Quarterly report pursuant to Section 13 or 15(d)

Debt and Interest

v3.19.1
Debt and Interest
 3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Debt and Interest
10. Debt and Interest
 
Debt
 
Total debt consists of the following as of March 31, 2019 and December 31, 2018:
 
($ in thousands)
 
March 31,

2019
 
 
December

31, 2018
 
 
Interest rate
 
 
Maturity
IDB Note
 
$
14,929
 
 
$
14,929
 
 
 
2.25
%
 
Aug - 2020
2017 Subordinated Note Financing
 
 
3,254
 
 
 
3,254
 
 
 
8.00
%
 
March - 2020
2017 Subordinated Note Financing
 
 
13,893
 
 
 
13,893
 
 
 
8.00
%
 
May - 2020
2017 Subordinated Note Financing
 
 
1,820
 
 
 
1,820
 
 
 
8.00
%
 
June - 2020
2017 Subordinated Note Financing
 
 
3,018
 
 
 
3,018
 
 
 
8.00
%
 
August - 2020
2017 Subordinated Note Financing
 
 
6,371
 
 
 
6,371
 
 
 
8.00
%
 
September - 2020
2018 Venture Debt
 
 
6,517
 
 
 
6,517
 
 
 
8.00
%
 
February - 2021
2018 Venture Debt
 
 
15,190
 
 
 
15,190
 
 
 
8.00
%
 
March - 2021
Opus Credit Facility
1
 
 
9,500
 
 
 
9,500
 
 
 
12.00
%
 
September - 2019
Mustang Horizon Notes
2
 
 
15,000
 
 
 
–
 
 
 
9.00
%
 
October - 2022
Caelum Convertible Note, at fair value
1
 
 
–
 
 
 
1,000
 
 
 
8.00
%
 
January - 2019
Caelum Convertible Note, at fair value
1
 
 
–
 
 
 
6,800
 
 
 
8.00
%
 
February - 2019
Caelum Convertible Note, at fair value
1
 
 
–
 
 
 
2,114
 
 
 
8.00
%
 
March - 2019
Total notes payable
 
 
89,492
 
 
 
84,406
 
 
 
 
 
 
 
Less: Discount on notes payable
 
 
6,608
 
 
 
4,903
 
 
 
 
 
 
 
Total notes payable
 
$
82,884
 
 
$
79,503
 
 
 
 
 
 
 
 
Note 1: Classified as short-term on the Company’s Consolidated Balance Sheet as of December 31, 2018.
Note 2: Interest rate is
9.0% plus one-month LIBOR Rate
in excess of
2.5
%
  
Mustang Horizon Notes
 
On March 29, 2019, Mustang entered into a $20.0 million venture debt financing agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation (“Horizon”), the proceeds of which will provide Mustang with additional working capital to continue development of its gene and cell therapies. In accordance with the Loan Agreement, $15.0 million of the $20.0 million loan was funded on the Closing Date, with the remaining $5.0 million fundable upon Mustang achieving certain predetermined milestones.
 
Each advance under the Horizon Loan Agreement will mature 42 months from the first day of the month following the funding of the advance. The first three advances will mature on October 1, 2022 (the “Loan Maturity Date”). Each advance accrues interest at a per annum rate of interest equal to
9.00% plus the amount by which the one-month LIBOR Rate
, as reported in the Wall Street Journal, exceeds
2.50
%. The Loan Agreement provides for interest-only payments commencing May 1, 2019 through and including October 1, 2020. The interest-only period may be extended to April 1, 2021 if Mustang satisfies the Interest Only Extension Milestone (as defined in the Loan Agreement). Thereafter, commencing May 1, 2021, amortization payments will be payable monthly in eighteen installments of principal and interest.
At its option, upon ten business days’ prior written notice to Horizon, Mustang may prepay all or any portion greater than or equal to $500,000 of each of the outstanding advances by paying the entire principal balance (or portion thereof) and all accrued and unpaid interest, subject to a prepayment charge of 4.0% of the then outstanding principal balance of each advance if such advance is prepaid on or before the Loan Amortization Date (as defined in the Loan Agreement), 3% if such advance is prepaid after the Loan Amortization Date applicable to such Loan, but on or prior to twelve months following the Loan Amortization Date, and 2% thereafter. In addition, a final payment equal to $0.3 million for each advance (i.e., $0.8 million in aggregate with respect to the initial $15.0 million) is due on the maturity date or other date of payment in full. Amounts outstanding during an event of default shall be payable on demand and shall accrue interest at an additional rate of 5.0% per annum of the past due amount outstanding.
 
Each advance of the loan is secured by a lien on substantially all of the assets of Mustang, other than Intellectual Property and Excluded Collateral (in each case as defined in the Loan Agreement), and contains customary covenants and representations, including a liquidity covenant, financial reporting covenant and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries.
 
The events of default under the Loan Agreement include, among other things, without limitation, and subject to customary grace periods, (1) Mustang’s failure to make any payments of principal or interest under the Loan Agreement, promissory notes or other loan documents, (2) Mustang’s breach or default in the performance of any covenant under the Loan Agreement, (3) the occurrence of a material adverse change, (4) Mustang making a false or misleading representation or warranty in any material respect, (5) Mustang’s insolvency or bankruptcy, (6) certain attachments or judgments on the Mustang’s assets,  (7) the occurrence of any material default under certain agreements or obligations of Mustang involving indebtedness in excess of $0.3 million or (8) failing to maintain minimum monthly cash balances which range from approximately $8.0 to $13.0 million over the term of the loan. If an event of default occurs, Horizon is entitled to take enforcement action, including acceleration of amounts due under the Loan Agreement.
 
The Loan Agreement also contains warrant coverage of 5% of the total amount
of the facility. 
Four warrants (the “Warrants”) were issued by Mustang to Horizon to purchase a combined
288,184
shares of Mustang’s common stock with an exercise price of $3.47 
and a fair value of $0.9 million.
The Warrant is exercisable for ten years from the date of issuance. Horizon may exercise the Warrant either by (a) cash or check or (b) through a net issuance conversion. The shares of Mustang’s common stock will, upon request by Horizon, be registered and freely tradeable following a period of six months after issuance.
  
Mustang paid Horizon an initial commitment fee of $0.2 million and reimbursed Horizon for $30,000 of legal fees in connection with the Loan Agreement. Mustang incurred approximately $1.2 million of legal and other direct costs incurred in connection with the Loan Agreement.
 
All fees,
warrants, 
and costs paid to Horizon and all direct costs incurred by Mustang are recognized as a debt discount to the funded loans and are amortized to interest expense using the effective interest method over the term of the Loan Agreement.
 
Interest Expense
 
 
The following table shows the details of interest expense for all debt arrangements during the periods presented. Interest expense includes contractual interest and amortization of the debt discount and amortization of fees represents fees associated with loan transaction costs, amortized over the life of the loan:
 
 
 
Three Months Ended March 31,
 
 
 
2019
 
 
2018
 
($ in thousands)
 
Interest
 
 
Fees 1
 
 
Total
 
 
Interest
 
 
Fees 1
 
 
Total
 
IDB Note
 
$
83
 
 
$
-
 
 
$
83
 
 
$
84
 
 
$
-
 
 
$
84
 
2017 Subordinated Note Financing
 
 
1,028
 
 
 
363
 
 
 
1,391
 
 
 
1,048
 
 
 
325
 
 
 
1,373
 
Opus Credit Facility
 
 
281
 
 
 
113
 
 
 
394
 
 
 
281
 
 
 
319
 
 
 
600
 
2018 Venture Notes
 
 
429
 
 
 
146
 
 
 
575
 
 
 
56
 
 
 
17
 
 
 
73
 
LOC Fees
 
 
15
 
 
 
–
 
 
 
15
 
 
 
7
 
 
 
–
 
 
 
7
 
Helocyte Convertible Note
 
 
–
 
 
 
–
 
 
 
–
 
 
 
68
 
 
 
–
 
 
 
68
 
Caelum Convertible Note
 
 
–
 
 
 
–
 
 
 
–
 
 
 
196
 
 
 
–
 
 
 
196
 
Mustang Horizon Notes
 
 
11
 
 
 
–
 
 
 
11
 
 
 
–
 
 
 
–
 
 
 
–
 
Other
 
 
–
 
 
 
–
 
 
 
–
 
 
 
2
 
 
 
–
 
 
 
2
 
Total Interest Expense and Financing Fee
 
$
1,847
 
 
$
622
 
 
$
2,469
 
 
$
1,742
 
 
$
661
 
 
$
2,403
 
 
Note 1: amortization of fees