Business Context and Reporting Period
Company: Varex Imaging Corporation (VREX)
Filing Type: Form 8-K (Current Report)
Date of Report: June 3, 2020
Event: Entry into a Material Definitive Agreement (Amendment No. 6 to Credit Agreement).
Key Financial Metrics and Debt Structure
This filing does not report specific revenue, profit, cash flow, or margin figures. It focuses exclusively on amendments to the company's credit facility and debt covenants.
- Credit Facility: Term loan and revolving loan credit facility with Bank of America, N.A. as administrative agent.
- Incremental Commitments: Increased allowance for uncommitted incremental increases to up to $100,000,000.
- Additional Indebtedness: Permitted to incur up to $300,000,000 in additional incremental indebtedness outside the Credit Agreement, of which up to $100,000,000 may be secured.
- Convertible Notes: The agreement allows for the issuance of convertible note indebtedness under the additional incremental indebtedness allowance.
Material Changes Versus Prior Period
The Amendment No. 6 introduces significant changes to the financial covenants and borrowing capacity compared to the original Credit Agreement dated May 17, 2017:
- Leverage Ratios: Increased maximum permitted amounts for consolidated total leverage ratio and senior secured leverage ratio for various fiscal quarters.
- Calculation Adjustments:
- Permitted netting of specified unrestricted cash from outstanding indebtedness in leverage ratio calculations.
- Modified definition of EBITDA used for leverage ratio calculations.
- Decreased capital expenditures deducted from EBITDA in the fixed charge coverage ratio calculation.
- Decreased principal amortization included in the denominator of the fixed charge coverage ratio through October 2, 2021.
- Use of Proceeds:
- Unsecured Debt: Proceeds must prepay up to $50,000,000 of term loans and pay down up to $25,000,000 of revolving loans (reducing commitments).
- Secured Debt: Proceeds must pay down up to $75,000,000 of revolving loans (without permanent commitment reduction).
- Equity Issuance: Up to 25% of proceeds from future equity issuances may be retained by the Company rather than applied to indebtedness.
Guidance, Outlook, and Risks
Management Commentary: The filing provides no forward-looking guidance on revenue or earnings. The primary strategic shift is the relaxation of financial covenants to provide greater operational flexibility and borrowing capacity.
Risks and Contingencies:
- The summary of the Amendment is qualified in its entirety by reference to the full text of the agreement (Exhibit 10.1).
- The company is permitted to enter into customary hedging transactions in connection with permitted convertible note indebtedness.
Investor Verification Checklist
- Review Exhibit 10.1 (Amendment No. 6) for the precise mathematical definitions of the modified EBITDA and leverage ratios.
- Verify the specific fiscal quarters for which the increased leverage ratio thresholds apply.
- Confirm the current outstanding balances of term loans and revolving loans to assess the immediate impact of the prepayment requirements for new debt.
- Monitor future filings for the actual issuance of the permitted $300,000,000 in incremental indebtedness or convertible notes.