Item 1.01.
Entry into a Material Definitive Agreement.
As reported in its Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the
SEC
) on December 30, 2016, Regeneron Pharmaceuticals, Inc. (
Regeneron
or the
Company
) previously entered into a purchase agreement (the
Purchase Agreement
) to purchase the Companys existing corporate headquarters and other rentable area consisting of approximately 170 acres of predominately office buildings and laboratory space located in the towns of Mount Pleasant and Greenburgh, New York (the
Facility
) and engaged a financing provider to arrange a $720 million lease financing in connection therewith. On March 3, 2017, Regeneron completed the contemplated lease financing, as described in greater detail below. As part of such financing, the right to take title to the Facility under the Purchase Agreement was assigned to the Lessor (as defined below), the Lessor has become the legal owner of the Facility, and a wholly owned subsidiary of Regeneron has leased the Facility for a five-year term. The rent payments under the Lease (as defined below) are expected to be lower than those under the Companys previous leases for its corporate headquarters and to be immediately accretive to Regenerons earnings. The lease financing does not constitute indebtedness for purposes of Regenerons Revolving Credit Facility (as defined below) and, therefore, the amounts outstanding under the lease financing are not included in the calculation of Regenerons total leverage ratio under the Revolving Credit Facility and do not reduce the amount that Regeneron can borrow under the Revolving Credit Facility based on the applicable financial covenants.
Participation Agreement
On March 3, 2017, Old Saw Mill Holdings LLC (the
Lessee
), a wholly owned subsidiary of Regeneron, entered into a participation agreement (the
Participation Agreement
) by and among the Lessee; Bank of America, N.A., as administrative agent; BA Leasing BSC, LLC, as lessor (in such capacity, the
Lessor
); and the lenders party thereto from time to time (collectively, the
Lenders
and, together with the Lessor, the
Participants
). The Participation Agreement provides for a $720 million lease financing in connection with the acquisition by the Lessor of the Facility and the Lessees lease of the Facility from the Lessor. On March 3, 2017, the right to take title to the Facility under the Purchase Agreement was assigned to the Lessor and the Participants advanced $720 million pursuant to the Participation Agreement, which was used to finance the purchase price for the Facility and to reimburse the Company for certain payments previously made by it pursuant to the Purchase Agreement. Upon consummation of the transactions contemplated by the Purchase Agreement, the Lessor has become the legal owner of the Facility.
Lease
On March 3, 2017, the Lessee also entered into a lease and remedies agreement (the
Lease
) with the Lessor, pursuant to which the Lessee has leased the Facility and certain related assets from the Lessor for a five-year term and granted a security interest in certain of its assets and rights to secure certain obligations under the Participation Agreement, the Lease, and certain related documents. Certain parts of the Facility are subleased from the Lessee by existing third-party tenants (collectively, the
Subtenants
). The Lease is a triple-net lease requiring the Lessee, among other things, to pay during the term of the Lease all maintenance, insurance, taxes, and other costs arising out of the use of the Facility (which are offset in part by payments received by the Lessee from the Subtenants). The Lessee is also required to make monthly payments of basic rent during the term of the Lease in an amount equal to the interest and yield payable to the Lenders on their outstanding loans and to the Lessor on its investment, respectively, the proceeds of which were used to fund the advances under the Participation Agreement. Such loans accrue interest, and the Lessors investment accrues yield, at a variable rate per annum based on the one-month London Interbank Offered Rate, plus an applicable margin that varies with the Companys debt rating and total leverage ratio.
Guaranty
The Company and its wholly owned subsidiaries
Regeneron Healthcare Solutions, Inc. and Regeneron Genetics Center LLC, on a joint and several basis, have guaranteed all of the Lessees obligations under the Participation Agreement, the Lease, and certain related documents pursuant to a guaranty, dated as of March 3, 2017 (the
Guaranty
), made by the Company and such subsidiaries, as the initial guarantors.
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Financial and Operating Covenants; Other Terms
The Participation Agreement, the Lease, and the Guaranty contain financial and operating covenants, which are substantially similar to the covenants set forth in the Credit Agreement, dated as of March 19, 2015 (as amended) (the
Credit Agreement
), by and among Regeneron, as a borrower and guarantor, certain subsidiaries of Regeneron party thereto as subsidiary borrowers, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders and other financial institutions party thereto from time to time, governing Regenerons existing revolving credit facility (the
Revolving Credit Facility
), except for such matters specifically relating to the Facility or the lease financing nature of the transactions contemplated by the Participation Agreement. Financial covenants include a maximum total leverage ratio and a minimum interest expense coverage ratio. Operating covenants include, among other things, limitations on (i) the incurrence of indebtedness, (ii) liens on assets of the Company and its subsidiaries and liens on the Facility, (iii) certain fundamental changes and the disposition of assets by the Company and its subsidiaries, (iv) entering into affiliate transactions, and (v) the payment of dividends, distributions, and certain other restricted payments in respect of the capital stock of the Company and its subsidiaries (the
Restricted Payments Covenant
). Similar to the Credit Agreement, the Restricted Payments Covenant allows the Company, so long as no event of default exists, to make payments that would otherwise be restricted if at the time of the making of any such payment and immediately thereafter it meets a specified total leverage ratio requirement. The Participation Agreement, the Lease, and the Guaranty contain other customary covenants, representations and warranties, and events of default. The Lease also includes certain early termination events relating to the occurrence of certain material events of loss or material environmental events relating to the Facility.
Maturity Date; Extension Option; Termination
The advances under the Participation Agreement mature, and all amounts outstanding thereunder will become due and payable in full, on March 3, 2022 (the
Maturity Date
). The term of the Lease also ends on the Maturity Date. The Participation Agreement and the Lease include an option for the Lessee to elect to extend the maturity date of the Participation Agreement and the term of the Lease for an additional five-year period, subject to the consent of all the Participants and certain other conditions. The Lessee also has the option prior to the end of the term of the Lease to (a) purchase the Facility by paying an amount equal to the outstanding principal amount of the Participants advances under the Participation Agreement, all accrued and unpaid interest and yield thereon, and all other outstanding amounts under the Participation Agreement, the Lease, and certain related documents or (b) sell the Facility to a third party on behalf of the Lessor, in each case, subject to certain terms and conditions set forth in the Participation Agreement and the Lease. Amounts advanced under the Participation Agreement and outstanding obligations under the Lease may be prepaid at any time without premium or penalty, subject to customary breakage costs.
Assignment of Existing Leases
In connection with the transactions described above, the leases relating to the parts of the Facility previously leased by the Company from BMR-Landmark at Eastview LLC (
BMR
) (including the Lease, dated as of December 21, 2006, as amended, and the Mt. Pleasant Lease
, dated as of April 3, 2013, as amended (both of which were previously filed with the SEC)) have been assigned from BMR to the Lessee. As a result of this assignment, such leases have become intercompany agreements and their financial impact will be eliminated in consolidation.
* * *
The foregoing description of the Participation Agreement, the Lease, and the Guaranty is qualified in its entirety by reference to the full text of such agreements, which are attached hereto as Exhibits 10.1, 10.2, and 10.3, respectively, and are incorporated herein by reference.
Item 2.03.
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
On March 3, 2017, the Company and certain of its subsidiaries, as applicable, entered into the Participation Agreement, the Lease, and the Guaranty described under Item 1.01 above. The description of such agreements set forth in Item 1.01 above is incorporated herein by reference.
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