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Hercules' Loan Agreement with OCZ

Zacks Equity Research

Hercules Technology Growth Capital, Inc. (HTGC) has entered into a $30 million loan and security agreement with OCZ Technology Group, Inc. (OCZ). The agreement comprises of a $15 million term loan and a $15 million revolving credit facility.

As per the terms of the agreement, OCZ Technology has ended its previous credit facility agreement with Wells Fargo & Company (WFC). Further, OCZ Technology has withdrawn $10 million term loan upon signing of the agreement with repayments in 30 monthly installments commencing from Nov 2013. The remaining $5 million of the term loan can be withdrawn, provided the company achieve a certain revenue level for two succeeding quarters and regularly files with SEC.

Further, OCZ Technology has issued a warrant to Hercules, enabling the latter to purchase 688,073 shares of OCZ Technology’s common stock at an exercise price of $2.18 per share. The $10 million of the revolving credit facility is required to be repaid in full in Apr 2016. The remaining $5 million can be accessed only if OCZ Technology fulfills certain financial conditions.

For OCZ Technology, this agreement will be highly beneficial, as it would provide capital to strengthen its business, fund future expansions and sustain newer opportunities.

For Hercules, a specialty finance company that provides venture capital to technology and life science-related companies, this credit facility will enhance its clientele list. Also, the interest income is expected to increase. It is to be noted that OCZ Technology has presented Hercules with a warrant to buy common stock. For Hercules, this is an excellent opportunity to earn profit by exercising the warrant when share prices are high.

Hercules currently carries Zacks Rank #2 (Buy). Other stocks in the same sector that are performing well and can be recommended for investment includes American Capital, Ltd (ACAS), which holds a Zacks Rank #1 (Strong Buy).

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