Business Context and Reporting Period
This Form 8-K filing by Everett SpinCo, Inc. (the "Company") is dated March 27, 2017. The filing reports the closing of a debt offering and the entry into material definitive agreements. The Company is in the process of separating from Hewlett Packard Enterprise Company ("HPE") and merging with Computer Sciences Corporation to form DXC Technology Co.
Key Financial Metrics and Debt Obligations
The Company issued $1.5 billion in aggregate principal amount of senior notes, structured as follows:
- 2020 Notes: $500 million principal, 2.875% interest rate, due March 27, 2020.
- 2024 Notes: $500 million principal, 4.250% interest rate, due April 15, 2024.
- 2027 Notes: $500 million principal, 4.750% interest rate, due April 15, 2027.
Interest is payable semi-annually in cash. The notes were offered to qualified institutional buyers under Rule 144A and outside the U.S. under Regulation S. The filing does not provide specific revenue, profit, cash flow, or liquidity metrics for the period.
Material Changes and Use of Proceeds
The primary material change is the creation of a direct financial obligation of $1.5 billion. The Company intends to use the net proceeds from this offering to fund a cash payment to HPE in connection with the Company's separation from HPE and its subsequent merger with Computer Sciences Corporation.
Management Commentary, Risks, and Covenants
The Indenture governing the notes includes covenants that limit the Company's ability to:
- Create liens over its assets.
- Enter into certain sale and leaseback transactions.
- Enter into mergers, consolidations, or sell/transfer substantially all properties and assets.
The Indenture also contains provisions for redemption at the Company's option and mandatory redemption in specified circumstances, as well as customary events of default. Additionally, a Registration Rights Agreement was entered into, requiring the Company to conduct a registered exchange offer or file a shelf registration statement for the resale of the notes. Failure to comply may result in liquidated damages in the form of additional interest.
Investor Verification Checklist
- Verify the exact net proceeds received after deducting underwriting fees and expenses.
- Confirm the specific terms of the cash payment to HPE and the timeline for the merger with Computer Sciences Corporation.
- Review the full text of the Indenture (Exhibit 4.1) for detailed restrictions on future indebtedness and asset sales.
- Assess the impact of the new debt service obligations on the combined entity's future cash flow.