Business Context and Reporting Period
Company: Forum Energy Technologies, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: November 19, 2013
Event Date: November 19, 2013 (Pricing/Notice); November 22, 2013 (Closing)
Context: The Company entered into a Material Definitive Agreement to issue additional senior notes in a private placement.
Key Financial Metrics
- Debt Issuance: $100 million aggregate principal amount of 6.250% Senior Notes due 2021 (Additional Notes).
- Total Series: Combined with $300 million issued on October 2, 2013, the total series of Notes is $400 million.
- Net Proceeds: Approximately $101.2 million (after deducting initial purchasers' discount and estimated offering expenses).
- Use of Proceeds: Reduction of borrowings outstanding under the Company's revolving credit facility.
- Interest Rate: 6.250% per annum, payable semiannually in arrears (April 1 and October 1).
- Security Status: Senior unsecured obligations.
Material Changes
The primary material change is the expansion of the Company's long-term debt structure. The issuance of the Additional Notes increases the total outstanding principal of the 6.250% Senior Notes due 2021 from $300 million to $400 million. Concurrently, the Company reduced its short-term liquidity exposure by paying down borrowings under its revolving credit facility using the net proceeds from this offering.
Guidance, Outlook, and Covenants
- Redemption Terms:
- Make-Whole: Redeemable prior to October 1, 2016, at 100% of principal plus a make-whole premium.
- Equity Proceeds: Up to 35% of principal may be redeemed prior to October 1, 2016, using proceeds from certain equity offerings at 106.250% of principal.
- Scheduled Redemption: From October 1, 2016, redemption prices decline from 104.688% to 100.000% by October 1, 2019.
- Change of Control: Holders may require repurchase at 101% of principal plus accrued interest if a change of control occurs followed by a ratings decline.
- Covenants: The Indenture restricts dividends, stock repurchases, additional indebtedness, liens, and asset sales. Many covenants cease to apply if the Notes achieve investment-grade ratings from Moody's or S&P.
- Registration Rights: The Company agreed to file an exchange offer registration statement by October 2, 2014. Failure to comply may result in additional interest payments.
Investor Verification Checklist
- Verify the exact amount of debt retired from the revolving credit facility to assess the net impact on liquidity.
- Confirm the current credit rating of the Notes to determine if restrictive covenants are currently in effect.
- Review the "Purchase Agreement" (Exhibit 1.1) for specific indemnification liabilities.
- Monitor the Company's ability to file the required exchange offer registration statement by the October 2, 2014 deadline to avoid penalty interest.
- Assess the impact of the 6.250% interest rate on future cash flow obligations compared to the cost of the replaced revolving credit facility.