Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.23.1
Debt
 3 Months Ended
Mar. 31, 2023
Debt Disclosure [Abstract]  
Debt Debt
Debt consisted of the following:

  March 31, December 31,
2023 2022
  (in thousands)
Senior Facility $ 124,417 $ 98,442
Subordinated Facility 43,843 42,500
Unamortized deferred financing costs (45,843) (21,128)
Total debt $ 122,417 $ 119,814

Agreements with Cargill Financial

As previously disclosed in the Company's Annual Financial Statements, Local Bounti Operating Company LLC ("Local Bounti Operating"), the Company and certain subsidiaries entered into with Cargill Financial a First Amendment, a Second Amendment, and a Third Amendment to the Credit Agreement, dated as of September 3, 2021, and the Subordinated Credit Agreement, dated as of September 3, 2021 (the "Original Credit Agreements," and the facilities thereunder, the "Senior Facility" and the "Subordinated Facility," respectively and, collectively, the "Facilities") (which are further described in the Annual Financial Statements) in March 2022, August 2022, and December 2022, respectively. As further described below, Local Bounti Operating, the Company, and certain subsidiaries entered into with Cargill Financial a Fourth Amendment, a Fifth Amendment, and a Sixth Amendment to the Original Credit Agreements (collectively referred to as the "Amended Credit Agreements").

Fourth Amendment to the Original Credit Agreements

On January 6, 2023, Local Bounti Operating, the Company and certain subsidiaries entered into a Fourth Amendment to the Original Credit Agreements (the "Fourth Amendment") with Cargill Financial. The Fourth Amendment reduced the minimum liquidity covenant in each of the Original Credit Agreements from $20.0 million to $11.0 million.

Fifth Amendment to the Original Credit Agreements

On March 13, 2023, Local Bounti Operating, the Company and certain subsidiaries entered into a Fifth Amendment to the Original Credit Agreements (the "Fifth Amendment") with Cargill Financial. The Fifth Amendment (i) reduced the amount of cash required to be held in the debt service reserve account by approximately $11.0 million until April 2, 2024, at which time the amount of cash required to be held in the debt service reserve account will be an amount equal to the sum of interest and principal payments that would be required under the Amended Credit Agreements for two calendar quarters; (ii) allowed for the payment in kind of the quarterly interest payment due and payable for the quarter ended March 31, 2023; (iii) allowed for the payment in kind of the unused commitment fee payable for the quarter ended March 31, 2023; and (iv) reduced the minimum liquidity covenant in each of the Amended Credit Agreements from $11.0 million to $1.0 million. The aggregate amount of outstanding loans and undrawn commitments under the Amended Credit Agreements remains at $170.0 million (plus interest and fees paid in kind).

Sixth Amendment to the Original Credit Agreements

On March 28, 2023, Local Bounti Operating, the Company and certain subsidiaries entered into a Sixth Amendment to the Original Credit Agreements (the "Sixth Amendment") with Cargill Financial. The Sixth Amendment, among other things, (i) expanded the Facilities from $170.0 million to up to $280.0 million (plus, in each case, interest and fees paid in kind), including capital to fund construction at the Company’s facilities in Georgia, Texas, and Washington, subject to certain conditions and at Cargill Financial's discretion; (ii) allowed for the payment in kind of the quarterly interest payment due and payable for the quarter ending June 30, 2023; and (iii) added a minimum production covenant based on a projected production forecast. In consideration for the improved flexibility and the expanded size of the Facilities, Local Bounti issued Cargill Financial 69.6 million warrants with a per share exercise price of $1.00 per share (the "March 2023 Cargill Warrant") and a 5-year term that expires on March 28, 2028.
The Company evaluated the before and after cash flow changes resulting from the Fourth, Fifth and Sixth Amendments and concluded the change in cash flows underlying these cumulative amendments were not significantly different from the cash flows underlying the terms in the Original Credit Agreements; therefore, the Company accounted for these amendments as a modification rather than as an extinguishment. Consequently, the $25.7 million fair value of the March 2023 Cargill Warrant was recorded as an additional debt discount that will amortized to interest expense over the remaining term of the Amended Credit Agreements. Fees paid to non-lender third parties as a result of the modification have been expensed as incurred. The Company determined the fair value of the March 2023 Cargill Warrant using a Black-Scholes-Merton option pricing model with the following input assumptions: (i) $1.00 exercise price, (ii) $0.45 stock price, (iii) 5-year expected term, (iv) 135% volatility, (v) 3.63% risk free rate, and (vi) 0% dividend yield. The Company also evaluated the March 2023 Cargill Warrant for derivative liability accounting treatment and concluded the instrument was a free-standing derivative instrument that did not meet the fixed-for-fixed equity indexation criteria necessary to be accounted for as equity. As such, the $25.7 million fair value of the March 2023 Cargill Warrant was recorded as additional debt discount and a derivative liability in the "Warrant Liability" line item of Company's Unaudited Condensed Consolidated Balance Sheets. The fair value of the warrant will be remeasured each quarter until the instrument is settled or expires with changes in fair value recorded in "Other income (expense)" in the Company's Unaudited Condensed Consolidated Statements of Operations.

Subsequent to the Sixth Amendment, the interest rate on the Subordinated Facility is 12.5% per annum and the interest rate on the Senior Facility is equal to SOFR plus a margin (which varies between 7.5% to 8.5% depending on the Senior Facility net leverage ratio) per annum, with accrued interest paid quarterly in arrears on the first business day of the subsequent quarter (and paid in cash beginning October 1, 2023) through the maturity date on September 3, 2028.

Principal payments under the Senior Facility are payable quarterly, beginning April 1, 2025, based on a 10-year straight line amortization schedule, with the remaining unpaid balance under both the Senior Facility and the Subordinated Facility due on the September 3, 2028 maturity date.

In accordance with the Original Credit Agreements, the Company is required to have a debt service reserve account which is shown as restricted cash and cash equivalents on the Company's Consolidated Balance Sheets. The Fifth Amendment and Sixth Amendment, taken together, reduced the minimum balance to maintain in the debt service reserve account to $0 through March 31, 2025. From and after April 1, 2025, the minimum balance to maintain in the debt service reserve account will be increased to two quarters of scheduled interest payments and two quarters of scheduled amortization payments.
The Amended Credit Agreements also contain certain financial covenants that become measurable and effective beginning in the third quarter of 2025, including debt coverage, net leverage, and interest coverage ratios. Additional covenants and other provisions exist that may limit or affect the timing of the Company's ability, among other things, to undergo a merger or consolidation, sell certain assets, create liens, guarantee certain obligations of third parties, make certain investments or acquisitions, and declare dividends or make distributions. The Facilities are secured with a first-priority lien against substantially all of the assets of the Company and its subsidiaries, including their intellectual property. The Company was in compliance with all applicable covenants as of March 31, 2023.