Outset Medical gets up to $300 million via two secured facilities

By Mary-Katherine Stinson

Lexington, Ky., Nov. 4 – Outset Medical, Inc. on Nov. 3 closed on a combined $300 million in new financing, comprised of two senior secured credit facilities funded by investment affiliates managed by SLR Capital Partners, LLC, according to an 8-K filing with the Securities and Exchange Commission.

The two facilities are made up of a term loan facility with SLR Investment Corp. as collateral agent and an asset-based revolving credit facility with Gemino Healthcare Finance, LLC, also known as SLR Healthcare ABL.

There are certain overall borrowing limitations.

The company can borrow up to $200 million under the facilities on the closing date.

The company can then borrow up to $250 million under the facilities if the company achieves a certain net revenue milestone calculated on a trailing six-month basis on or before June 30, 2024 and receives approval for an additional tranche under the revolver.

Up to $300 million will be available if the company achieves a subsequent net revenue milestone calculated on a trailing six-month basis on or before June 30, 2025 and receives lenders’ approval.

Term loan details

The term loans total up to $250 million consisting of a term loan of $100 million (the term A loan), one or more term loans in minimum increments of $20 million each totaling up to $100 million (the term B loans) and one or more term loans in the aggregate of up to $50 million (the term C loans).

The term A loan was funded on closing.

The term B loans are available for funding until Aug. 20, 2024 and the term C loans are available subject to lenders’ approval and the achievement of the second revenue milestone on or before June 30, 2025.

The term C loan will remain available until one business day before Nov. 1, 2027.

The term loans will bear interest at one-month term SOFR plus 515 basis points, subject to a 2.75% floor.

Interest-only payments are permitted through Nov. 30, 2026 which may be extended by the company to May 31, 2027 if it meets the first revenue milestone.

There is a facility fee of $750,000 each for both the term A loan and term B loans to be paid on the earliest of the funding of the first term B loan, Dec. 20, 2023 and the prepayment of the term loans.

There is a facility fee of $375,000 for the term C loans to be paid on the earliest of the funding of the first term C loan, one day prior to the maturity date and the prepayment of the term loans.

Prepayments are at 103 if prepaid before or on the first anniversary of closing, 102 if paid on or before the second anniversary and at par if paid after the second anniversary but prior to maturity.

A final fee of 475 bps is due on the earliest of the maturity date, the acceleration of the term loans and the prepayment of the term loans.

Revolver details

The agreement provides for an asset-based revolving credit facility with initial commitments of $25 million.

The company may request an increase of $25 million in an additional tranche for up to a total of $50 million.

Amounts available to be drawn under the revolver are equal to the lesser of the outstanding revolving commitments under the revolving credit agreement and a borrowing base equal to the sum of 85% of eligible accounts receivable, plus 25% of eligible inventory (not to exceed the lesser of 50% of the borrowing base and $5 million), minus customary reserves, minus unposted cash.

Borrowings will bear interest at one-month term SOFR plus 320 bps, subject to a 2.75% floor.

There is a facility fee of $187,500 for the initial commitment.

There is also a facility fee of $187,500 for the additional tranche payable upon activation of the tranche.

A commitment fee of 50 bps annually of the average daily unused portion of the then commitment amount is due monthly.

There is also a collateral monitoring fee of 10 bps per month of the average daily borrowing base during the prior month, payable monthly.

Amounts may be borrowed, repaid and reborrowed in varying amounts under the revolver at any time subject to customary exceptions and restrictions.

The revolver may be terminated at any time at 102 if terminated prior to the first anniversary of closing, 101 if terminated on or before the second anniversary and 100.5 bps if terminated on or before the third anniversary. The fee is waived if terminated after the third anniversary.

Other details

Upon the occurrence of a default event, an additional default interest rate of 400 bps will be imposed.

The credit facilities mature Nov. 1, 2027.

Armentum Partners served as financial adviser and Cooley LLP served as legal counsel to Outset.

Outset drew $100 million in funding under the term loan facility at closing. An additional $100 million is available to borrow under the credit facilities as of closing.

The company fully repaid all amounts due under its existing senior secured term loan facility with Silicon Valley Bank dated as of July 2, 2020, including the early repayment fee of $300,000 and the final payment of $2 million, using a portion of the proceeds of the SLR credit facilities.

San Jose, Calif.-based Outset is a medical technology company pioneering technologies to reduce the cost and complexity of dialysis.

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