|9 Months Ended|
Sep. 30, 2022
We have a Credit and Security Agreement (Credit Agreement) with MidCap Financial Trust (MidCap) entered on September 27, 2019 (Closing Date) and amended on March 29, 2021 (First Amendment), February 11, 2022 (Second Amendment) and July 27, 2022 (Third Amendment). The Credit Agreement provides for a $60.0 million term loan credit facility. At the Closing Date, $10.0 million was funded (Tranche 1), in May 2020, an additional $10.0 million was funded (Tranche 2), at the Second Amendment, an additional $10.0 million was funded (Tranche 3), and at the Third Amendment, an additional $10.0 million was funded (Tranche 4). As of September 30, 2022, the outstanding principal balance of the loan was $40.0 million, and the facility gives us the ability to access an additional $20.0 million aggregate principal amount of term loan at our option through March 31, 2023 (Tranche 5).
The First Amendment to the Credit Agreement entered in March 2021 extended the period through which Tranche 3 was available to us. The Second Amendment to the Credit Agreement entered in February 2022, among other things, amended the applicable funding conditions, applicable commitments and certain other terms relating to available credit facilities (Tranches 3 and 4), added additional term loan credit facility (Tranche 5), and revised certain terms related to the financial covenants.
Prior to the Third Amendment, the outstanding principal balance of the loan bore interest at an annual rate of one-month London Interbank Offered Rate (LIBOR), or a comparable applicable index rate determined pursuant to the Credit Agreement if the LIBOR is no longer available, plus applicable margin of 5.65%, subject to a LIBOR floor of 1.50% and is payable monthly in arrears. Further, the Credit Agreement provided for an interest-only payment period of 24 months from October 1, 2019, followed by 36 months of amortization payments. The interest-only period can also be extended to 36 months (first interest-only extension) and again to 48 months (second interest-only extension) upon the satisfaction of certain conditions set forth in the Credit Agreement. In June 2021 and June 2022, we satisfied the first and second interest-only extension conditions, respectively, which effectively extended the interest-only period through
October 1, 2023. All unpaid principal and accrued interest were due and payable no later than September 1, 2024, and a final payment fee of 2.5% of principal was due on the final payment of the term loan.
Following the Third Amendment, the maturity date for the term loans was extended to September 1, 2026, and the interest-only period was extended to October 1, 2024. Further, the interest rate benchmark was changed from LIBOR to Secured Overnight Financing Rate (SOFR). The interest rate applicable to the term loans under the amended Credit Agreement is the sum of one-month SOFR, plus an adjustment of 0.11448%, subject to 1.50% applicable floor, plus applicable margin of 5.65%. A final payment fee of 2.5% of principal is due at maturity date of the term loans.
Under the amended Credit Agreement, the prepayment fee applicable to the term loans was reset at the Third Amendment date. We may make voluntary prepayments, in whole or in part, subject to certain prepayment premiums and additional interest payments. The Credit Agreement also contains certain provisions, such as event of default and change in control provisions, which, if triggered, would require us to make mandatory prepayments on the term loan, which are subject to certain prepayment premiums and additional interest payments. The obligations under the amended Credit Agreement are secured by a perfected security interest in all of our assets including our intellectual property.
The amendment to the Credit Agreement was accounted for as debt modification. As such, fees paid to Midcap of $0.4 million were recorded as additional debt discount and added to the unamortized debt discount that are being amortized as interest expense through maturity using the effective interest rate method. Debt issuance costs are recorded as a direct deduction from the outstanding principal balance of the term loan. As of September 30, 2022 and December 31, 2021, the unamortized issuance costs and debt discounts amounted to $0.5 million and $0.1 million, respectively. As of September 30, 2022 and December 31, 2021, the outstanding balance of the loan, net of unamortized debt discount was classified as long-term liability in the accompanying condensed balance sheet.
Interest expense, including amortization of the debt discount and accretion of the final fees related to the Credit Agreement for the three months ended September 30, 2022 and 2021 was $0.8 million and $0.4 million, respectively, and for the nine months ended September 30, 2022 and 2021 was $1.9 million and $1.2 million, respectively. Accrued interest of $0.7 million was included within other accrued liabilities in the condensed balance sheet as of September 30, 2022.
The following table presents the future minimum principal payments of the outstanding loan as of September 30, 2022 (in thousands):
The amended Credit Agreement contains certain covenants which, among others, require us to deliver financial reports at designated times of the year and maintain minimum unrestricted cash and trailing net revenues. As of September 30, 2022, we were not in violation of any covenants.
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