SENIOR TERM LOAN |
9 Months Ended | ||
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Sep. 30, 2023 | |||
Senior Term Loan | |||
SENIOR TERM LOAN |
On December 30, 2020, Legacy Airspan, together with Holdco, Airspan Networks (SG) Inc., Mimosa Networks, Inc., Mimosa Networks International, LLC, Airspan Communications Limited, Airspan Networks LTD, and Airspan Japan K.K., as guarantors, together with the other parties thereto, entered into an assignment agreement, whereby Pacific Western Bank (“PWB”) and Ally Bank assigned their interests in a loan facility under the Second Amended and Restated Loan and Security Agreement with Legacy Airspan (the “PWB Facility”) to certain new lenders (the “Assignment Agreement”), and PWB entered into a resignation and assignment agreement (the “Agent Resignation Agreement”) pursuant to which PWB resigned in its capacity as agent under all of the transaction documents and Fortress became the successor agent (as defined in the Agent Resignation Agreement), replacing PWB in such capacity under the PWB Facility. The Assignment Agreement and the Agent Resignation Agreement, along with a Reaffirmation and Omnibus Amendment, resulted in the amendment and restatement of the terms of the PWB Facility as the Fortress Credit Agreement with the new lenders as the lenders thereunder. Fortress became the administrative agent, collateral agent and trustee for the lenders and other secured parties. At Closing, on August 13, 2021, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are party to the Fortress Credit Agreement entered into a Waiver and Consent, Second Amendment, Restatement, Joinder and Omnibus Amendment to Credit Agreement and Other Loan Documents relating to the Fortress Credit Agreement with Fortress (the “August 2021 Fortress Amendment”) to, among other things, add the Company as a guarantor, recognize and account for the Business Combination, recognize and account for the Convertible Notes (see Note 11) and provide updated procedures for replacement of LIBOR. On March 29, 2022, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are party to the Fortress Credit Agreement entered into a Third Amendment and Waiver to Credit Agreement and Other Loan Documents relating to the Fortress Credit Agreement with Fortress to, among other things, amend the financial covenants included in the Fortress Credit Agreement. On May 18, 2023, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are party to the Fortress Credit Agreement entered into a Limited Waiver and Consent, Second Amendment and Restatement of Credit Agreement and Reaffirmation of Loan Documents (the “May 2023 Credit Agreement Amendment”) relating to the Fortress Credit Agreement with Fortress pursuant to which the parties agreed to, among other things, (i) certain consents related to the Company’s previously disclosed divestiture of Mimosa, (ii) waive certain existing events of default under the Fortress Credit Agreement in the limited manner set forth therein, (iii) terminate the existing delayed draw term loan commitments under the Fortress Credit Agreement and establish new delayed draw term loan commitments in the aggregate amount of $25 million, (iv) modify the interest rates applicable to certain loans under the Fortress Credit Agreement, (v) provide for the issuance of 20.0 million of this facility in the second quarter of 2023. As of September 30, 2023, this facility no longer has borrowing capacity that is available to the Company. The Warrants provided for under the Fortress Credit Agreement were issued to certain lenders or their designees and will be exercisable to purchase one share of the Company’s common stock at an exercise price of $0.01 per share. The Warrants have a term of 7.5 years and will become exercisable upon the earliest to occur of (i) the third anniversary of the issuance of the warrants, (ii) an “Acquisition” as defined in the Warrant, (iii) any debt financing or issuance of equity or instruments convertible into equity interests of the Company in which the Company receives in excess of $50 million in one or a series of related transactions, and (iv) any other strategic transactions, joint ventures, financings or combinations between the Company and one or more investors or third parties in which the Company or its subsidiaries receive in excess of $50 million in one or a series of related transactions. On August 11, 2023, the Company, Legacy Airspan and certain of the Company’s subsidiaries who are party to the Fortress Credit Agreement entered into a Consent and Partial Release and Amendment No. 1 to Loan Documents (the “August 2023 Fortress Credit Agreement Amendment”) relating to the Fortress Credit Agreement with Fortress pursuant to which the parties agreed to, among other things, certain consents, releases, and conforming amendments related to the Company’s previously disclosed divestiture of Mimosa. warrants to purchase shares of the Company’s common stock (collectively, the “Warrants”), (vi) amend certain financial covenants, (vii) provide for additional fees related to the Fortress Credit Agreement, and (viii) amend and restate the Fortress Credit Agreement. The Company borrowed $
With the May 2023 Credit Agreement Amendment, the interest rates were increased to 5.5% plus SOFR to up to 8.5% for the paid in-kind interest. The maturity of the loan did not change. The Company accounted for the May 2023 Credit Agreement Amendment as a loss on debt extinguishment of which $5.1 million is related to the senior term loan.
The Fortress Credit Agreement initial term loan total commitment of $34.0 million and a term loan commitment of $10.0 million were both funded to Legacy Airspan on December 30, 2020. Pursuant to the May 2023 Fortress Credit Agreement Amendment, the Company expanded the term loan commitment by $25.0 million subject to the terms and conditions of the Fortress Credit Agreement, which commitments have funded and/or expired. The maturity date of the total loan commitment is December 30, 2024. The Fortress Credit Agreement contains a prepayment premium of 5.0% if the prepayment occurs during the period from December 30, 2021 through December 29, 2022, and 3.0% if the prepayment occurs during the period from December 30, 2022 through December 29, 2023. The Fortress Credit Agreement also contained a prohibition on prepayment during the period from December 30, 2020 through December 29, 2021.
To secure its obligations under the Fortress Credit Agreement, Fortress was assigned PWB’s security interest under the PWB Facility and the Company and certain of its subsidiaries granted Fortress as security for the obligations a security interest in (a) all of the real, personal and mixed property in which liens are granted or purported to be granted pursuant to any of the collateral documents as security for the obligations, (b) all products, proceeds, rents and profits of such property, (c) all of each loan party’s book and records (d) all of the foregoing whether now owned or existing, in each case excluding certain excluded assets.
The Fortress Credit Agreement and the Fortress Convertible Note Agreement each contains representations and warranties, events of default and affirmative and negative covenants, which include, among other things, certain restrictions on the ability to pay dividends, create liens, incur additional indebtedness, make investments, dispose of assets, consummate business combinations (except for permitted investment, as defined in the Fortress Credit Agreement and the Fortress Convertible Note Agreement, respectively), and make distributions. In addition, financial covenants apply. Prior to the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment, these financial covenants included (a) minimum liquidity of an amount between $15.0 million and $20.0 million, depending on EBITDA performance levels and whether a default or event of default existed under the Fortress Credit Agreement, (b) minimum last twelve-month revenue and (c) minimum last twelve-month Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”). Pursuant to the May 2023 Fortress Credit Agreement Amendment, the financial covenants included in the Fortress Credit Agreement and the Fortress Convertible Note Agreement were amended to (i) decrease the required minimum liquidity to $2.0 million and, from and after the Closing Date, $4.0 million, (ii) modify the minimum revenue covenant levels and change to a three-month test period, and (iii) modify the minimum EBITDA covenant levels and change to a three-month test period. Revenue and EBITDA financial covenants are tested quarterly.
The Company was not in compliance with the minimum last twelve-month EBITDA covenant and the minimum last twelve-month revenue covenant under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes as of the December 31, 2022 and the March 31, 2023 quarterly measurement dates, and the Company was not in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and the Fortress Convertible Note Agreement at all times from November 29, 2022, until the date of the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment, each of which was an event of default under those agreements. The Company did not timely make the payments due under the Fortress Credit Agreement and the Fortress Convertible Note Agreement on March 31, 2023, which was an event of default under the Fortress Credit Agreement and the Fortress Convertible Note Agreement. Each of these defaults were waived pursuant to the May 2023 Fortress Credit Agreement Amendment and the May 2023 Fortress Convertible Note Agreement Amendment and the missed payments were paid at a later date. The Company was not in compliance with the minimum last three-month revenue covenants and the minimum Adjusted EBITDA covenants under the Fortress Credit Agreement and the Fortress Convertible Note Agreement as of the September 30, 2023 measurement date, each of which is an event of default under those agreements. Subsequent to September 30, 2023, the Company was not in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and the Fortress Convertible Note Agreement at all times since October 26, 2023, which is an event of default under those agreements. Additionally, the Company did not make the principal and interest payments due under the Fortress Credit Agreement on October 31, 2023, which was an event of default under the Fortress Credit Agreement and the Fortress Convertible Note Agreement.
On August 11, 2023, as part of the sale of the Mimosa business, the Company repaid $23.2 million of the Senior Term Loan, in addition to $1.8 million of prepayment and end of term fees. Therefore, Mimosa is no longer a guarantor under the Fortress Credit Agreement and the Fortress Convertible Note Agreement.
As of September 30, 2023, the Company was not in compliance with all applicable covenants under the Fortress Credit Agreement and therefore, the debt was classified as current. Subsequently, as of October 26, 2023, the Company is not in compliance with the minimum liquidity covenant under the Fortress Credit Agreement and Fortress Convertible Note Purchase Agreement, and the Company did not make the principal and interest payments due under the Fortress Credit Agreement on October 31, 2023.
Based on management’s current forecast, absent of additional financing or capital raising, the Company has concluded it may not be in compliance with certain of the prospective financial covenants under the May 2023 Credit Agreement Amendment and the agreement governing the Company’s senior secured convertible notes during certain periods of the next twelve months. Accordingly, while the Company may seek future waivers from compliance with the applicable covenants in connection with such anticipated breaches, or amendments of existing financial covenants included in the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes, the Company is also pursuing alternative sources of capital so that it would be able to satisfy its prospective minimum liquidity obligations under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes. There can be no assurance that the lenders under the Fortress Credit Agreement and the agreement governing the Company’s senior secured convertible notes will agree to waive any breaches thereunder that may arise in the future or that we will otherwise be able to remedy such breaches.
In the absence of waivers or remedies of existing covenant breaches or any additional breaches that may arise in the future, the lenders under the May 2023 Credit Agreement Amendment and the agreement governing the Company’s senior secured convertible notes could (i) elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest and other premiums, and institute foreclosure proceedings against the Company’s assets, (ii) elect to apply the default interest rate under the Fortress Credit Agreement and the Fortress Convertible Note Agreement and related agreements, and (iii) with respect to the Fortress Credit Agreement, elect to terminate their delayed draw commitments thereunder and cease making further loans. As a result of any of these actions, the Company could be forced into bankruptcy or liquidation. In addition, the Company’s subordinated term loan – related party (see Note 9) and subordinated debt (see Note 8) could be accelerated or required to be paid due to provisions contained within those instruments.
The Company’s senior term loan balance was $41.5 million and $44.1 million, inclusive of accrued interest of $7.4 million and $5.0 million, as of September 30, 2023 and December 31, 2022, respectively. Deferred financing fees of $2.3 million and $3.6 million are reflected as reductions of the outstanding senior term loan balance as of September 30, 2023 and December 31, 2022, respectively. |