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Mandatory convertible bond issuance
 6 Months Ended
Jun. 30, 2025
Debt Disclosure [Abstract]  
Mandatory convertible bond issuance

13. Mandatory convertible bond issuance

 

On March 19, 2025, the Company issued the first tranche of a mandatory convertible bond (the “MCB” or the “POC” – Prestito Obbligazionario Convertibile) for a nominal amount of €7,500,000, as part of a broader issuance totaling €20,000,000, pursuant to the agreement with Fondazione Enea Tech e Biomedical (the “Investor”) signed on March 12, 2025.

 

The instrument denominated “Genenta 2025–2028,” is structured as a three-year mandatory convertible bond, with no cash redemption at maturity. A second tranche of €12,500,000 may be issued contingent on the achievement of clinical, regulatory, and financial milestones, or as otherwise agreed between the parties.

 

The key terms, including conversion terms of the instrument are summarized as follows:

 

  ● Total nominal value:   €20,000,000 (two tranches)
  ● Tranche 1 issued:   €7,500,000 on March 19, 2025
  ● Tranche 2 (conditional):   €12,500,000, contingent on R&D and financial milestones
  ● Maturity:   March 19, 2028
  ● Mandatory conversion:   mandatory and automatic at maturity, or earlier based on specific conditions
        (e.g., Change of Control or Investment Round)
  ● Conversion formula:   55% based on the 90-day VWAP of ADS + 45% based on the fair market
      value determined by a third party 
  ● Conversion price cap:   USD 17.64 per share
  ● Equity cap:   Conversion limited to a maximum of 29% of share capital
  ● Discount (if applicable):   6% or 3% depending on market conditions
  ● Interest:    

  ○ 6% per annum if paid in ordinary shares (“equity-settled”)
  ○ 4% per annum if paid in cash
  ○ Interest is accrued annually and payable in full upon conversion

  ● Redemption rights:   No right of early redemption by the bondholder, except in the case of default or material breach
  ● Price of conversion:   Weighted average of 55% market ADS price and 45% fair value (as determined by an independent advisor), with caps and anti-dilution adjustments (see Conversion Formula above)
  ● Lock-up:   Converted shares are subject to lock-up (2 years, or 1 year if converted early)
  ● Classification:   No embedded derivative requiring bifurcation, no cash settlement feature

 

The Company’s Board has formally resolved at its meeting on June 4, 2025, to pay interest in shares at the annual rate of 6%, not in cash, subject to any extraordinary activity of the Company requiring cash payment, such as a merger, acquisition, or other change in control.

 

Interest is accrued annually at a rate of 6% and fully payable in ordinary shares (“equity-settled”) upon conversion of the MCB. Since the instrument is measured at fair value, interest is not accrued separately; instead, it is embedded in the liability’s fair value. Consequently, the total fair value of the liability (including the implicit interest) is remeasured at each reporting date, and any change in fair value is a gain (loss) of the reporting period.

 

The amount of due diligence costs related to the agreement with the Investor and the issuance of the MCB, recognized in the Consolidated Statements of Operations and Comprehensive Loss as financial expenses as of June 30, 2025, is approximately €391,000.

 

Fair valuation at initial recognition

 

The conversion terms are contingent upon specific corporate scenarios such as an investment round, a change of control, maturity, and dissolution, with scenario-based probabilities assigned to each. Given the presence of non-linear payoffs, optionality features, and market-linked triggers, a Monte Carlo simulation model was employed to value the instrument at initial recognition.

 

 

The valuation was made using a risk-neutral Monte Carlo simulation model consisting of 20,000 paths, projecting the issuer’s stock price via Geometric Brownian Motion with volatility calibrated over a three (3) year forward-looking horizon.

 

Key inputs included:

 

Parameter  Value / Source
Effective date  March 19, 2025
Maturity  March 19, 2028
Nominal value  $8.165 million (converted from €7.5 million FX as of 3/19/2025)
Risk-free rate  4.00% (U.S. Treasury, 3.0-year term)
Equity volatility (annualized)  83.0% (Historical, 3.0-year horizon)
Stock price on valuation date  $3.82 (Nasdaq CM: GNTA – S&P Capital IQ)
Simulated term  3.0 years
Number of simulations  20,000

 

Scenarios modeled:

 

Scenario  Probability   Event date 

Average bond balance

(USD 000s)

  

Average payoff

(USD 000s)

   Discount rate   PV factor  

PV

(USD 000s)

 
Investment round   2.5%  3/31/2026  $8,678   $9,321    7.3%   0.9299   $217 
Change of control   5.0%  12/31/2027  $9,548   $9,776    7.3%   0.8221   $402 
Maturity   90.0%  3/19/2028  $9,656   $10,317    7.3%   0.8098   $7,519 
Dissolution   2.5%  9/30/2026  $8,927   $1,225    7.3%   0.8977   $27 
Total Fair Value                              $8,165 

 

Fair value in euros (at spot FX rate): €7,500,000.

 

Fair value subsequent measurement at June 30, 2025

 

The fair value was updated as of June 30, 2025, using a Monte Carlo simulation with 20,000 price paths, calibrated using a Geometric Brownian Motion model to simulate GNTA share prices and scenario-specific conversion payoffs.

 

Key valuation inputs:

 

Parameter 

As of

March 19, 2025

  

As of

June 30, 2025

 
GNTA share price  $3.82   $3.05 
Stock volatility (3.0-year horizon)   83.0%   82.0%
Risk-free rate (3.0 years)   4.0%   3.7%
Implied yield (adjusted yield for June 30, 2025)   7.3%   6.8%
Expected term   3.0 years    2.7 years 

 

 

Scenarios modeled:

 

Scenario  Probability   Event date 

Average bond balance

(USD 000s)

  

Average payoff

(USD 000s)

   Discount rate   PV factor  

PV

(USD 000s)

 
Investment round   2.5%  6/30/2026  $9,495   $10,205    6.8%   0.9359   $239 
Change of control   5.0%  12/31/2027  $10,301   $10,340    6.8%   0.8472   $438 
Maturity   90.0%  3/19/2028  $10,417   $10,863    6.8%   0.8352   $8,166 
Dissolution   2.5%  12/31/2026  $9,765   $1,321    6.8%   0.9052   $30 
Total Fair Value                              $8,873 

 

Fair value in euros (at spot FX rate): €7,555,000.

 

Fair value increase primarily reflects currency translation movement, the lower market yield, time decay, accumulation of accrued PIK interest, and minor equity path shifts despite a lower stock price.