Business Context and Reporting Period
Science Applications International Corporation (SAIC) filed this Form 8-K on October 31, 2018, to report the entry into a Third Amended & Restated Credit Agreement. This financing action was taken in anticipation of the proposed acquisition of Engility Holdings, Inc., pursuant to a Merger Agreement dated September 9, 2018.
Key Financial Metrics and Debt Structure
The filing details a significant restructuring of SAIC's debt facilities to support the proposed merger. Key financial terms include:
- Term Loan B: A senior secured term loan facility of $1,050,000,000, funded in full on October 31, 2018. Proceeds were used to repay all prior indebtedness.
- Term Commitment (Term Loan A): A commitment of $1,068,000,000, which automatically reduces to $618,000,000 if the Merger Agreement is terminated. This facility is intended to partially finance the Merger upon effectiveness.
- Revolving Credit Facility: An increase of $200,000,000 to the existing $200,000,000 facility (totaling $400,000,000) upon the effectiveness of the Merger.
- Interest Rates: Variable rates based on LIBOR or base rate plus applicable margins. Term Loan B margins are 1.75% (LIBOR) or 0.75% (base rate). Term Commitment and Revolver margins range from 1.25% to 2.00% (LIBOR) and 0.25% to 1.00% (base rate) based on leverage.
- Maturities: Term Commitment and Revolver mature on October 31, 2023; Term Loan B matures on October 31, 2025.
Material Changes Versus Prior Period
The Credit Agreement amends and restates the prior credit facility entered into on May 4, 2015. The primary material changes include:
- Establishment of a new $1.05 billion Term Loan B facility.
- Creation of a new $1.068 billion Term Commitment facility.
- Expansion of the revolving credit facility capacity contingent on the Merger.
- Adjustment of leverage ratio covenants to accommodate the transaction.
Guidance, Covenants, and Risks
The filing outlines specific financial covenants and risks associated with the new debt structure:
- Leverage Ratio Covenants: SAIC must maintain a Senior Secured Leverage Ratio not greater than 3.75:1.00 until the Merger is effective. Upon effectiveness, the limit increases to 4.50:1.00 for six fiscal quarters, then 4.00:1.00 thereafter.
- Amortization: Term Loan B amortizes quarterly at 0.25% starting January 31, 2019. Term Commitment amortization begins January 31, 2020, at 1.25%, increasing to 1.875% in 2021 and 2.50% in 2022.
- Mandatory Prepayments: Annual mandatory prepayments of Excess Cash Flow are required beginning with the fiscal year ending January 31, 2020.
- Collateral: The agreement is secured by substantially all assets of SAIC and its domestic subsidiaries, including a pledge of equity interests.
- Events of Default: Includes bankruptcy, nonpayment, cross-defaults, breach of covenants, and change of control events.
The filing does not provide specific revenue, profit, or cash flow figures for the reporting period, as this is a current report focused on the credit agreement.
Investor Verification Checklist
- Verify the status of the Merger Agreement with Engility Holdings, Inc., as the Term Commitment size and certain facility expansions are contingent on its effectiveness.
- Review the full text of the Credit Agreement (Exhibit 10.1) for detailed definitions of "Excess Cash Flow" and specific covenant calculations.
- Monitor SAIC's ability to meet the increased Senior Secured Leverage Ratio of 4.50:1.00 post-merger.
- Confirm the impact of the new debt service obligations (amortization and interest) on future liquidity and cash flow.