Knowles Corp 8-K Summary: New Credit Facility
Business Context and Reporting Period
On September 4, 2020, Knowles Corporation (Knowles) entered into a new senior secured revolving credit facility. This filing reports the entry into a material definitive agreement and the termination of the prior credit agreement.
Key Financial Metrics and Debt Structure
- New Facility Size: Up to $400,000,000 aggregate principal amount.
- Usage: Working capital, general corporate purposes, and refinancing of the prior credit agreement.
- Refinancing Details: The new facility was used to repay in full the $100,000,000 outstanding under the prior $400,000,000 facility.
- Currency Options: Up to $100,000,000 available in Euro, Pounds Sterling, or other currencies; up to $50,000,000 available for letters of credit.
- Swingline Facility: Up to $20,000,000 available for short-term borrowings.
- Incremental Capacity: Company may increase commitments or establish incremental term loans up to an additional $200,000,000.
- Commitment Fee: 0.225% to 0.375% per annum on undrawn amounts, based on leverage ratio.
- Interest Rate: LIBOR/EURIBOR or Alternate Base Rate (ABR) plus an applicable margin based on the total leverage ratio.
Material Changes Versus Prior Period
The primary material change is the replacement of the October 11, 2017 Credit Agreement with the new September 4, 2020 agreement. While the total facility size remains at $400,000,000, the terms, maturity, and covenants have been updated. The prior agreement was terminated immediately upon the execution of the new agreement.
Outlook, Covenants, and Risks
- Maturity Date: January 2, 2024.
- Springing Maturity Condition: If the Company's 3.25% Convertible Senior Notes due November 1, 2021, are not repaid, refinanced, or converted by August 2, 2021, the credit facility will mature earlier unless the Company maintains liquidity of at least $150,000,000 for three consecutive business days.
- Financial Covenants (Quarterly Testing):
- Minimum Interest Coverage Ratio (EBITDA to Interest Expense): 3.25 to 1.0.
- Maximum Total Leverage Ratio (Total Indebtedness to EBITDA): 3.75 to 1.0.
- Maximum Senior Secured Leverage Ratio: 3.25 to 1.0.
- Acquisition Exception: Ratios may be increased by 0.25 for five quarters following a material acquisition of $80,000,000 or more.
- Events of Default: Include payment defaults, covenant breaches, cross-defaults, bankruptcy, change of control, and certain ERISA or judgment events.
Investor Verification Checklist
- Verify the current status of the 3.25% Convertible Senior Notes due 2021 to assess the risk of the "Springing Maturity" clause.
- Review the most recent quarterly financial statements to confirm compliance with the 3.75x Total Leverage Ratio and 3.25x Interest Coverage Ratio.
- Confirm the current outstanding balance under the new facility and the remaining undrawn capacity.
- Monitor liquidity levels to ensure they remain above the $150,000,000 threshold if the convertible notes are not retired by August 2021.