(News Bulletin 247) – The inventor of the first artificial heart announces an agreement in principle with the European Investment Bank on the terms of repayment of a loan taken out in 2018. But Carmat’s cash flow situation remains worrying.

Time is still running out for Carmat, which is facing significant cash flow needs. In mid-October, the group completed a capital increase of 7 million euros with several historic shareholders. But this call to the market only ensured its financial horizon until the beginning of 2024.

The inventor of the first artificial heart is therefore trying to find solutions to avoid finding himself asphyxiated. This Friday, Carmat announced an agreement in principle with the European Investment Bank (EIB) on the terms of repayment of a 30 million euro loan taken out in December 2018.

The agreement in principle covers all three tranches of the loan for a unit amount of 10 million euros and would allow Carmat, if implemented, to postpone the maturity of the first tranche to the end of July 2026, while it was initially scheduled for January 31, 2024. Still within this framework, the repayment of the second tranche would be postponed from May 4, 2025 to August 4, 2027 and the maturity of the third from October 29, 2026 to October 29, 2028 .

The signing of a definitive agreement could take place by the end of the first quarter of 2024. “This agreement will allow us to avoid any repayment under this loan, at least until July 31, 2026, and thus to put our resources financial primarily in the service of our growth”, explains Stéphane Piat, the general director of Carmat.

Future dilutions for shareholders

For the moment, this is only a non-binding agreement in principle. It remains conditional on the final approval of the European Investment Bank as well as the conclusion of an agreement to reschedule the State-guaranteed loans (PGE) contracted by Carmat to BNP Paribas and Bpifrance, a total principal amount of 10 million euros.

To reduce the debt, Carmat plans to use an “equitization” operation. This mechanism consists of transforming at least the first tranche of the loan into Carmat shares and therefore avoiding repayment in cash. The company details the mechanics of this operation. The debt will be transferred to a management trust, set up specifically for the needs of the operation. This structure will receive free share subscription warrants (i.e. BSAs). These BSAs will then be exercised by offsetting claims on the market by the trust.

The net proceeds from their sale would then be paid by the trust to the EIB until the sums owed to it under the first tranche of the loan have been fully reimbursed. This operation could also concern the other two tranches of the loan unless the EIB decides to waive it.

But for the shareholder, this operation will not be without consequences. Carmat would like to warn existing shareholders of the potential dilution induced by this operation. “Shareholders could thus suffer a loss of their invested capital due to a significant decrease in the value of the company’s shares, as well as significant dilution due to the large number of shares issued to the trust,” specifies the company.

The dilution generated by equitization is thus evaluated by Carmat – for illustrative purposes and based on different hypotheses – at -11% for the first tranche and up to -29% if the three tranches are affected by this mechanism.

“Despite the potential dilution, the operation is positive for the group, because it would allow it to postpone a deadline and focus on financing its growth,” said Invest Securities in its note this Friday morning.

“This also does not resolve the issue of cash flow which remains a concern in the very short term since the company only has liquidity to finance its operations until the end of January 2024,” warns Degroof Petercam.

Indeed: if this operation will give Carmat some short-term breathing space, the fact remains that the company’s financial situation remains precarious. Carmat recalls that it estimates its financing needs at around 50 million euros until the end of 2024. It says “therefore working very actively on other initiatives to, in the very short term, strengthen its equity and alleviate its financing constraints. cash flow, and thus be able to continue its activities beyond the end of January 2024.

On the Paris Stock Exchange, the prospect of dilution weighs on Carmat shares, which lose nearly 11% around 1:00 p.m.