Fortive Corp. 8-K Summary: Material Definitive Agreement
Business Context and Reporting Period
Fortive Corporation (Fortive) filed a Form 8-K on November 30, 2018, reporting the entry into a Material Definitive Agreement. The filing details the execution of an amended and restated credit agreement on November 30, 2018.
Key Financial Metrics and Facility Terms
- Facility Size: $2.0 billion revolving credit facility with a multicurrency borrowing feature.
- Maturity: November 30, 2023, with a one-year extension option subject to lender consent.
- Expansion Option: Ability to request up to an additional $1.0 billion in principal amount.
- Interest Rates:
- Eurocurrency Rate Committed Loans: LIBOR plus 80.5 to 117.5 basis points.
- Base Rate Committed Loans: Highest of Federal funds rate + 0.5%, Prime rate, or Eurocurrency Rate, plus up to 17.5 basis points.
- Floor: No loans bear interest below 0%.
- Facility Fee: 7.0 to 20.0 basis points per annum on aggregate commitments.
- Drawdown Status: No funds were borrowed at the closing of the agreement.
Material Changes and Covenants
The new agreement amends and restates the existing credit agreement dated June 16, 2016. Key financial covenants include:
- Consolidated Net Leverage Ratio: Must be maintained at 3.50 to 1.00 or less. This increases to 4.00 to 1.00 for four consecutive fiscal quarters following an acquisition exceeding $250 million.
- Consolidated Interest Coverage Ratio: Must be maintained at at least 3.50 to 1.00.
- Testing Period: Covenants are tested beginning with the fiscal quarter ending December 31, 2018.
The agreement includes customary negative covenants restricting liens, indebtedness, restricted payments, asset dispositions, and mergers. Obligations are unsecured, though subsidiaries are guaranteed if named as borrowers.
Guidance, Outlook, and Risks
The filing does not provide specific financial guidance, revenue outlook, or management commentary regarding future performance. The primary risk disclosed is the potential for an event of default, which could occur upon certain changes of control or covenant breaches, allowing lenders to declare all obligations immediately due and payable.
Investor Verification Checklist
- Verify Fortive's current long-term debt credit rating to determine the specific interest rate margin and facility fee applicable.
- Confirm the company's compliance with the 3.50:1.00 Net Leverage Ratio and 3.50:1.00 Interest Coverage Ratio as of the quarter ending December 31, 2018.
- Review the full text of Exhibit 10.1 (Credit Agreement) for specific definitions of "Consolidated Net Leverage Ratio" and "Consolidated Interest Coverage Ratio."
- Monitor for any acquisitions exceeding $250 million that would temporarily relax the leverage covenant to 4.00:1.00.