Business Context and Reporting Period
Company: Valvoline Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: April 12, 2019
Event: Entry into a Material Definitive Agreement (Amendment and Restatement of Credit Agreement).
Key Financial Metrics and Debt Structure
This filing details a refinancing transaction rather than operational financial results. Key debt metrics include:
- Total Credit Facilities: $1,050 million in senior secured credit facilities.
- Term Loan A Facility: $575 million (fully drawn on the Effective Date).
- Revolving Credit Facility: $475 million (undrawn on the Effective Date; includes a $100 million letter of credit sublimit).
- Interest Rates (Initial): LIBOR + 1.500% or Alternate Base Rate + 0.500%.
- Unused Fee (Initial): 0.200% per annum on the daily unused amount of the Revolving Facility.
- Maturity: Five years from the Effective Date.
Material Changes Versus Prior Period
The company amended and restated its Original Credit Agreement (dated July 11, 2016). Material changes include:
- Refinancing: Proceeds were used to prepay in full the term A loans, revolving credit loans, and accrued fees under the Original Credit Agreement.
- Receivables Facility: Proceeds were used to pay amounts outstanding under one of Valvoline's receivables facilities.
- Amortization Schedule: The new Term Loan Facility amortizes at 0% in Year 1, 5% in Year 2, and 10% in Years 3, 4, and 5.
- Collateral: Facilities remain secured by a first-priority security interest in substantially all personal property assets and certain real property assets of Valvoline and guarantors.
Guidance, Outlook, and Covenants
Use of Proceeds: Initial proceeds were used for refinancing and paying transaction costs. Remaining proceeds and future Revolving Facility borrowings are for working capital and general corporate purposes.
Covenants: The agreement includes financial covenants requiring the maintenance of a maximum consolidated net leverage ratio and a minimum consolidated interest coverage ratio. It also contains customary limitations on liens, additional indebtedness, investments, restricted payments, and asset sales.
Prepayment: The Term Loan Facility must be prepaid with 100% of net cash proceeds from dispositions, casualty events, or certain restricted indebtedness. Prepayment is otherwise permitted without premium or penalty.
Important Facts for Investor Verification
- Verify the specific values for the "maximum consolidated net leverage ratio" and "minimum consolidated interest coverage ratio" in the full text of the Amended and Restated Credit Agreement (to be filed as an exhibit to the Form 10-Q for the quarter ending March 31, 2019).
- Confirm the exact "Effective Date" of the funding, as interest rates and amortization schedules are tied to this date.
- Monitor the company's corporate credit ratings, as interest rate margins and unused fees fluctuate based on ratings or the Consolidated First Lien Net Leverage Ratio.
- Review the definition of "permitted indebtedness" to understand restrictions on future borrowing.