Foghorn Therapeutics Inc.FHTX
Foghorn Therapeutics Inc. Debt Disclosure
6. Notes Payable
Long-term debt consisted of the following (in thousands):
December 31, | ||||||||
2020 | 2019 | |||||||
Principal amount of long-term debt | $ | 20,000 | $ | 15,000 | ||||
Less: Current portion of long-term debt | — | (4,152 | ) | |||||
Long-term debt, net of current portion | 20,000 | 10,848 | ||||||
Final payment fee | 1,000 | 530 | ||||||
Debt discount, net of accretion | (1,346 | ) | (418 | ) | ||||
Long-term debt, net of discount and current portion | $ | 19,654 | $ | 10,960 | ||||
Loan and Security Agreements
As of December 31, 2019, the Company had outstanding loans under its amended loan and security agreement with Comerica Bank (the “Loan”) of
$7.0 million (“Term Loan A”) and $8.0 million (“Term Loan B”). Borrowings under both Term Loan A and Term Loan B were repayable in monthly payments of interest-only through February 2020, to be followed by monthly payments of equal principal plus interest until the loan maturity date of February 1, 2023. In April 2020, the Company amended the Loan to extend the interest only period through May 31, 2020 and in June 2020 the Loan was further amended to extend the interest-only period through August 31, 2020. Interest for Term Loan A was the greater of 1) Comerica’s Prime Rate or 2) LIBOR plus 2.5%, and for Term Loan B, 1.0% plus the greater of 1) Comerica’s Prime Rate or 2) LIBOR plus 2.5%. A final payment fee of 3.0% of the aggregate amounts drawn under Term Loan A and 4.0% under Term Loan B was due upon the earlier of the maturity date, the repayment date if paid early, whether voluntary or upon acceleration due to default, the sale of substantially all of the Company’s assets, or the Company’s IPO. The Company may repay the Loan at any time by paying the outstanding principal balance in full, along with any unpaid accrued interest and the final payment fee. The final payment fee of $0.5 million was being amortized to interest expense over the term of the debt using the effective interest method. Upon closing of the Company’s IPO in October 2020, the final payment fee became due. In November 2020, the Company used a portion of the proceeds from its new loan and security agreement described below to repay the outstanding principal balance under Term Loan A and Term Loan B plus unpaid accrued interest and the final payment fee.
The Company recorded a loss
on debt extinguishment of $0.2 million related to this repayment. On November 19, 2020, the Company entered into a new loan and security agreement, or the Oxford Loan, with Oxford Finance LLC, or Oxford, for an aggregate principal amount of $20.0 million (Oxford Term Loan A) and up to an additional $5.0 million (Oxford Term Loan B).
On November 19, 2020, the Company borrowed $20.0 million under the Oxford Term Loan A.
The Term Loan bears interest at a floating per annum rate equal to the greater of (i) 8.0% and (ii) the sum of (a) thirty-day
LIBOR rate plus (b) 7.84%. In addition, upon loan maturity or prepayment, the Company is reqired to make a final payment fee equal to 5.0% of the aggregate principal amount borrowed which is being amortized to interest expense over the term of the debt using the effective interest method. The Company is required to make monthly interest only payments under the Oxford Loan each month beginning on January 1, 2021. Beginning on December 1, 2023, the Company is required to make consecutive equal monthly payments of principal, together with applicable interest, in arrears, based upon a repayment schedule equal to 24 months, with a final maturity date of November 1, 2025 (the “Maturity Date”).
At the Company’s option, the Company may elect to prepay the loans subject to a prepayment fee equal to the following percentage of the principal amount being prepaid: 2% if an advance is prepaid during the first 12 months following the applicable advance date, 1% if an advance is prepaid after 12 months but prior to 24 months following the applicable advance date, and 0.5% if an advance is prepaid any time after 24 months following the applicable advance date but prior to the Maturity Date.
The Company’s obligations under the Oxford Loan Agreement are secured by a security interest in all of its assets, other than its intellectual property. The Company is also subject to certain affirmative and negative covenants limitations on dispositions, mergers or acquisitions; encumbering its intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. The obligations under the Loan are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in the Company’s business, operations or financial or other condition. Upon the occurrence of an event of default and until such event of default is no longer continuing, the annual interest rate will be 5.0% above the otherwise applicable rate. As of December 31, 2020, the Company believes an event of default would be remote.
including
In
addition, in
connection with the Oxford Loan Agreement, the Company granted warrants to purchase 18,445 shares of the Company’s common stock at $16.26 per share. The issued warrants are exerciseable for 10 years. The Company valued the warrants using the Black-Scholes option pricing model and determined the fair value of the warrants to be $0.2 million. The Company determined the warrants met the criteria for equity classification, and, as such, the fair value of the warrants were recorded as additional paid-in
capital and as a discount to the debt which is being amortized to interest expense over the term of the Oxford Loan of five years. In addition, the Company incurred debt issuance costs of
$0.2 million.
As of December 31, 2020, the interest rate applicable to outstanding borrowings under the Oxford Loan was
8.0%. During the years ended December 31, 2020 and 2019, the weighted average effective interest rate on outstanding borrowings was approximately 6.4% and 6.9%, respectively. As of December 31, 2020, future principal payments due are as follows (in thousands):
2021 | $ | — | ||
2022 | — | |||
2023 | 833 | |||
2024 | 10,000 | |||
2025 | 9,167 | |||
| $ | 20,000 | |||
About Debt Disclosures
Debt disclosures detail a company's borrowing structure — the types of instruments, interest rates, maturity schedule, and covenant restrictions that define its financial obligations and flexibility. This section is essential for assessing refinancing risk, interest rate exposure, and the margin of safety against financial distress.
Key signals: the maturity schedule reveals concentration risk — large maturities within 1-2 years during tight credit markets can force dilutive refinancing or asset sales. Compare the fair value of debt against carrying amount to gauge whether the market views the company's credit risk differently than the balance sheet suggests. Watch covenant compliance disclosures for tightening cushions, especially leverage and interest coverage ratios. Variable-rate debt exposure quantifies sensitivity to interest rate changes. Secured versus unsecured mix affects recovery rates and future borrowing capacity. Compare net debt-to-EBITDA against industry peers and covenant limits to assess financial health.