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TPI COMPOSITES, INC. AND SUBSIDIARIES
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- Table of Contents TPI COMPOSITES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements
- Turkey
- China
- Mexico
- Note 15. Convertible and Senior Redeemable Preferred Shares and Warrants
- Series Issuance Date Proceeds (1)
TPI COMPOSITES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements
In February 2014, the Company entered into a note purchase agreement with two of its current investors for the purchase of $5.0 million of subordinated convertible promissory notes of the Company. The promissory notes bore interest at a rate of 12.0% per annum, payable quarterly, starting April 1, 2014. In connection with the agreement, the Company granted the holders of the notes warrants for the right to purchase up to 40 shares of preferred stock of the Company. The warrants were earned monthly over 12 months, and expire seven years after the effective date of the loan. The Company recorded the warrants issued at their fair value upon issuance of $0.1 million in accordance with FASB ASC Topic 480. This amount was accounted for as a debt discount and an increase in redeemable preferred share warrants. The Company has amortized the value of the debt discount as interest expense over the term of the notes. In connection with the new credit facility in 2014 as detailed below, the promissory notes were paid in full and the remaining debt discount of $1.6 million was fully expensed within the caption “Loss on extinguishment of debt” in the accompanying consolidated statements of operations. In March 2014, the Company entered into a lease agreement with a leasing company for the initial lease of up to $2.2 million of machinery and equipment at its Iowa facility. The lease agreement was subsequently amended and the amount of machinery and equipment available for lease was increased to $5.4 million. The lease includes an implied effective interest rate of 4.3% annually and requires monthly payments during each 24 month term. In August 2014, the Company entered into an agreement to borrow up to $75.0 million through a credit facility (the Credit Facility) in order to refinance existing indebtedness as well as to fund current operations and future growth opportunities. The initial amount drawn on the closing date was $50.0 million and an additional $5.0 million was drawn in December 2014. In December 2014, in connection with the additional $5.0 million draw, the Credit Facility was amended. In December 2015, the Credit Facility was further amended to increase the total available principal amount from $75.0 million to $100.0 million. The borrowing has an initial term of four years and matures in 2018, provides for various financial covenants and bears interest at the London Interbank Offered Rate, or LIBOR, with a 1.0% floor, plus 8.0%. The Credit Facility contains various affirmative and negative covenants, including EBITDA (as defined in the Credit Facility) minimum covenants, a leverage ratio and a fixed-charge coverage ratio. The Credit Facility limits annual capital expenditures based on budgets submitted to and agreed to with the lender and there is also an annual excess cash flow sweep requirement. In connection with the December 2015 amendment, all financial covenants were revised and the measurement period changed from monthly to quarterly. Concurrent with the December 2015 amendment, the Company borrowed an additional $20.0 million under the Credit Facility to fund future growth and expansion. As of December 31, 2015 and 2014, the outstanding balances under the Credit Facility were $74.4 million and $55.0 million, respectively. The Credit Facility, as amended, requires principal payments of 1.25% of the then outstanding principal loan balance each quarter and deferred any further principal payments until September 2016. If the Company were to prepay any of the outstanding principal loan balance prior to December 8, 2016, it is required to pay the lender a premium in an amount equal to the amount of interest that otherwise would have been payable from the date of prepayment until December 8, 2016 plus 3.0% of the amount of the principal loan balance that was prepaid. The Company is not required to pay such a premium if it prepays the outstanding principal loan balance under the Credit Facility with proceeds from this offering and the Credit Facility is refinanced with the lender or an affiliate. If the Company prepays any of the outstanding principal loan balance after December 8, 2016 through December 8, 2017, it is required to pay the lender 3.0% of the principal loan balance that was prepaid, and if it prepays any of the outstanding loan balance after December 8, 2017 through August 18, 2018, it is required to pay a premium of 1.5% of the amount of the principal loan balance that was prepaid. In connection with the initial draw on the Credit Facility, the Company repaid the senior term loan of $20.0 million (referenced above) plus accrued interest, a prepayment penalty and a termination fee. The prepayment penalty and termination fee amounted to $1.6 million and are included within the caption “Loss on extinguishment of debt” in the consolidated statements of operations. The Company also repaid $5.0 million of
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Table of Contents TPI COMPOSITES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements
subordinated convertible promissory notes (referenced above) plus accrued interest as well as $5.7 million of customer advances outstanding at the time of the refinancing. In addition, there were debt issuance costs of $4.7 million which are being amortized to interest expense over a period of 48 months using the effective interest method. In conjunction with the additional funding under the Credit Facility discussed above, in December 2014, the Company entered into a note purchase agreement with five of the Company’s current investors for the purchase of $10.0 million of subordinated convertible promissory notes. The notes bear interest at a rate of 12.0% per annum and will automatically mature and be due and payable on the earlier of the completion of any change of control or qualified initial public offering, or at the election of the holders of the notes at any time after the occurrence of an event of default. The Company has the right to prepayment without the consent of the note holders and the note holders hold conversion rights upon future financing into new equity financing or convertible note financing. This note purchase agreement contains a beneficial conversion feature which was valued at $5.2 million based on the difference between the fair value of the Company’s stock as of the commitment date as compared to the most favorable conversion rate that will be available to the investor during the term of the loan. This amount was accounted for as a debt discount and an increase in shareholders’ equity. The debt discount is accreted to interest expense ratably over the expected term of the notes. Turkey : During 2014, the Company renewed a general credit agreement with a financial institution in Turkey to provide up to $20.0 million of short-term collateralized financing on invoiced accounts receivable of one of Turkey’s customers. Interest accrues annually at the Euro Interbank Offered Rate (EURIBOR) plus 0.2% (currently 5.75%) and is paid monthly. In December 2014, Turkey obtained an additional $7.0 million of unsecured financing under the credit agreement and increased the facility total to $27.0 million. All credit agreement terms remained the same. The credit agreement does not have a maturity date, however the limits are reviewed in September of each year. Amounts outstanding under this agreement as of December 31, 2015 and 2014 include $18.7 million and $17.8 million of accounts receivable financing and $4.1 million and $2.1 million of unsecured financing, respectively. In December 2014, the Company entered into a credit agreement with a Turkish financial institution to provide up to $16.0 million short-term financing of which $10.0 million is collateralized financing on invoiced accounts receivable of one of Turkey’s customers and the remaining $6.0 million is unsecured. Interest accrues at an average rate of 6.25%. The credit agreement does not have a maturity date, however the limits are reviewed in September of each year. Amounts outstanding under this agreement as of December 31, 2015 and 2014 include $1.8 million and $6.4 million of accounts receivable financing and $4.5 million and $4.9 million of unsecured financing, respectively. China : During 2014, the Company entered into several working capital loans with various financial institutions. Amounts outstanding as of December 31, 2015 and 2014 were $9.5 million and $19.1 million, respectively, and interest accrues at between 5.6% and 6.9% annually. During 2014, the Company also entered into accounts receivable financing loans with a financial institution. Amounts outstanding as of December 31, 2015 and 2014 were $6.6 million and $5.4 million, respectively, and interest accrues at 6.6% annually. All interest is payable quarterly. The principal on these loans is scheduled to be paid from between 12 to 36 months from each loan origination date but have been, and are anticipated to continue to be, renewed at their maturities. As collateral for the above working capital loans, the financial institution received a security interest in China’s buildings and land use rights (Note 10). Mexico : In July 2014, the Company entered into a construction financing agreement related to a building with a total value of $1.6 million. Interest accrues at 7.0% annually and is paid monthly. The agreement requires monthly payments between August 2014 and September 2015. The amount outstanding under this agreement as of December 31, 2014 was $0.8 million.
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In October 2015, the Company entered into a construction financing agreement related to the expansion of a building with a total value of $1.8 million. Interest accrues at 7.0% annually and is paid monthly. The agreement requires monthly payments between October 2015 and October 2016. The amount outstanding under this agreement as of December 31, 2015 was $1.2 million. Due to the short-term nature of the working capital loans (China and Turkey), the Company estimates that fair-value approximates the face value of the notes. For the years ended December 31, 2015, 2014 and 2013, $1.3 million, $0.7 million, and $0.2 million debt issuance costs were amortized to interest expense in the Company’s consolidated statements of operations. The average interest rate on the Company’s short-term borrowings as of December 31, 2015 and 2014 was approximately 6.1% and 6.4%, respectively. The aggregate amount of maturities of debt at December 31, 2015, is as follows (in thousands):
Note 15. Convertible and Senior Redeemable Preferred Shares and Warrants Convertible and senior redeemable preferred shares, which are convertible at the discretion of the holder or will automatically convert at the closing of an initial public offering, and warrants at December 31 consisted of the following (in thousands):
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Table of Contents TPI COMPOSITES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements
In May 2014, the Company raised $3.0 million through the issuance of 120 shares of Super Senior Redeemable Preferred Stock (SSRPS) to a group of its current investors. The Company granted the investors warrants for the right to purchase up to 21 shares of preferred stock of the Company. On June 30, 2014, the Company raised an additional $3.9 million through the issuance of 160 shares of SSRPS to a group of its current investors. The Company granted the investors warrants for the right to purchase up to 27 shares of preferred stock of the Company. The warrants are exercisable for a period up to seven years. SSRPS provides for a base price of $25,000 per share, and ranks senior to any share of senior preferred stock, preferred stock, common stock, and any other equity securities of the Company. SSRPS holders receive dividend rights equal to 10 percent of the SSRPS base price per annum. Dividends will accrue from the date of issuance, and are cumulative and compounded annually. SSRPS is redeemable, in the event of a liquidation event at three times the SSRPS base price, or $75,000 per share. In the event the Company cannot satisfy the redemption, SSRPS stock outstanding will receive a liquidation premium amount for each share in connection with a liquidation event or qualified initial public offering. SSRPS stock also includes a redemption trigger, such that SSRPS stock is senior to the exercisable redemption rights of all other equity securities. The preferred share balances have been accreted to the redemption amount as of the first date redemption can take place using the effective interest method. In addition, the preferred share balance includes cumulative preferred share dividends as required by the preferred share agreements. No accretion has been recorded for preferred shares that are not redeemable for cash on or after a specified date. The amount of the accretion and deemed dividends is included in the net income attributable to preferred shareholders in the consolidated statements of operations. The Company recorded the warrants noted above at their fair value upon issuance of $0.2 million of redeemable preferred share warrants in the “mezzanine” section of the consolidated balance sheets.
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