Loans and Borrowings
|3 Months Ended|
Mar. 31, 2023
|Debt Disclosure [Abstract]|
|Loans and Borrowings||
12. Loans and Borrowings
The following table is a summary of the non-current liabilities:
On March 9, 2023, the Company and certain affiliates of, or funds managed and/or advised by, AlbaCore Capital LLP (the “AlbaCore Bridge Notes Subscribers”) entered into a bridge loan notes facility agreement (the “Bridge Facility Agreement”) by and among the Company, as borrower, Babylon Healthcare Inc., Babylon Partners Ltd., and Babylon Inc., as subsidiary guarantors (the “Subsidiary Guarantors”), and Babylon Group Holdings Limited, a limited company organized under the laws of England, as parent guarantor (the “Parent Guarantor” and, together with the Subsidiary Guarantors, the “Guarantors”), pursuant to which the AlbaCore Bridge Notes Subscribers agreed to provide Babylon with secured debt financing in the form of a senior secured term loan notes (“Bridge Notes”) facility (the “Bridge Facility”) for an aggregate principal amount of up to $34.5 million of Bridge Notes. Upon satisfaction of the applicable conditions described in the Bridge Facility Agreement, including the receipt of certain security documents and other transaction documentation, funding under the Bridge Facility was completed in three tranches of Bridge Notes in the aggregate
principal amounts of $13.8 million, $11.5 million, and $9.2 million, respectively. On April 17, 2023, Babylon and AlbaCore agreed to a waiver of the conditions for the utilization of tranche three of the Bridge Facility pursuant to the terms of the Tranche Three Waiver (as defined in Note 19). The Bridge Facility was subject to an original issue discount (calculated on the basis of an aggregate principal amount of $30.0 million). Prior to the amendments made pursuant to the Amendment and Restatement Agreement (as defined below), the maturity date of the Bridge Facility was November 4, 2026. The Bridge Facility bears payment-in-kind (“PIK”) interest at a rate of the term Secured Overnight Financing Rate (“SOFR”) plus credit adjustment spread plus a 12% margin. All PIK interest is capitalized and added to the principal of the Bridge Facility on the interest payment date of each month.
On May 10, 2023, the Company, the Guarantors, and the AlbaCore Bridge Notes Subscribers entered into an amendment and restatement agreement (the “Amendment and Restatement Agreement”) pursuant to which the Bridge Facility agreement was amended and restated (as amended and restated, the “Amended Bridge Facility Agreement”) and certain of the noteholders of the Bridge Facility (the “Bridge Noteholders”) agreed to provide further secured debt financing in the form of the Additional Bridge Facility in an aggregate principal amount of up to $34.5 million, to be funded in three additional tranches (such loan notes to be issued thereunder, the “Additional Bridge Notes”). The Additional Bridge Facility is subject to an original issue discount (calculated on the basis of an aggregate principal amount of $30.0 million).
The Additional Bridge Notes will be issued by the Parent Guarantor, are on economic terms substantially similar to the Bridge Notes and will rank pari passu with the Bridge Notes. The issuance of the Additional Bridge Notes is subject to the satisfaction of certain conditions precedent, including the receipt of certain supplemental security agreements and other transaction documentation, and with respect to the third tranche, approvals by Bridge Noteholders.
Each member of the Group which granted security to secure the obligations in respect of the Bridge Notes and the Existing Notes is required to grant supplementary security on substantially the same terms to secure the obligations in respect of the Additional Bridge Notes. The Additional Bridge Notes are guaranteed by the Company and the Guarantors substantially on the same terms as the guarantees granted in respect of the Bridge Notes.
The Amended Bridge Facility Agreement provides that proceeds from the Additional Bridge Facility must be used for working capital purposes and payments of fees, costs and expenses in connection with the Additional Bridge Facility and related transaction documentation. Pursuant to the terms of the Amended Bridge Facility Agreement, the Group is subject to certain additional restrictive covenants in relation to cash management, intra-group lending and certain other transactions, certain permitted exclusions to the restrictive covenants under the Bridge Facility Agreement have been removed or limited, certain events of default have been expanded to cover all members of the Group, certain additional events of default in relation to restrictions on transfer of the Bridge Notes and/or the Additional Bridge Notes have been added to the Bridge Facility Agreement, and the operational milestones in relation to a recapitalization of the Group and/or the sale of the Group, a sale of a strategic minority stake in the Group or a sale of material assets or subsidiaries of the Group have been removed.
The Bridge Notes and the Additional Bridge Notes shall be repayable on demand by written notice delivered by the trustee appointed under the Bridge Facility Agreement (the “Note Trustee”), on a date at least business days following the date of such written notice, provided that such date may not occur before June 16, 2023 (the delivery of such notice, the “Trigger Event”).
There are both mandatory and voluntary redemption features under the Amended Bridge Facility Agreement. Mandatory redemption is triggered in the event of a change in control of the Company. That includes when a person or group is or becomes the beneficial owner directly or indirectly of more than 50% of the total voting power of the Company. Mandatory redemption is also triggered in the event that the Company or any other member of the Group raises debt or equity financing. In such cases, all of the net financing proceeds will be applied in redemption of the Bridge Notes and the Additional Bridge Notes (together, the “Notes”). Mandatory redemption is also triggered in the event that the Company or any other member of the Group completes a disposal of its assets other than certain excluded disposals including ordinary course trading. In such cases, all of the net disposal proceeds will be applied in redemption of the Notes. Mandatory redemption is also triggered in the event that the Company or any member of the Group receives proceeds under an insurance claim other than certain excluded insurance claims proceeds. In such cases, the amounts received as insurance proceeds will be applied in redemption of the Notes. Voluntary redemption may be made by the Company or the Parent Guarantor to redeem or repurchase the relevant Notes on the last day of an interest period in whole or in part. This voluntary redemption must be an amount that reduces the amount of the relevant Notes by a minimum amount of $1.0
million or such lesser amount as agreed by the Note Trustee. Any redemption of the Notes shall be applied pro rata to the face value of the Notes held by each of the noteholders at such time.
Following execution of the Bridge Facility Agreement in March 2023, the AlbaCore Bridge Notes Subscribers had the right to nominate a candidate for appointment by the Company as an independent, non-executive director to the board of directors of the Company. In accordance with this right, the AlbaCore Bridge Notes Subscribers nominated and the Company completed the appointment of Eugene I. Davis to the board of directors effective March 30, 2023. In addition, the Company agreed, pursuant to the Tranche Three Waiver, that the Bridge Noteholders would be entitled to nominate a candidate for appointment by the Company as an independent, non-executive director to the board of directors of the Company and that, following such appointment, the board of the Company shall at all times comprise a maximum of five directors, a majority of which must be independent non-executive directors and two of which must be nominated by the Bridge Noteholders. See Note 19 for further details on the Tranche Three Waiver.
On March 15, 2023, as a condition subsequent to the execution of the Bridge Facility Agreement, the Company entered into subscription agreements with the AlbaCore Bridge Notes Subscribers for the private placement of Class A ordinary shares representing 2.3%, or 534,911 Class A ordinary shares of the Company (excluding earnout shares and employee awards) as at the closing date (the “Private Placement Shares”), as consideration for the agreement by the AlbaCore Bridge Notes Subscribers to provide secured debt financing to the Company pursuant to the Bridge Facility Agreement. The Private Placement Shares were issued on March 27, 2023.
In addition, on March 15, 2023, as a condition subsequent to the execution of the Bridge Facility Agreement, the Company amended and restated the warrant instrument dated November 4, 2021, as previously amended and restated on March 31, 2022 (the “Warrant Instrument”), evidencing the issuance of warrants (the “AlbaCore Warrants”) to subscribe for Class A ordinary shares to the AlbaCore Existing Notes Subscribers (as defined below), such that their subscription entitlement to receive Class A ordinary shares pursuant to the terms of the Warrant Instrument was deemed automatically and irrevocably exercised. The Company issued 105,431 Class A ordinary shares (the “Warrant Shares”) to the AlbaCore Existing Notes Subscribers, pursuant to such deemed exercise of the AlbaCore Warrants, on March 27, 2023.
In addition, the Company agreed to file a registration statement on Form S-3 with the SEC to register resales from time to time of the Private Placement Shares and the Warrant Shares within 10 business days after receiving a written request therefor from the AlbaCore Bridge Notes Subscribers.
AlbaCore Existing Notes
On October 8, 2021, Babylon entered into a note subscription agreement (the “Note Subscription Agreement”) that provided for the issuance of up to $200.0 million in unsecured notes due 2026 (the “Existing Notes”) to affiliates of, or funds managed or controlled by, AlbaCore Capital LLP (the “AlbaCore Existing Notes Subscribers”). On November 4, 2021 (“Note Closing Date”), Babylon issued the full $200.0 million (the “Principal Amount”) of Existing Notes under the Note Subscription Agreement at a discount of 95.5% of the Principal Amount. The Existing Notes bear interest accruing on the Principal Amount (which for these purposes shall include any capitalized interest from time to time) at the following rates: (i) 8.00% per annum for the period commencing from (and including) the Note Closing Date to (but excluding) the date falling two years after the Note Closing Date; (ii) 10.00% per annum for the period commencing from (and including) the date falling two years after the Note Closing Date, to (but excluding) the date falling three years after the Note Closing Date; and (iii) 12.00% per annum for the period commencing from (and including) the date falling three years after the Note Closing Date. The applicable interest rate is subject to a step-up margin of 6.5 basis points per annum if Babylon and its subsidiaries do not achieve a target of adding 100,000 Medicaid lives to value-based care contracts by January 1, 2024. The Existing Notes will mature five years from the Note Closing Date on November 4, 2026.
The terms of the Existing Notes included covenants, which covenants are subject to certain limitations and exceptions, limiting the ability of Babylon and its subsidiaries to, among other things: incur additional debt; pay or declare dividends or distributions on Babylon’s share capital; repay or distribute any additional paid in capital reserve or redeem, repurchase or retire its Class A ordinary shares; incur or allow to remain outstanding guarantees; make certain joint venture investments; enter into operating or capital lease contracts; create liens on Babylon’s or its subsidiaries’ assets; enter into sale and leaseback transactions; pay management and advisory fees outside the ordinary course of business; acquire a company or any shares or securities or a business or undertaking; merge or consolidate with another company; borrow or receive
investments from certain shareholders other than through Babylon; and sell, lease, transfer or otherwise dispose of assets. The terms of the Existing Notes also included customary events of default. However, as a condition to the funding of the Bridge Facility, the Company and the AlbaCore Existing Notes Subscribers agreed to certain amendments to the Existing Notes and the deed poll governing the Existing Notes. In addition, the Company and the Parent Guarantor agreed to grant security in favor of the AlbaCore Existing Notes Subscribers (on a junior basis to the AlbaCore Bridge Notes Subscribers), and the Company agreed to pay a consent fee of $1,500,000 to be capitalized into the principal amount of the Existing Notes. These amendments to the Existing Notes aligned certain of the covenants of the Existing Notes to the covenants of the Bridge Facility, including the minimum liquidity covenant, the prohibition on distribution to or dividends to shareholders, the governance undertakings and milestones and provided for the capitalization of accrued interest on the Existing Notes in respect of the interest period ending May 4, 2023 at a rate equal to the interest rate of the Existing Notes plus 2% per year.
The Company and AlbaCore Existing Notes Subscribers are expected to enter into a second supplemental deed poll to amend the relevant terms and conditions of the Existing Notes to align with the amendments made to the Bridge Facility Agreement pursuant to the Amendment and Restatement Agreement.
On the Note Closing Date, Babylon issued AlbaCore Warrants to subscribe for an aggregate of 70,299 Class A ordinary shares to the AlbaCore Existing Notes Subscribers on a pro rata basis by reference to the relevant proportion of the Principal Amount of Existing Notes subscribed for by each AlbaCore Existing Notes Subscribers. As noted above, all AlbaCore Warrants were amended and deemed automatically and irrevocably exercised as of March 15, 2023.
We capitalized debt issuance costs of $3.4 million in connection with the issuance of the Existing Notes. Please refer to Note 15 for further discussion of the Albacore Warrants.
AlbaCore Additional Notes and Warrants
On December 23, 2021, Babylon entered into an additional note subscription agreement (the “Second Note Subscription Agreement”) providing for the issue of not less than $75 million and not more than $100 million additional Existing Notes (the “Additional Notes”) to AlbaCore Partners III Investment Holdings Designated Activity Company, and any new note subscribers that are affiliates of, or funds managed or controlled by, AlbaCore Capital LLP and that adhere to the Second Note Subscription Agreement (the “Second Note Subscribers”).
The closing of the issue of the Additional Notes under the Second Note Subscription Agreement, for the principal amount of $100 million, occurred on March 31, 2022 (the “Second Closing Date”). The terms and conditions of the Additional Notes are the same as the terms of the Existing Notes, with the exception that the Additional Notes were issued at 100% of their principal amount. At Babylon’s election, up to 50.00% of the interest payable in respect of any interest period may be satisfied by the issuance by Babylon of further Existing Notes to be immediately consolidated and form a single series with the outstanding Existing Notes.
On the Second Closing Date, Babylon issued AlbaCore Warrants to subscribe for an aggregate of 35,150 additional Class A ordinary shares (the “Additional AlbaCore Warrants”) to the Second Note Subscribers. Upon an exercise event, the AlbaCore Warrants were exercisable in full and not in part only. The exercise events applicable to the Additional AlbaCore Warrants were the same as the AlbaCore Warrants. As noted above, all AlbaCore Warrants were subsequently amended and deemed automatically and irrevocably exercised as of March 15, 2023.
We capitalized debt issuance costs of $4.0 million in connection with the issuance of the Additional Notes. Please refer to Note 15 for further discussion of the Additional Albacore Warrants.
Under the original terms of the AlbaCore Warrants, upon any exercise event Babylon had a right to elect to satisfy the subscription entitlement in respect of the AlbaCore Warrants by issuing Class A ordinary shares, by making a redemption payment in cash, or by a combination of both (in such proportions as Babylon in its absolute discretion determined). The cash redemption payment per Note Warrant would have been determined by reference to the closing price for the Class A ordinary shares on such date as specified in the Amended and Restated Warrant Instrument in respect of each exercise event, provided that if the closing price was in excess of $375.00 per Class A ordinary share (subject to customary adjustments), the cash redemption payment would have been capped at $375.00 per Note Warrant.
Under the terms of the AlbaCore Warrants, upon exercise of the AlbaCore Warrants to issue Class A ordinary shares in satisfaction in whole or in part of the subscription entitlement under the AlbaCore Warrants, Babylon was required to issue one Class A ordinary share credited as fully paid and free from all encumbrances (except as set out in Babylon’s memorandum and articles of association from time to time) per AlbaCore Warrant held, subject to a proportionate downwards adjustment to the number of Class A ordinary shares to be issued per AlbaCore Warrant where the closing price of the Class A ordinary shares on such date as was specified in the Amended and Restated Warrant Instrument in respect of each exercise event was in excess of $375.00 per Class A ordinary share.
Interest is payable on the Existing Notes semi-annually on May 4 and November 4 each year. The first and second interest payment was due on the six-month and one-year anniversary of the Note Closing Date on May 4, 2022 and November 4, 2022 respectively. As of May 4, 2022 and November 4, 2022, the interest payable on the Existing Notes was $8.8 million and $12.2 million, respectively. In accordance with the Note Subscription Agreement, Babylon elected to satisfy 50.0% of the interest payable on such dates of $4.4 million and $6.1 million through the issuance of further Existing Notes, which were immediately consolidated and formed into a single series with the outstanding Existing Notes. The remaining $4.4 million and $6.1 million of the interest payable was settled in cash and reflected within the Consolidated Statement of Cash Flows line item for Increase / (Decrease) in accruals and other liabilities and due to related parties in the year-ended December 31, 2022. In accordance with the terms of the Bridge Facility, 100.0% of the interest payable on May 4, 2023 was satisfied through the issuance of further Existing Notes, rather than being paid in cash.
Changes in Loans and Borrowings from Financing Activities
During the three months ended March 31, 2023 and three months ended March 31, 2022 there was no interest paid on Loans and borrowings. As of March 31, 2023, and December 31, 2022 the unpaid portion of interest on Loans and borrowings, recognized within Accruals and other liabilities, was $10.2 million, and $3.9 million, respectively.
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