Financing Arrangements

3 Months Ended

Mar. 31, 2019

Term Loans

During 2014, in order to finance its acquisitions of Hi-Tech Pharmacal Co Inc. and VersaPharm Inc., Akorn, Inc., together with certain of its subsidiaries (Akorn, Inc., together with such subsidiaries, the “Akorn Loan Parties”), entered into two term loan agreements (the “Term Loan Agreements” and the loans outstanding thereunder, the “Term Loans”) with certain lenders (the “Lenders”) and with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent (the “Term Loan Administrative Agent”). The aggregate principal amount of the Term Loans was $1,045.0 million. As of March 31, 2019, outstanding debt under the Term Loan Agreements was $831.9 million. The Company believes it was in compliance with all applicable covenants in the Term Loan Agreements, which included customary limitations on indebtedness, distributions, liens, acquisitions, investments, and other activities, as of March 31, 2019. As of March 31, 2019, the Term Loans were scheduled to mature on April 16, 2021.

During the three month periods ended March 31, 2019 and 2018, the Company amortized $1.3 million and $1.3 million, respectively of the deferred financing cost related to the Term Loans, resulting in $10.2 million remaining balance of deferred financing costs at March 31, 2019. The Company will amortize this balance using the straight-line method over the life of the Term Loan Agreements.

As of March 31, 2019, the Company's spread was based upon the Ratings Level as documented below. As of March 31, 2019, the Company was a Ratings Level III for the Term Loan Agreements.



Ratings Level	Index Ratings (Moody’s/S&P)	Adjusted LIBOR (Eurodollar) Spread	Adjusted Base Rate (ABR) Spread
Level I	B1/B+ or higher	4.25%	3.25%
Level II	B2/B	4.75%	3.75%
Level III	B3/B- or lower	5.50%	4.50%

For the three month periods ended March 31, 2019 and 2018, the Company recorded interest expense of $16.7 million and $12.3 million, respectively in relation to the Term Loans. The increase in interest expense is related to higher interest rates during the three month period ended March 31, 2019, compared to the same period in 2018.

On May 6, 2019, the Akorn Loan Parties entered into a Standstill Agreement and First Amendment (the “Standstill Agreement”) in respect of the Term Loan Agreements with an ad hoc group of Lenders (the “Ad Hoc Group”), certain other Lenders (together with the Ad Hoc Group, the “Standstill Lenders”) and the Term Loan Administrative Agent (together with the Akorn Loan Parties and the Standstill Lenders, the “Standstill Parties”). Capitalized terms used but not defined herein have the meanings given to them in the Standstill Agreement or the Term Loan Agreements, as applicable.

The Standstill Agreement provides that, for the duration of the Standstill Period (as defined below), among other matters, neither the Term Loan Administrative Agent nor the Lenders may (i) declare any Event of Default or (ii) otherwise seek to exercise any rights or remedies, in each case of clauses (i) and (ii) above, to the extent directly relating to any alleged Event of Default arising from any alleged breach of any of the covenants contained in Sections 5.01, 5.02, 5.03, 5.06 or 5.07 of the Term Loan Agreements (the “Specified Covenants”), to the extent the facts and circumstances giving rise to any such breach have been (x) publicly disclosed by the Company or (y) disclosed in writing by the Company to private side Lenders or certain advisors to the Ad Hoc Group (collectively, the “Specified Matters”). “Standstill Period” means the period of time from the effective date of the Standstill Agreement (the “Effective Date”) through the earliest of (a) December 13, 2019; (b) the delivery of a notice of termination of the Standstill Period by Lenders holding a majority of the Term Loans (the “Required Lenders”) upon the occurrence of a Default or Event of Default under the Term Loan Agreements, excluding any Default or Event of Default relating to a Specified Matter; or (c) the delivery of a notice of termination of the Standstill Period by the Required Lenders as a result of any breach of, or non-compliance with, any provision of the Standstill Agreement by the Akorn Loan Parties, including without limitation any such breach or noncompliance by the Akorn Loan Parties of or with any Affirmative Covenants and Milestones or Negative Covenants (each as defined below) or other covenants set forth in the Standstill Agreement, subject, in each case, to any applicable cure period expressly set forth therein (each, a “Standstill Event of Default”).

In exchange for the agreement of the Lenders to standstill during the Standstill Period, the Standstill Agreement provides, among other matters, that:


•	during the Standstill Period:


◦	the Company must deliver certain financial and other reporting to the Lenders or their advisors, including monthly financial statements, 13-week cash flow forecasts and variance reports and certain regulatory information, and participate in various update calls with the Lenders and their advisors (the “Affirmative Covenants and Milestones”);

◦

the Company and its subsidiaries are restricted, among other matters, from (i) consummating certain asset sales and investments, (ii) making certain restricted payments with respect to the Company’s common stock and any subordinated indebtedness, (iii) engaging in sale and leaseback transactions, (iv) incurring certain liens and indebtedness, (v) reinvesting any proceeds received from certain asset sales, and (vi) without the consent of the Required Lenders at such time, (A) designating any Restricted Subsidiary as an Unrestricted Subsidiary, or otherwise creating or forming any Unrestricted Subsidiary, and/or (B) transferring any assets of the Company or any of its Restricted Subsidiaries to any Unrestricted Subsidiary, except as otherwise permitted under the Term Loan Agreements (after giving effect to the Standstill Agreement) (collectively, the “Negative Covenants”);


◦	the Company must pay a fee in an amount equal to 0.625% of the outstanding principal of any Term Loans prepaid or repaid during the Standstill Period (other than as a result of any asset sale, condemnation event, incurrence of non-permitted indebtedness or excess cash flow);


◦	the Company must notify the Ad Hoc Group and/or such advisors before making certain payments in respect of judgments or settlements of ongoing litigation matters (a “Specified Litigation Payment”); and


◦	the Company must pay the fees and expenses of certain advisors to the Ad Hoc Group;


•	the Company and the Standstill Lenders must negotiate in good faith to enter into a comprehensive amendment of the Term Loan Agreements (the “Comprehensive Amendment”), which Comprehensive Amendment must be satisfactory in form and substance to the Required Lenders;


•	on the Effective Date, the Company paid a one-time in-kind fee in an amount equal to 1.75% of the aggregate principal amount of the Term Loans of the Standstill Lenders outstanding on such date; and


•	the interest margins payable by the Company with respect to outstanding Term Loans (as described above) were increased by 1.50% (i.e., 150 basis points), with 0.75% (i.e., 75 basis points) of such increase payable in cash and 0.75% (i.e., 75 basis points) of such increase payable in kind.

Subject to a five business day cure period (the “Cure Period”), the Company’s failure to comply with the Affirmative Covenants and Milestones during the Standstill Period would permit the Required Lenders to terminate the Standstill Period and exercise any rights and remedies under the Term Loan Agreements with respect to the Specified Matters or a Standstill Event of Default. The Company’s failure to comply with the Negative Covenants during the Standstill Period would permit the Required Lenders to terminate the Standstill Agreement and constitute an immediate Event of Default under the Term Loan Agreements. The Company’s failure to comply with any Affirmative Covenants and Milestones (subject to the Cure Period), Negative Covenants or other covenants in the Standstill Agreement would also result in a further increase of the interest margins payable with respect to outstanding Term Loans by 0.50% (i.e., 50 basis points), which increased interest would be payable in kind.

Any Specified Litigation Payment made over the objection of the Ad Hoc Group would (i) entitle the Required Lenders to terminate the Standstill Period and (ii) constitute an Event of Default under the Term Loan Agreements if such payment has a Material Adverse Effect (as defined in the Term Loan Agreements). The failure of the Company to comply with the

covenant in respect of the Specified Litigation Payment during the Standstill Period would result in an Event of Default

under the Loan Agreement.

The failure to enter into a Comprehensive Amendment on or prior to November 15, 2019, would result in payment by the Company of a one-time in-kind fee in an amount equal to 0.625% of the Term Loans outstanding on such date and require the Akorn Loan Parties to pledge for the benefit of the Lenders all unpledged equity interests in foreign subsidiaries. The failure to enter into a Comprehensive Amendment on or prior to December 13, 2019, constitutes an immediate Event of Default under the Term Loan Agreements.

The execution of the Standstill Agreement should not be construed as (and does not constitute an admission as to) any right, remedy, claim, defense, liability or wrongdoing or responsibility on the part of any Standstill Party. Entry into the Standstill Agreement also should not be construed as (and does not constitute an admission as to) the occurrence of a Default or Event of Default. In the Standstill Agreement, the Standstill Lenders acknowledged that, as of the Effective Date, to the best of their knowledge, they were not aware of any potential Defaults or Events of Default under the Term Loan Agreements other than with respect to the Specified Covenants relating to the Specified Matters.

The Company will actively seek to refinance or otherwise address the Term Loans or enter into a “Comprehensive Amendment” to the Term Loan Agreements by December 13, 2019. Based on discussions with the Company’s financial advisor, the Company believes that it will be able to refinance or otherwise address the Term Loans within this timeframe. In the event that the Company is unable to refinance or otherwise address the Term Loans by such date, the Company would seek to enter into a “Comprehensive Amendment” to the Term Loan Agreements.

JPMorgan Credit Facility

On April 17, 2014, the Akorn Loan Parties entered into a Credit Agreement (the “JPM Credit Agreement”) with JPMorgan, as administrative agent, Bank of America, N.A., as syndication agent, and the lenders party thereto (at closing, JPMorgan, Bank of America, N.A. and Wells Fargo Bank, N. A.) for a $150.0 million revolving credit facility (the “JPM Revolving Facility”).

The Company believes it was in compliance with all covenants applicable to the JPM Revolving Facility as of March 31, 2019.

The Company may use any proceeds from borrowings under the JPM Revolving Facility for working capital needs and for the general corporate purposes of the Company and its subsidiaries. At March 31, 2019, there were no outstanding borrowings under the JPM Revolving Facility, and availability was $135.0 million.

The JPM Credit Agreement places customary limitations on indebtedness, distributions, liens, acquisitions, investments, and other activities of the Akorn Loan Parties and their respective subsidiaries in a manner designed to protect the collateral while providing flexibility for growth and the historic business activities of the Company and its subsidiaries.

On April 16, 2019, the Akorn Loan Parties, entered into an Amended and Restated Credit Agreement (the “A&R Credit Agreement”) governing the JPM Revolving Facility with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The A&R Credit Agreement provides for a revolving line of credit of up to $150.0 million on an uncommitted basis, and amends the Existing Credit Agreement in certain other respects, including, among other things:

•extending the maturity date by 90 days to July 16, 2019; and

•decreasing the undrawn fee from 0.25% to 0.05%.

The JPM Revolving Facility, as amended by the A&R Credit Agreement, is fully uncommitted and discretionary with each lender under the A&R Credit Agreement permitted to make revolving loans or issue letters of credit in its sole discretion.

Debt Maturities Schedule

Aggregate cumulative maturities of debt obligations (including the Term Loans and the JPM Revolving Facility) as of March 31, 2019 are:



(In thousands)	2019		2020		2021
Maturities of debt	$	—	$	—	$	831,938