Merge Healthcare details bridge financing, plans to place $50 million of mezzanine securities

By Angela McDaniels

Tacoma, Wash., Feb. 24 - Merge Healthcare Inc. released further details about the commitment it received for $200 million of bridge financing to help fund its proposed $248 million acquisition of Amicas Inc.

The company plans to issue $200 million of senior secured notes either via Rule 144A or an underwritten public sale. To the extent that it is unable to issue these notes, it will take on up to $200 million of senior secured bridge loans under the bridge financing, according to the commitment letter from Morgan Stanley Senior Funding, Inc. made available by Merge.

The company also plans to issue up to $50 million of mezzanine securities in a private placement.

Bridge loans, exchange notes

The interest rate on the bridge loans will be the greatest of 13%, Libor plus 1,100 basis points and 1,067 bps over Treasuries. The interest rate will increase by 50 bps every quarter if the bridge loans are not repaid in full within three months of the closing date, subject to a cap.

The bridge loans will be prepayable at any time.

One year after issuance, the bridge loans will automatically be converted into term loans maturing in 2015, and lenders will be able to convert the term loans into senior notes due 2015 on a par-for-par basis.

The interest rate on the term loans and the notes will be equal the cap, which was not disclosed in the letter.

The company will be required to use the proceeds from future asset sales and debt or equity issuances to prepay the bridge loans. It will also be required to offer to buy back the notes using the proceeds from future asset sales.

The loans and notes will be callable at a make-whole premium equal to the yield on the comparable U.S. Treasury plus 50 bps for the first three years. After that time, they will be callable at par plus a premium equal to 50% of the coupon, which will decline ratably to par.

The company will also be able to buy back up to 35% of the loans or notes through an equity clawback option for the first three years.

Mezzanine securities

The mezzanine securities may consist of unsecured subordinated debt or preferred stock, which may also have limited common equity interests or rights.

Any interest or dividends payable on the mezzanine securities will be payable only in kind until the other debt described above is paid in full.

The bridge facility is conditioned on the company receiving at least $40 million of net proceeds from the mezzanine securities.

Milwaukee-based Merge Healthcare makes products that automate health-care data and diagnostic workflow.

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