Debt and Interest
|9 Months Ended|
Sep. 30, 2020
|Debt and Interest|
|Debt and Interest||
10. Debt and Interest
During the quarter ended September 30, 2020 the Company entered into a new credit facility with Oaktree Fund Administration, LLC, as the administrative agent (in such capacity, the “Agent”), and the lenders from time to time party thereto (each a “Lender” or “Oaktree” and collectively, the “Lenders”), as described below (the “Oaktree Note”). The Company utilized the proceeds from the Oaktree Note to repay the 2017 Subordinated Notes, the 2018 Venture Notes and the 2019 Notes. The Company also repaid the IDB Note utilizing the cash collateral securing the IDB Note, which was classified as restricted cash on the Company’s consolidated condensed balance sheet. In addition, on September 30, 2020 Mustang repaid the Mustang Horizon Notes.
Total debt consists of the following as of September 30, 2020 and December 31, 2019:
The following table shows the details of interest expense for all debt arrangements during the periods presented. Interest expense includes contractual interest; fees include amortization of the debt discount and amortization of fees associated with loan transaction costs, amortized over the life of the loan:
On August 27, 2020 (the “Closing Date”), Fortress, as borrower, entered into a $60.0 million senior secured credit agreement (the “Agreement”) with Oaktree. The Company borrowed the full $60.0 million in connection with the terms of the Oaktree Note on the Closing Date and used the bulk of the proceeds to repay its outstanding debt to other lenders (2017 Subordinated Notes, 2018 Venture Notes and 2019 Notes (previously the “Opus Credit Facility”)).
The Oaktree Note bears interest at a fixed annual rate of 11.0%, payable quarterly and maturing on the fifth anniversary of the Closing Date, August 27, 2025, the (“Maturity Date”). The Company is required to make quarterly interest-only payments until the Maturity Date, at which point the outstanding principal amount is due. The Company may voluntarily prepay the Oaktree Note at any time subject to a Prepayment Fee as defined in the Terms section. The Company is required to make mandatory prepayments of the Oaktree Note under various circumstances as defined in the Terms section. No amounts paid or prepaid may be reborrowed without Oaktree consent.
The Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of permitted indebtedness, and dividends and other distributions, subject to certain exceptions. In addition, the Agreement contains certain financial covenants, including, among other things, (i) maintenance of minimum liquidity by the Company, and (ii) a minimum revenue test that is subject to certain exclusions. Failure by the Company to comply with the financial covenants will result in an event of default, subject to certain cure rights of the Company.
The Agreement contains customary events of default, in certain circumstances subject to customary cure periods. Following an event of default and any cure period, if applicable, the Agent will have the right upon notice to accelerate all amounts outstanding under the Agreement, in addition to other remedies available to the lenders as secured creditors of the Company. The Agreement grants a security interest in favor of the Agent, for the benefit of the lenders, in substantially all of the Company’s assets as collateral securing the Company’s obligations under the Agreement, except for: (i) certain interests in controlled foreign corporation subsidiaries of the Company; (ii) the Company’s holdings in Avenue; and (iii) those portions of the Company’s holdings in certain subsidiaries (plus Caelum) that are encumbered by pre-existing equity pledges to certain of the Company’s officers.
Pursuant to the terms of the Agreement on the Closing Date the Company paid Oaktree an upfront commitment fee equal to 3% of the $60.0 million, or $1.8 million. In addition, the Company paid a $35,000 Agency fee to the Agent which was due on the Closing Date and will be due annually, together with fees of $2.5 million directly to third parties involved in the transaction.
In connection with the Oaktree Note, the Company issued warrants to Oaktree and certain of its affiliates to purchase up to 1,749,450 shares of common stock (see Note 14) with a relative fair value of $4.4 million.
As of September 30, 2020, the Company recorded the fees totaling $8.7 million ($1.8 million to Oaktree, $2.5 million of expenses paid to third-parties and $4.4 million representing the relative fair value of the Oaktree Warrants) to debt discount. These costs will be amortized over the term of the Oaktree Note.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef