Scilex noteholders waive defaults tied to late third quarter report

Scilex Holding Company said on November 22, 2024 that its lenders had waived defaults that arose when it missed the due date for its quarterly report on Form 10-Q for the quarter ended September 30, 2024. The original deadline was November 14, 2024. The 8-K says that date was extended under Rule 12b-25 to November 19, 2024, and the waivers cover the company's failure to file by the original date.

Had the waivers not been signed, Scilex expected to be in default under two sets of notes. One is a senior secured promissory note issued to Oramed Pharmaceuticals Inc. on September 21, 2023. The other is the Tranche B senior secured convertible notes issued on October 8, 2024 to institutional investors and Oramed. The 8-K says a default could let the Oramed holder accelerate its note, and let the Tranche B holders require redemption, with default interest, liquidated damages or similar penalties.

The waivers

On November 21, 2024, Oramed waived the late filing and the company's failure to give notice of it under the Oramed note. In return, Scilex agreed to deliver financial statements for the September 2024 quarter by January 20, 2025. It also agreed to engage a new independent registered public accounting firm, chosen from a list the company gave Oramed or a firm of substantially the same reputation and national standing. The 8-K says that as a result there is currently no event of default under the Oramed note because of the late 10-Q.

The same day, Nomis Bay Ltd and BPY Limited, 3i, LP and Oramed each signed a waiver and consent covering the Tranche B notes. Those agreements waive the late 10-Q, the cross-default triggered by the Oramed default, and the notice requirement. The 10-Q is due no later than January 20, 2025 under those agreements as well.

What is still owed

The Oramed note was issued with an initial principal amount of $101.875 million. About $37.0 million of principal remains. The Tranche B notes started at $50.0 million. Investors have converted about $9.0 million of principal, plus interest and a make-whole amount, into Scilex common stock, which leaves about $41.0 million outstanding.

The risk factor Scilex added

In this 8-K, Scilex also supplemented its risk factors on its existing notes. The company says there is no assurance it will file the Q3 10-Q by January 20, 2025, that it will engage the new auditor, or that it will regain compliance with Nasdaq listing rules. The listing risk relates to the late filing and to the company's inability to satisfy the minimum bid price requirement. The forward-looking statements also list the timing of the audit committee's engagement of a new accounting firm as a risk.

If the company fails to file the 10-Q or another event of default occurs, the Oramed holder could accelerate its note, and all Tranche B holders could require redemption. The filing says Scilex may not have enough funds or be able to arrange financing to repay the notes. The lenders could also enforce their security interests in the collateral and the subsidiary guarantee dated September 21, 2023 and amended October 8, 2024. The company warns that any failure to comply could cause its stock price to fall significantly, lead to substantial dilution, or leave it unable to raise capital.

Advisers and what remains open

The 8-K names no underwriter, placement agent or financial adviser for the waivers, and it does not name counsel for either side. The waivers remove the default for now, but they leave the company with a January 20, 2025 deadline for a late quarterly report, a new auditor to appoint and a Nasdaq listing question. The 8-K's own risk language treats each of those steps as uncertain.

Report an error

Companies in this story

SCLXScilex Holding CompanyNASDAQ · United StatesOpen the starter desk