Chardan NextTech 2 (CNTQ) Secures $75M Loan for Dragonfly Deal
Chardan NextTech Acquisition 2 Corp. (NASDAQ:CNTQ) announced this afternoon that it has secured a $75 million loan for its combination with energy storage firm Dragonfly Energy.
The parties entered into a debt commitment letter with CCM Investments 5 LLC, an affiliate of Chardan Capital Markets, and EICF Agent LLC, for a $75 million senior secured term loan facility concurrently with the closing under the business combination agreement.
The Chardan lender has backstopped its commitment under the debt commitment by entering into a backstop commitment, dated as of May 20, 2022 with a third-party financing source. The backstop lender has committed to purchase from the Chardan lender the aggregate amount of the loan immediately following the issuance on the closing date subject to final documentation that is consistent with all material in respect to the Debt Commitment Letter and the summary of terms and conditions.
Proceeds of the loan are expected to be used to refinance on the closing date, prior indebtedness, to support the combination, for working capital purposes, to pay any fees associated with transactions contemplated under the definitive agreement for the loan and fees and expenses related to the business combination.
The term loan will be advanced in one tranche on the closing date and it will amortize in the amount of 5% per annum beginning 24 months after closing and mature on the fourth anniversary of the maturity date.
Additionally, the term loan will accrue interest until April 1, 2023 at a per annum rate equal to adjusted Secured Overnight Financing Rate plus a margin equal to 13.5%. Of that, 7% will be payable in cash and 6.5% will be paid in-kind, thereafter until October 1, 2024, at a per annum rate equal to adjusted SOFR plus 7% payable in cash plus an amount ranging from 4.5% to 6.5%, depending on the senior leverage ratio of the consolidated company, which will be paid-in-kind.
This will also occur at all times thereafter, at a per annum rate equal to adjusted SOFR plus a margin ranging from 11.5% to 13.5% payable in cash, depending on the senior leverage ratio of the consolidated company. In each of the foregoing cases, adjusted SOFR will be no less than 1%.
Chardan is allowed to prepay all or any portion of the amounts owed prior to the maturity date, provided that it provides notice to the administrative agent and the amount is accompanied by the applicable prepayment premium.
Prepayments of the loan will be required to be accompanied by a premium of 5% of the principal amount so prepaid if made prior to the 1st anniversary of the closing, 3% if made on and after the 1st anniversary but prior to the 2nd anniversary of the closing, 1% if made after the 2nd anniversary of the closing, but prior to the 3rd anniversary of the closing, and 0% if made on or after the 3rd anniversary of the closing. If the loan is accelerated following the occurrence of an event of default, the borrower will be required to immediately pay to lenders the sum of all obligations for principal, accrued interest, and the applicable prepayment premium.
Further, Dragonfly will be required to prepay the loan with the net cash proceeds of certain asset sales and casualty events, with the net cash proceeds of the issuance of indebtedness that is not otherwise permitted to be incurred, upon the receipt of net cash proceeds from an equity issuance. This will be in an amount equal to 25% of such net cash proceeds, and start the fiscal year ending December 31, 2023, with the excess cash flow for each such fiscal year in an amount equal to either 25% or 50% of such excess cash flow, depending on the senior leverage ratio of the consolidated company, less the amount of any voluntary prepayments made during such fiscal year.
In connection to the loan agreement, Chardan shall issue penny warrants to the initial term loan lenders exercisable to purchase an aggregate number of shares equal to 5.6% of common stock on a fully diluted basis. This will also be applicable to the $10 warrant to issue warrants to the initial term loan lenders exercisable to purchase 1.6 million shares of the SPAC’s common stock at $10 per share.
The amount of penny warrants, which have an exercise period of 10 years from the date of issuance, was increased from 3.6% to 5.6% of Chardan’s common stock on a fully basis as of the closing. The additional shares of common stock will dilute the pro forma ownership of the other SPAC stockholders proportionately.
The $10 warrants will have an exercise period of 5 years from the date of issuance and will have customary cashless exercise provisions. In the event the registration statement registering the shares of common stock related to Chardan’s planned $150 million equity line of credit has not been declared effective by the SEC on or before the date that is 121 days after the issuance date, the number of shares of common stock to be issued pursuant to the $10 warrants will increase by an additional 200,000 shares and at the beginning of each subsequent 30 day period, until effective.
Chardan’s $75 million loan comes after it added $15 million to its proposed merger through a stock purchase agreement with THOR Industries.
CNTQ originally brought $128.4 million into the deal from its current trust along with a $230 million PIPE consisting of $75 million senior secured term loan, which is to be used in part to refinance approximately $45 million of outstanding Dragonfly indebtedness, a $5 million PIPE at $10.00 per share from CNTQ’s Sponsor, Chardan NexTech Investments 2 LLC, and a $150 million Chardan Equity Facility from Chardan, an affiliate of the sponsor.
The SPAC announced its $500 million business combination with Dragonfly on May 16. Reno, Nevada-based Dragonfly creates lithium-ion batteries equipped with a proprietary battery management system that are currently used in recreational vehicles (RVs), marine vessels, material handling, off-grid residences and solar applications.