells Fargo Bank, National Association, as administrative agent and as collateral agent and the other lenders party thereto, for the purpose of, among other things, increasing the aggregate amount of the revolving credit facility from $30.0 million to $45.0 million and extending the maturity thereof to the fifth anniversary of the closing date of the Secured Notes Offering (subject to a springing maturity as set forth therein).

The Amended ABL Credit Agreement provides for a revolving credit facility (the “Amended ABL Credit Facility”) that includes letter of credit and swing line sub-facilities. Borrowing availability under the Amended ABL Credit Facility is determined by a monthly borrowing base collateral calculation that is based on specified percentages of eligible accounts receivable less certain reserves and subject to certain other adjustments as set forth in the Amended ABL Credit Agreement. Availability is reduced by issuance of letters of credit as well as any borrowings. Loans outstanding under the Amended ABL Credit Agreement bear interest at a floating rate measured by reference to, at the Company’s option, either an adjusted London Inter-Bank Offered Rate (“LIBOR”) (subject to a floor of 0.75%) plus an applicable margin of 2.50% per annum, or an alternate base rate plus an applicable margin of 1.50% per annum. Unused commitments under the Amended ABL Credit Facility are subject to a per annum fee of 0.50% per annum, which fee increases to 0.75% per annum for any quarter during which the Company's average usage under the Amended ABL Credit Facility is less than $5.0 million.

On September 27, 2019, the Company issued $86.3 million aggregate principal amount of the Convertible Notes in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible Notes are senior unsecured obligations of the Company and bear interest at an annual rate of 4.50% payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2020. The Convertible Notes will mature on October 1, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms. The Convertible Notes are convertible into shares of the Company’s common stock at a conversion rate of 16.3507 shares per $1,000 principal amount of Convertible Notes (which is equivalent to a conversion price of approximately $61.16 per share), subject to adjustments upon the occurrence of certain events (but will not be adjusted for any accrued and unpaid interest). The Company may redeem all or a part of the Convertible Notes on or after October 6, 2023 at a redemption price equal to 100% of the principal amount of the Convertible Notes redeemed, plus accrued and unpaid interest, if any, up to, but excluding, the redemption date, subject to certain conditions relating to the Company’s stock price having been met. Following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or notice of redemption. The indenture covering the Convertible Notes contains certain other customary terms and covenants, including that upon certain events of default occurring and continuing, either the trustee or holders of at least 25% in principal amount of the outstanding Convertible Notes may declare 100% of the principal of, and accrued and unpaid interest on, all the Convertible Notes to be due and payable. In addition, if the Company ceases to be listed or quoted on any of The NYSE, The Nasdaq Global Select Market or The Nasdaq Global Market (or any of their respective successors), holders of the outstanding Convertible Notes will have the option to require the Company to repurchase for cash all of such holder’s notes at 100% of the principal amount, plus accrued and unpaid interest. See Note 2 “The Business and Nature of Operations” for additional information regarding the out-of-compliance notices received from the NYSE.

In connection with the offering of the Convertible Notes, the Company also entered into privately negotiated “capped call” transactions with several counterparties. The capped call transaction will initially cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie the Convertible Notes. The capped call transactions are expected to generally reduce the potential dilutive effect on the Company’s common stock upon any conversion of the Convertible Notes with such reduction subject to a cap.

The outstanding Secured Notes, Second Lien Credit Facility, and Amended ABL Credit Facility amounts above are guaranteed by all of Lannett’s significant wholly-owned domestic subsidiaries and are collateralized by substantially all present and future assets of the Company.