Item 1.01 Entry into a Material Definitive Agreement.
On May 24, 2022, in connection with the closing of the transactions contemplated by the Merger Agreement, Halozyme entered into that certain Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders and L/C Issuers party thereto, evidencing a credit facility (the “Facility”) that provides for (x) a $350 million revolving credit facility (the “Revolving Credit Facility”) and (y) a $250 million term loan facility (the “Term Facility”). The proceeds of the Term Facility and the initial borrowings under the Revolving Credit Facility, in addition to a portion of Halozyme’s existing cash on hand, were used to pay the Merger Consideration, refinance the Company’s existing indebtedness and pay fees and expenses in connection with the foregoing.
Halozyme, Inc., a wholly-owned subsidiary of Halozyme, and the Company guarantee Halozyme’s obligations under the Credit Agreement. The Facility will mature on November 30, 2026, unless either the Revolving Credit Facility or the Term Facility is extended prior to such date in accordance with the Credit Agreement.
The Credit Agreement contains an expansion feature, which allows Halozyme, subject to certain conditions, to increase the aggregate principal amount of the Facility, provided Halozyme remains in compliance with underlying financial covenants on a pro forma basis including the consolidated interest coverage ratio and the consolidated net leverage ratio covenants set forth in the Credit Agreement, and the consolidated net leverage ratio shall be not greater than 0.25:1.00 less than the consolidated net leverage ratio then permitted under the Credit Agreement.
In addition to paying interest on the outstanding principal under the Facility, Halozyme will pay (i) a commitment fee in respect of the unutilized commitments thereunder and (ii) customary letter of credit fees and agency fees. The commitment fees range from 0.15% to 0.35% per annum based on Halozyme’s consolidated net leverage ratio.
Substantially all of the assets of Halozyme and the Guarantors (including the Company) are pledged as collateral under the Facility (subject to customary exceptions and excluding real property and intellectual property) pursuant to the terms set forth in the Security Agreement (as defined in the Credit Agreement) and Pledge Agreement, each dated as of May 24, 2022, and each executed in favor of the administrative agent by Halozyme and the Guarantors. Following the Closing, borrowings under the Revolving Credit Facility are to be used by Halozyme to provide financing for working capital and other general corporate purposes, including potential acquisitions.
Borrowings under the Facility bear interest, at Halozyme’s option, at a rate equal to an applicable margin plus: (a) the applicable Term SOFR (as defined in the Credit Agreement) rate (which includes a SOFR adjustment of 0.10%), or (b) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the Bank of America prime rate, (3) the Term SOFR rate for an interest period of one month plus 1.10%, and (4) 1.00%. The margin for the Facility ranges, based on Halozyme’s consolidated total net leverage ratio, from 0.25% to 1.25% in the case of base rate loans and from 1.25% to 2.25% in the case of Term SOFR rate loans.
The terms of the Facility include certain affirmative and negative covenants as set forth in the Credit Agreement, that, among other things, may restrict Halozyme’s ability to: create liens on assets; incur additional indebtedness; make investments; make acquisitions and other fundamental changes; and sell and dispose of property or assets. The Credit Agreement also includes financial covenants requiring Halozyme to maintain, measured as of the end of each fiscal quarter, a maximum consolidated net leverage ratio of 4.75 to 1.00 initially, which declines to 4.00 to 1.00 over the term of the Facility, and a minimum consolidated interest coverage ratio of 3.00 to 1.00. If Halozyme consummates a material acquisition the consolidated net leverage ratio covenant will be increased by 0.50 to 1.00 (to a level not to exceed 4.75 to 1.00) for a period of three fiscal quarters following such material acquisition. The Credit Agreement also contains customary representations and warranties and events of default.
The Term Facility requires quarterly scheduled repayments of the term loans in each of the first, second, third and fourth years following the Closing in annual amounts equal to 2.50%, 5.00%, 7.50% and 10.00% of the initial principal amount of the term loans, respectively. The term loans are also subject to mandatory prepayments from the proceeds of certain asset sales, subject to Halozyme’s right to reinvest the proceeds thereof.
The foregoing is a summary description of certain terms of the Facility and does not purport to be complete, and it is qualified in its entirety by reference to the full text of the Credit Agreement, which is filed as Exhibit 10.1 to the