CDW Corp Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated February 16, 2012, details a significant capital restructuring by CDW Corporation. The filing covers events occurring on February 16 and 17, 2012, involving the amendment of existing debt indentures, the execution of a tender offer, and the issuance of new senior notes.
Key Financial Metrics and Debt Structure
- Existing Debt Repurchased: Approximately $120.6 million (93.49%) of outstanding "Existing Senior Notes" were tendered and accepted for purchase. This includes $49.16 million of 11.00% Senior Cash Pay Notes and $71.44 million of 11.50%/12.25% Senior PIK Election Notes.
- New Debt Issued: $130.0 million aggregate principal amount of 8.5% Senior Notes due 2019 ("New Notes") were issued at 104.375% of par.
- Remaining Debt to be Redeemed: Approximately $8.4 million of Existing Senior Notes were not tendered and are scheduled for redemption on March 19, 2012.
- Redemption Prices: Existing Cash Pay Notes redeemed at 105.50% of principal; Existing PIK Election Notes redeemed at 105.75% of principal.
- Use of Proceeds: Proceeds from the New Notes, cash on hand, and credit facility advances are used to pay consideration for the tender offer and redeem remaining existing notes.
Material Changes Versus Prior Period
The most significant change is the elimination of substantially all restrictive covenants and certain events of default previously contained in the indenture governing the Existing Senior Notes. This was achieved through a supplemental indenture executed after receiving consents from holders representing 93.49% of the outstanding notes. Additionally, the company has replaced high-interest legacy debt (11.00% to 12.25%) with new debt carrying an 8.5% interest rate.
Outlook, Risks, and Unusual Items
- Registration Rights: The New Notes are subject to a registration rights agreement requiring the company to file an exchange offer registration statement by December 13, 2012. Failure to meet this obligation triggers an interest rate penalty of up to an additional 0.50% per annum.
- Covenants: While restrictive covenants on the old notes were removed, the New Notes are governed by an indenture containing standard restrictions on additional indebtedness, dividends, liens, and asset sales.
- Redemption Terms: The New Notes may be redeemed prior to April 1, 2015, at a "make-whole" premium. After April 1, 2015, they may be redeemed at declining premiums. Up to 40% may be redeemed prior to April 1, 2014, using equity offering proceeds at 108.5% of principal.
- Change of Control: Holders of the New Notes have the right to require repurchase at 101% of principal plus accrued interest in the event of a change of control.
Investor Verification Checklist
- Verify the exact amount of cash outflow required to redeem the remaining $8.4 million of non-tendered notes at the specified premiums (105.50% and 105.75%).
- Confirm the company's ability to meet the December 13, 2012, deadline for the exchange offer registration to avoid the 0.25% to 0.50% interest rate penalty on the New Notes.
- Review the specific terms of the new indenture to understand the remaining financial covenants and restrictions on future capital structure flexibility.
- Assess the impact of the interest rate reduction from ~11-12% to 8.5% on future earnings, noting the premium paid to retire the old debt.