Debt, sponsor loans and the cost of the recalls

analysisOn February 14, 2018 Exactech entered a first lien credit agreement as borrower, with Osteon Intermediate Holdings II, Inc. as holdings and Goldman Sachs Bank USA as administrative and collateral agent, providing a $50,000,000 revolving credit facility and a $235,000,000 term loan. The obligations were guaranteed by Osteon Intermediate Holdings II and XpandOrtho and secured by substantially all of their and Exactech's assets. GLAS Trust Company LLC succeeded Goldman Sachs as agent on October 28, 2024. ¹

analysisOn September 19, 2023 Exactech entered a sidecar credit agreement under which TPG VII Osteon Holdings, LP, as agent and sole lender, agreed to provide $15,000,000 of term loans; in April 2024 the sponsor agreed to lend up to $20 million more to support settlement discussions in the product-liability litigation. At the petition date the debtors reported about $352 million of funded debt: $323,644,335.88 under the first lien agreement, made up of revolving loans of $52,180,116.32, the term loan of $264,917,930.82 and a 2024 incremental term loan of $6,546,288.74, and $28,525,064.59 under the sidecar agreement, which bore 12% interest until March 18, 2024 and 18% afterwards, mostly paid in kind. ¹

analysisThe chief restructuring officer stated that in the 12 months before the petition the company incurred about $20 million of costs related to the recalls and the litigation, and that the recalls prevented it from refinancing its debt or raising capital. The Settlement Trust alleges that after the merger Exactech carried over $200 million of secured debt and by 2019 had consistently negative cash flow and over $380 million of liabilities, more than $300 million above 2016; that its recognised liabilities for the first two polyethylene recalls grew from $16.8 million at the end of 2021 to $48.2 million a year later and $135.8 million at the end of 2023; and that it wrote off all remaining goodwill of its knee and hip segment with a $138 million impairment. These are allegations in the Settlement Trust’s pending complaint and have not been adjudicated. ^{1 2}

analysisOn August 16, 2024 an ad hoc group of first lien lenders, represented by Milbank LLP and Evercore, proposed a new-money debtor-in-possession facility backed by a stalking horse credit bid for substantially all the assets; at the time the company faced an interest payment of about $6 million on the first lien debt. ¹