Case Study

Stereotaxis

CLIENT: Stereotaxis

Gordian Group acted as investment banker to Stereotaxis in connection with its successful, fast track, out-of-court restructuring, which entailed new money raised, a restructuring of existing securities, and new instruments being issued, all of which resulted in a significant deleveraging of the company and sufficient funds to support continued operations.

Business Profiles

Situation

Stereotaxis is a healthcare technology company that develops robotic systems and instruments to treat arrhythmias and coronary disease. Stereotaxis continually required cash infusions to fund R&D expenses as well as marketing costs, both of which were needed to increase market penetration and grow the company. From 2010 through 2013, the company consumed more than $60 million of capital. Stereotaxis’ equity market capitalization declined from $177 million at the end of 2010 to just $11 million in mid-2013 – just before Gordian was engaged.

To fund liquidity needs, Stereotaxis obtained convertible as well as secured debt financings in 2011 and 2012, which left the company highly leveraged. Furthermore, large prepayment penalties, change of control issues, and significantly encumbered assets made refinancing or otherwise paying down the debt problematic. The situation was made even more roiled due to the presence of hedge funds in the capital structure, which used every opportunity to extract additional value from existing stockholders through “death spiral” type negotiations. By early 2013, the bank debt had matured. Although the bank had extended the debt for short periods, such extensions had been coupled with debt reductions. As a result, Stereotaxis was facing an existential crisis.

Engagement

Gordian Group was engaged as Financial Advisor to Stereotaxis in July 2013. Its prior investment banker had failed to develop solutions to prevent the company from crashing into a liquidity wall. Gordian structured a novel two step restructuring.

The first step entailed negotiating with the very same hedge funds that the prior investment banker had failed to reach an agreement with. Faced with the prospect of an unpleasant outcome without an agreement – a negotiating dynamic central to many of Gordian Group’s engagements – the hedge funds agreed to a complex restructuring in which they advanced new money, restructured certain existing securities and received new instruments. The proceeds of this deal allowed the paydown of the bank debt, and provided the company with much-needed operational liquidity.

The second step of the transaction involved a subsequent rights offering to all equity holders. This offering was successful, and provided financing that would allow the company to continue to execute on its business plan for the next two years.

Outcome

This creative approach resulted in a massive deleveraging of Stereotaxis and significant funds to support operations. Significantly, it demonstrated how a medical technology company can overcome recalcitrant “death spiral”-type holders in the capital structure. Gordian continues to serve as Financial Advisor to Stereotaxis. Over the course of the engagement, Gordian worked closely with Stereotaxis’s Board and Management and advised on financial alternatives and liquidity needs. Gordian Group also provided a fairness opinion on the convertible debt exchange.