| Item 2.04. |
Triggering Events that Accelerate or Increase a Direct Financial Obligation or Obligation under an Off-Balance Sheet Arrangement. |
On May 1, 2024, Seres Therapeutics, Inc. (the “Company”) received a Notice of Default and Reservation of Rights (the “Notice”) under the Credit Agreement and Guaranty, dated as of April 27, 2023 (as amended, the “Oaktree Credit Agreement”), among the Company, the subsidiary guarantors from time to time party thereto, the lenders from time to time party thereto (the “Lenders”), and Oaktree Fund Administration, LLC, in its capacity as administrative agent for the Lenders (in such capacity, the “Agent”) from the Agent.
The Notice specified that in the Agent’s view, one or more events of default have occurred under the Oaktree Credit Agreement due to (a) the Company’s non-payment of a milestone payment to BacThera AG (“Bacthera”) under the Company’s Long Term Manufacturing Agreement, dated as of November 8, 2021, with Bacthera (as amended, the “Bacthera Agreement”) which the Agent characterized as “Indebtedness” that would not be permitted under the Oaktree Credit Agreement and (b) the Company’s failure to deliver written notice to the Agent regarding such non-payment.
Under the Bacthera Agreement, approximately $28.0 million would be due to Bacthera upon their substantial completion of the Company’s dedicated production suite. However, the Company has identified certain incomplete elements of the project required to satisfy the “Substantial Completion” criteria as set forth in the Bacthera Agreement. The Company believes that it is probable that these elements can be completed in 2024 and discussions with Bacthera are continuing to align on the steps necessary to complete those steps and the related timing of any milestone payment.
The Company has responded by letter to the Notice, advising the Agent that no default or event of default under the Oaktree Credit Agreement has occurred or is continuing, because the payment under the Bacthera Agreement is not due, and, as a result, no notice of non-payment was required. Moreover, even if the payment were due, the Company does not believe such payment would constitute Indebtedness (as defined in the Oaktree Credit Agreement).
The Oaktree Credit Agreement establishes a term loan facility (the “Term Loan”) of up to $250.0 million with a maturity date of April 27, 2029 (the “Maturity Date”), of which $110.0 million is currently outstanding. Borrowings under the Term Loan bear interest at a rate per annum equal to the three-month term Secured Overnight Financing Rate (“SOFR”) (subject to a 2.50% floor and a 5.00% cap), plus an applicable margin of 7.875%, payable quarterly in arrears. If certain VOWST net sales targets are met, the applicable margin will be reduced from 7.875% to 7.50% through the Maturity Date. The Oaktree Credit Agreement contains certain events of default that entitle the Agent to cause the Company’s indebtedness under the Oaktree Credit Agreement to become immediately due and payable, and to exercise remedies against the Loan Parties and the collateral securing the Term Loan, including cash. In an event of default and for its duration, as defined in the Oaktree Credit Agreement, an additional default interest rate equal to 2.0% per annum may apply to all obligations owed under the Oaktree Credit Agreement.
Based on the above, the Company believes that it is not in default under the Oaktree Credit Agreement, and that the Agent does not have the right to accelerate the indebtedness or otherwise pursue remedies thereunder. If the Agent were to pursue any such actions, the Company intends to vigorously defend itself against them and to pursue any counterclaims available to it. Nevertheless, the Company is attempting to resolve this matter with the Agent consensually.
Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Current Report on Form 8-K that do not relate to matters of historical fact should be considered forward-looking statements, including statements about the completion of the production suite and milestone payments under the Bacthera Agreement, the Company’s beliefs and intentions regarding the Oaktree Credit Agreement and the resolution of the matters thereunder, and the timing of any of the foregoing. These forward-looking statements are based on management’s current beliefs, intentions and expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-