Business Context and Reporting Period
Company: Inspired Entertainment, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 13, 2018
Event: Refinancing of external borrowings and entry into material definitive agreements.
Key Financial Metrics and Debt Structure
The filing details a comprehensive refinancing of the company's debt structure, replacing a 2014 Senior Term and Revolving Facility with new instruments:
- Senior Notes: $140.0 million principal amount, maturing in 5 years (August 2023).
- Revolving Credit Facility: £7.5 million (approximately $9.9 million), maturing in 3 years (August 2021).
- Interest Rates (Notes): 9% per annum plus 3-month LIBOR (or 8% plus base rate).
- Interest Rates (Revolving): 4% per annum plus 3-month LIBOR on utilized amounts; 1.4% commitment fee on unutilized amounts.
- Issuance Price: Notes issued at 98% of par value.
- Prepayment Penalties: 3.00% premium on voluntary prepayments (waived for mandatory prepayments from asset sales/insurance/excess cash flow) and a 3.00% exit premium upon maturity.
Material Changes Versus Prior Period
The company terminated its existing Senior Term and Revolving Facility Agreement (originally dated March 18, 2014, with Ares Management Limited and Lloyds Bank PLC) which had outstanding obligations of approximately £98.5 million. This facility was replaced by the new Senior Notes and the new Revolving Credit Facility with Lloyds Bank PLC.
Guidance, Risks, and Unusual Items
Hedging Strategy: The company entered into a 3-year fixed-rate cross-currency swap with Nomura to hedge currency risk. This swaps USD principal and interest payments into Euros (EUR) and Pounds Sterling (GBP) at fixed rates ($1.13935 USD/EUR and $1.27565 USD/GBP).
Covenants and Restrictions: The new agreements impose restrictive covenants including limitations on additional debt, liens, acquisitions, dividends, and asset sales. The company must maintain quarterly compliance with maximum leverage and fixed charge coverage ratios, as well as a minimum liquidity covenant.
Mandatory Prepayments: The company is required to make mandatory prepayments from asset sales, insurance proceeds, and excess cash flows. Excess cash flow prepayments range from 25% to 50% depending on the total leverage ratio.
Related Party Transaction: HG Vora Special Opportunities Master Fund, Ltd. (HGV Fund) currently holds 100% of the new Notes. HGV Fund owns approximately 17.5% of the Company's outstanding common stock and is affiliated with members of the Company's management.
Investor Verification Checklist
- Verify the exact amount of cash proceeds received from the $140 million note issuance after the 2% discount (98% of par).
- Confirm the current total leverage ratio to determine the applicable mandatory prepayment percentage (25% vs 50%) for excess cash flows.
- Review the specific terms of the cross-currency swap to understand the fixed EUR/GBP exposure versus the floating USD LIBOR exposure.
- Assess the impact of the 3% prepayment and exit premiums on future refinancing or early repayment strategies.
- Monitor the quarterly compliance reports for leverage and fixed charge coverage ratios to ensure no covenant breaches occur.