Hewlett Packard Enterprise Co. 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated December 16, 2016, details a material definitive agreement entered into by Hewlett Packard Enterprise Company (HPE). The filing relates to the "Everett Transactions," a planned tax-free spin-off and merger of HPE's Enterprise Services business with Computer Sciences Corporation (CSC) to form a global IT services company.
Key Financial Metrics and Obligations
On December 16, 2016, Everett SpinCo, Inc., a wholly owned subsidiary of HPE, entered into a Term Loan Agreement for a senior unsecured delayed draw term loan facility with an aggregate principal amount of $2.0 billion. The facility is structured in three tranches:
- Tranche A-1: $375 million in U.S. dollars.
- Tranche A-2: $1.31 billion in U.S. dollars.
- Tranche A-3: $315 million in Euros.
The filing does not provide current revenue, profit, cash flow, or existing debt levels for the registrant, as this report focuses solely on the new financing arrangement.
Material Changes and Loan Terms
The primary material change is the creation of a direct financial obligation of up to $2.0 billion. Key terms include:
- Availability: Commitments are available until August 1, 2017, extendable to September 30, 2017.
- Use of Proceeds: General corporate purposes, expenses related to the Everett Transactions, and payment of a special dividend to HPE.
- Conditions: Funding is conditioned on the satisfaction of conditions to the Merger with CSC.
- Interest Rates: Borrowings bear interest based on an Alternate Base Rate or LIBOR plus a margin ranging from 0 to 175 basis points depending on the tranche.
Guidance, Risks, and Covenants
The Term Loan Agreement includes customary affirmative, negative, and financial covenants that will not apply until the Funding Date. Once effective, the Borrower must maintain:
- An EBITDA to Interest Expense ratio of at least 3.0 to 1.
- A Total Debt to EBITDA ratio of no more than 3.0 to 1.
Risks include events of default such as non-payment, violation of covenants, bankruptcy, or change of control, which could allow lenders to accelerate the loan maturity. The filing notes that lenders may provide other financial services to the Company for customary fees.
Investor Verification Checklist
- Verify the status of the merger conditions with Computer Sciences Corporation (CSC) required for the loan funding.
- Confirm the exact funding date and the amount actually drawn from the $2.0 billion facility.
- Review the full text of the Term Loan Agreement (Exhibit 10.1) for specific covenant definitions and waiver rights.
- Monitor the impact of the special dividend payment on HPE's liquidity and capital structure.