Debt

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

Debt

7. Debt

DIP Facility

On February 21, 2023, the Bankruptcy Court entered the Interim DIP Order approving the DIP Facility on an interim basis and providing the Debtors with the necessary liquidity to continue to operate in Chapter 11. Upon entry of the Interim DIP Order and satisfaction of all applicable conditions precedent, as set forth in the DIP Term Sheet, the Debtors were authorized to make an Initial Draw of $30,000,000 on the DIP Facility. The Debtors then negotiated the DIP Documents, including the DIP Credit Agreement.

On March 29, 2023, the Bankruptcy Court entered the Final DIP Order approving the DIP Facility on a final basis and providing the Debtors with access to the remaining $45,000,000 of the DIP Facility (subject to the terms, conditions, and covenants set forth in the DIP Documents), through additional draws of no less than $5,000,000, each upon five business days’ written notice to the DIP Lender, and the Debtors and DIP Lender proceeded to enter into the DIP Documents on March 30, 2023. Among other terms, the DIP Facility bears interest at a per annum rate equal to 14% payable in cash on the first day of each month in arrears (and a default interest rate that shall accrue at an additional per annum rate of 3% plus the non-default interest, payable in cash on the first day of each month). The Debtors are required to pay to the DIP Lender a commitment fee equal to 2.5% of the total amount of the DIP Commitment (which was paid out of Initial Draw), a funding fee equal to 2.5% of the amount of each draw and upon repayment or satisfaction of the DIP Loans (in whole or in part), an exit fee equal 7% of the total amount of the DIP Commitments and other fees and charges as described in the DIP Documents. The DIP Facility is secured by first-priority liens on substantially all of the Debtors’ unencumbered assets, subject to certain enumerated exceptions, and second-priority liens on those assets of the Debtors that are encumbered by certain permitted liens (as set forth in the Final DIP Order).

The DIP Facility matures on the earliest of: (i) July 31, 2023; (ii) the effective date of any Chapter 11 plan of reorganization with respect to the Debtors; (iii) the consummation of any sale or other disposition of all or substantially all of the assets of the Debtors pursuant to section 363 of the Bankruptcy Code; (iv) the date of the acceleration of the DIP Loans and the termination of the DIP Commitments in accordance with the DIP Documents (each as defined in the DIP Term Sheet); (v) the dismissal of the Chapter 11 Cases or conversion of the Chapter 11 Cases into cases under chapter 7 of the Bankruptcy Code; and (vi) forty-five (45) days after the filing of the DIP Motion (or such later date as agreed to by the DIP Lender), unless the Final Order has been entered by the Bankruptcy Court on or prior to such date. The DIP Facility does not contain a roll-up or cross-collateralization of prepetition debt or otherwise dictate how prepetition claims will be addressed in a Chapter 11 plan.

As of March 31, 2023, the total outstanding principal balance on the DIP Facility was $30.0 million, which is included under current portion of debt in the consolidated balance sheets. Upon receipt of the Initial Draw, the Company recorded commitment and funding fees totaling $2.6 million. The Company also recognized a $5.3 million exit fee, which is included in accrued expenses and other current liabilities as of March 31, 2023. The commitment fee, funding fee and exit fee are included in Reorganization items, net, within the Company's consolidated statements of operations for the three months ended March 31, 2023. The Company recorded $0.4 million in interest expense relating to the per annum rate equal to 14% payable in cash during the three months ended March 31, 2023.

Subsequent to March 31, 2023, the Company received an additional draw from the DIP Facility of $20.0 million.

ACEA Significant Debt Arrangements

Borrowings under significant debt arrangements assumed in connection with the Company’s acquisition of ACEA consisted of the following (in thousands):

	March 31, 2023			December 31, 2022
Principal	$	26,875		$	26,718
Unamortized debt discount		(7,555	)		(7,878	)
Carrying value	$	19,320		$	18,840
Estimated fair value	$	15,600		$	15,000

The following table provides a schedule of future repayments under the Contract (in thousands):

2023 (Remaining nine months)	$	—
2024		990
2025		3,276
2026		5,663
2027		10,628
2028		6,318
Total	$	26,875

2018 Purchase Agreements and Indenture for Scilex Pharma

On September 7, 2018, Scilex Pharmaceuticals, Inc. (“Scilex Pharma”) entered into Purchase Agreements (the “2018 Purchase Agreements”) with certain investors (collectively, the “Scilex Note Purchasers”) and the Company. Pursuant to the 2018 Purchase Agreements, on September 7, 2018, Scilex Pharma, among other things, issued and sold to the Scilex Note Purchasers senior secured notes due 2026 in an aggregate principal amount of $224.0 million (the “Scilex Notes”) for an aggregate purchase price of $140.0 million. The Scilex Notes were fully extinguished in September 2022.

The Company made principal payments on the Scilex Notes of $21.6 million during the three months ended March 31, 2022. The amount of debt discount and debt issuance costs included in interest expense for the three months ended March 31, 2022 was $1.9 million. The Company recorded a loss on debt extinguishment of $4.8 million in connection with its repayments of principal made during the three months ended March 31, 2022.

Scilex Holding Convertible Debentures

On March 21, 2023, Scilex Holding entered into a securities purchase agreement (the “Securities Purchase Agreement”) with YA II PN, Ltd. (“Yorkville”) pursuant to which Scilex Holding would issue and sell to Yorkville convertible debentures in an aggregate principal amount of up to $25.0 million (the “Convertible Debentures”). The Securities Purchase Agreement provides that the Convertible Debentures will be issued and sold at a purchase price equal to 96% of the applicable principal amount in three tranches as follows: (i) $10.0 million upon the signing of the Securities Purchase Agreement, which was funded on March 21, 2023, (ii) $7.5 million upon the filing of a registration statement on Form S-1 with the SEC to register the resale by Yorkville of any shares of Scilex Holding common stock (“Scilex Common Stock”) issuable upon conversion of the Convertible Debentures under the Securities Act, and (iii) $7.5 million at the time such registration statement is declared effective by the SEC.

The Convertible Debentures bear interest at an annual rate of 7.00% and will mature on December 21, 2023. The outstanding principal amount is to be repaid in equal installments that are due every 30 days beginning on May 20, 2023, which is 60 days after the date on which the first Convertible Debenture was issued to Yorkville. The Convertible Debentures provide a conversion right, in which any portion of the outstanding and unpaid principal and any accrued but unpaid interest may be converted into shares of Scilex Common Stock, at a conversion price of $8.00 per share, at the option of the holder of the Convertible Debentures.

Scilex Holding has the option to repay either (i) in cash, with premium equal to 5% in respect of the principal amount of such payment, or (ii) by submitting a notice under the amended and restated standby equity purchase agreement between Scilex Holding and Yorkville (the “A&R Yorkville Purchase Agreement”), or a series of Yorkville advances, or any combination of (i) or (ii) as determined by the Scilex Holding. In case of (ii), the proceeds from the shares sold to Yorkville are applied against the outstanding amounts.

The redemption amount shall be equal to the outstanding principal balance being redeemed by Scilex Holding, plus the redemption premium of 10% of the principal amount being redeemed, plus all accrued and unpaid interest in respect of such redeemed principal amount.