Scinai Announces Signing of Loan Restructuring Agreement with European Investment Bank; Converting Approximately $29 million of Debt to Preferred Equity Convertible into 19.5% Common Equity

Rhea-AI Summary

Scinai Immunotherapeutics (NASDAQ: SCNI) has signed a Loan Restructuring Agreement with the European Investment Bank (EIB), converting approximately $29 million of debt into 1,000 preferred shares. These shares are convertible into 19.5% of the company's fully diluted capital. The remaining loan of about $273,000 will mature on December 31, 2031, with no interest accrual.

The preferred shares are redeemable at the company's discretion for a cumulative value of $34 million. This restructuring eliminates nearly $28 million of debt, potentially establishing a more stable financial base for Scinai's plans to develop novel therapeutics for inflammation and immunology diseases.

Positive

• Conversion of $29 million debt to preferred equity, significantly reducing the company's debt burden
• Remaining loan of $273,000 will not accrue interest, reducing financial costs
• Preferred shares convertible into 19.5% of company's fully diluted capital, potentially aligning EIB's interests with the company's success
• Elimination of the requirement to pay variable remuneration to EIB under the previous Finance Contract

Negative

• Potential dilution of existing shareholders if EIB converts preferred shares into ADSs
• Company may need to redeem preferred shares for $34 million in the future, which could strain financial resources
• Restrictions on certain corporate actions without redeeming preferred shares or obtaining EIB consent

Insights

Financial Analyst

This debt restructuring deal is a significant financial maneuver for Scinai Immunotherapeutics. By converting $29 million of debt into preferred equity, the company has effectively reduced its debt burden from $29.273 million to just $273,000. This dramatic 99% reduction in debt improves Scinai's balance sheet substantially.

The new preferred shares, convertible to 19.5% of common equity, give the European Investment Bank (EIB) a significant stake in the company's future. While this dilutes existing shareholders, it aligns the EIB's interests with the company's success. The $34 million redemption value of these shares creates a potential future obligation, but the company has flexibility in timing any redemptions.

Overall, this restructuring provides Scinai with improved financial flexibility and a stronger capital structure, potentially enhancing its ability to fund its biopharmaceutical development efforts.

Legal Expert

The restructuring agreement includes several key legal provisions that warrant attention. The right of first refusal granted to Scinai on the preferred shares protects against unexpected ownership changes. The 4.99% ownership limitation and 12-month conversion restriction on the preferred shares are clever mechanisms to prevent rapid dilution and maintain stability in the company's ownership structure.

Importantly, the agreement places restrictions on certain corporate actions without EIB's consent or full redemption of the preferred shares. This gives the EIB significant influence over major decisions like incurring new debt, mergers, or delisting from Nasdaq. While these provisions protect the EIB's interests, they could potentially limit Scinai's strategic flexibility in the future.

The elimination of the variable remuneration requirement is a positive development for Scinai, reducing future financial obligations to the EIB.

Biotech Industry Analyst

This financial restructuring is a important move for Scinai Immunotherapeutics, potentially revitalizing its position in the competitive biopharmaceutical landscape. By significantly reducing its debt, Scinai has created more financial runway to advance its inflammation and immunology (I&I) biological products pipeline.

The deal's structure, converting debt to equity, demonstrates the European Investment Bank's confidence in Scinai's long-term prospects. This vote of confidence could positively influence other investors and partners in the biotech sector. However, the substantial equity stake given to the EIB (19.5%) means that future successes will be shared with this new major shareholder.

For a biotech company, reducing cash burn and extending runway is critical. This deal allows Scinai to redirect resources from debt servicing to R&D and clinical development, potentially accelerating its path to bringing new therapies to market.

JERUSALEM, Aug. 13, 2024 /PRNewswire/ -- Scinai Immunotherapeutics Ltd. (NASDAQ: SCNI) (the "Company"), a biopharmaceutical company focused on developing inflammation and immunology (I&I) biological products and on providing CDMO services through its Scinai Bioservices business unit, today announced that it has signed a definitive Loan Restructuring Agreement (the "Restructuring Agreement") with its lender, the European Investment Bank (the "EIB").  The Restructuring Agreement also included an amendment and restatement to the Finance Contract (the "Finance Contract") between the parties.

In connection with the transactions, an amount equal to approximately EUR 26.6 million (equal to approximately $29 million), including interest accrued to date, owed by the Company to the EIB under the Finance Contract between the parties will be converted into 1,000 preferred shares, no par value per share, of the Company (the "Preferred Shares"). Following the conversion, the total outstanding loan amount owed by the Company to the EIB will be EUR 250,000 (equal to approximately $273,000). The new outstanding loan amount will have a maturity date of December 31, 2031, will not be prepayable in advance, and no interest will accrue or be due and payable on such amount.  

The terms of the Preferred Shares are set forth in the Amended and Restated Articles of Association of the Company approved by the shareholders at the Extraordinary Meeting of Shareholders of the Company held today, August 12, 2024 (the "Amended Articles"). The Preferred Shares are convertible (in whole or in part), at the option of the EIB, into a fixed number of ADSs equal to in the aggregate 19.5% of the fully diluted capital of the Company as of the closing date. The Preferred Shares do not contain any anti-dilution provisions, do not accrue dividends, and are not subject to mandatory redemption, but are redeemable at the election of the Company, as more fully described below, at a cumulative redemption value of $34 million.

Amir Reichman, CEO of the Company, commented, "Scinai's management and board of directors once again extend their appreciation and thanks to the EIB's officers for their relentless support and cooperation.  The completion of this important financial contract restructuring will eliminate almost $28 million of debt and its conversion to equity marks a significant turning point for the Company.  We expect this achievement to help establish a more stable financial base for Scinai and propel Scinai's plans to develop novel therapeutics for the treatment of unmet needs within inflammation and immunology diseases."

The Preferred Shares entitle the holders to redemption payments in the aggregate amount of $34 million ($34,000 per Preferred Share) in the event that the Company elects, at its sole discretion, to make any such redemption payments, provided that such redemption is in compliance with applicable law, including the Company's legal ability to pay a dividend to its shareholders.   In the event of Liquidation (as defined in the Amended Articles) the Preferred Shares are entitled to distributions up to the then unpaid redemption value before distributions are made to holders of ordinary shares. In the event a Preferred Share is converted into ADSs, the right to receive such payment for such Preferred Share will be extinguished. The Company has a right of first refusal in the event that the EIB intends to sell, transfer, assign or otherwise dispose of any or all of the Preferred Shares.

The Preferred Shares also contain a provision preventing the holder from converting Preferred Shares into ADSs to the extent that (i) the holder would become the beneficial owner of more than 4.99% of the Company's outstanding ADSs and (ii) the holder will receive, or would have been entitled to receive, within the twelve month period prior to such conversion, an aggregate number of ADSs in excess of 4.99% of the ADSs issued and outstanding at the time of such conversion. In addition, a holder of Preferred Shares may not convert such shares for a period of twelve (12) months commencing on the date of issuance of the Preferred Shares.

In addition, the Company may only  take any of the following actions provided (a) it either (i) first redeems all then-outstanding Preferred Shares by making a redemption payment or (ii) obtains the written consent or affirmative vote of the holders of a majority of the Preferred Shares in order to proceed without making such a redemption; or (b) the action in question is not in the control of the Company: incurring certain indebtedness, consummating certain acquisition or merger transactions, taking any action or step in relation to the delisting of the Company's securities on Nasdaq; authorizing the creation of any security having rights, preferences or privileges equal to or greater than those of the Preferred Shares, including the issuance of additional Preferred Shares. 

The amendments to the Finance Contract also eliminate the requirement for the Company to pay to the EIB the variable remuneration previously required under the Finance Contract.

 The closing of the transaction is subject to customary closing conditions.

About Scinai Immunotherapeutics

Scinai Immunotherapeutics Ltd. (NASDAQ: SCNI) is a biopharmaceutical company with two complementary business units, one focused on in-house development of inflammation and immunology (I&I) biological therapeutic products beginning with an innovative, de-risked pipeline of nanosized VHH antibodies (NanoAbs) targeting diseases with large unmet medical needs, and the other a boutique CDMO providing biological drug development, analytical methods development, clinical cGMP manufacturing, and pre-clinical and clinical trial design and execution services for early stage biotech drug development projects.

Company website: www.scinai.com.

Company Contacts:

Investor Relations | +972 8 930 2529 | ir@scinai.com
Business Development | +972 8 930 2529 | bd@scinai.com

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. Words such as "expect," "believe," "intend," "plan," "continue," "may," "will," "anticipate," and similar expressions are intended to identify forward-looking statements. All statements, other than statements of historical facts, are forward-looking statements. Examples of such statements include, but are not limited to, the closing of the transaction with the EIB. These forward-looking statements reflect management's current views with respect to certain current and future events and are subject to various risks, uncertainties and assumptions that could cause the results to differ materially from those expected by the management of Scinai Immunotherapeutics Ltd. Risks and uncertainties include, but are not limited to, the risk that the closing of the transaction with the EIB will not occur or will be delayed. More detailed information about the risks and uncertainties affecting the Company is contained under the heading "Risk Factors" in the Company's Annual Report on Form 20-F filed with the Securities and Exchange Commission ("SEC") on May 15, 2024, and the Company's subsequent filings with the SEC. Scinai undertakes no obligation to revise or update any forward-looking statement for any reason.

 

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SOURCE Scinai Immunotherapeutics Ltd.

FAQ

What is the main outcome of Scinai's loan restructuring agreement with EIB?

Scinai (NASDAQ: SCNI) has converted approximately $29 million of debt into 1,000 preferred shares, convertible into 19.5% of the company's fully diluted capital, significantly reducing its debt burden.

How much debt remains after Scinai's restructuring agreement with EIB?

After the restructuring, Scinai (SCNI) will have a remaining loan of approximately $273,000 owed to the European Investment Bank, maturing on December 31, 2031, with no interest accrual.

What are the key terms of the preferred shares issued by Scinai (SCNI) in the EIB agreement?

The preferred shares are convertible into 19.5% of Scinai's fully diluted capital, do not accrue dividends, and are redeemable at the company's discretion for a cumulative value of $34 million.

How does the loan restructuring affect Scinai's (SCNI) financial position?

The restructuring eliminates almost $28 million of debt, potentially establishing a more stable financial base for Scinai to develop novel therapeutics for inflammation and immunology diseases.