Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Interest on borrowings under the MidCap credit facility accrues interest at an annual rate equal to the lesser of (i) 8.25% and (ii) the one-month SOFR (subject to a one-month SOFR floor of 1.00%) plus 6.25%. Accordingly, our interest expense under the MidCap credit facility is subject to changes in the one-month SOFR rate.
All other debt has fixed interest rates, so the interest expense associated with such debt is not exposed to changes in market interest rates. Specifically, the interest rate on amounts borrowed under the Mann Group promissory notes is fixed at 2.50% and the interest rate under the Senior convertible notes is fixed at 2.50%. See Note 10 – Borrowings for information about the principal amount of outstanding debt.
If a hypothetical 10% change in the one-month SOFR interest rates on December 31, 2022 were to have occurred, this change would not have had a material effect on our annual interest payment obligation.
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Foreign Currency Exchange Risk
In July 2022 and October 2022, we entered into two separate 90-day foreign currency hedging transactions to mitigate our exposure to foreign currency exchange risks associated with our insulin purchase obligation under the Insulin Supply Agreement. The hedging transaction hedges against short-term currency fluctuations for the remaining current year purchase obligation under the Insulin Supply Agreement for a total of €4.0 million. We realized a $0.1 million loss during the year ended December 31, 2022. This amount is recorded in other income and expense.
We incur and will continue to incur significant expenditures for insulin supply obligations under our Insulin Supply Agreement with Amphastar. Such obligations are denominated in Euros. At the end of each reporting period, the recognized gain or loss on purchase commitment is converted to U.S. dollars at the then-applicable foreign exchange rate. As a result, our business is affected by fluctuations in exchange rates between the U.S. dollar and the Euro. For the year ended December 31, 2022, we realized a $4.8 million currency gain, which was included in (gain) loss on foreign currency translation in the accompanying consolidated statements of operations.
Exchange rate fluctuations may adversely affect our expenses, results of operations, financial position and cash flows. If a change in the U.S. dollar to Euro exchange rate equal to 10% of the U.S. dollar to Euro exchange rate on December 31, 2022 were to have occurred, this change would have resulted in a foreign currency impact to our pre-tax loss of approximately $7.2 million.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is included in Items 15(a) (1) and (2) of Part IV of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.