Business Context and Reporting Period
Company: Select Water Solutions, Inc. (NYSE: WTTR)
Filing Type: Form 8-K (Current Report)
Date of Report: January 24, 2025 (Event Date)
Reporting Period: Immediate disclosure of a material definitive agreement entered into on January 24, 2025.
Key Financial Metrics and Capital Structure
This filing details the establishment of a new sustainability-linked senior secured credit facility. Key financial terms include:
- Total Facility Size: $550.0 million initial commitments.
- Revolving Credit Facility: $300.0 million (subject to borrowing base).
- Term Loan Facility: $250.0 million (fully funded as of closing).
- Sublimits: $50.0 million for letters of credit; $30.0 million for swingline loans.
- Expansion Option: Ability to increase commitments by up to $150.0 million (revolving) and $50.0 million (term) within the first four years.
- Outstanding Balances at Closing: No borrowings under the Revolving Credit Facility; approximately $20 million in letters of credit outstanding; Term Loan Facility fully funded.
- Borrowing Base (Revolving): $219.0 million as of the Closing Date.
- Term Advance Borrowing Base: $426.27 million as of the Closing Date.
- Interest Rates (Initial): Term SOFR + 3.25% (Term Loan); Base Rate + 2.25% (Term Loan); Term SOFR + 1.75% (Revolving); Base Rate + 0.75% (Revolving).
- Maturity: Fifth anniversary of the Closing Date (January 24, 2030).
Material Changes Versus Prior Period
The Company has replaced its previous financing structure with the new Credit Agreement:
- Termination of Prior Facility: The Amended and Restated Credit Agreement dated March 17, 2022 (Previous Credit Facility), with Wells Fargo Bank, N.A., was repaid in full and terminated on the Closing Date.
- Lender Change: Bank of America, N.A. is now the administrative agent, issuing lender, and swingline lender.
- Structure Change: The new facility introduces sustainability-linked pricing adjustments based on Employee Health and Safety and Water Stewardship metrics.
Guidance, Outlook, Covenants, and Risks
Sustainability Linkage: Interest rate margins and commitment fees are subject to annual adjustments (up to +/- 5.00 basis points for margins and +/- 1.00 basis point for fees) based on performance against specific sustainability targets. As of closing, a reduction of 5.00 basis points on margins and 1.00 basis point on fees is in effect.
Financial Covenants: The Company must maintain:
- Fixed Charge Coverage Ratio: At least 1.0 to 1.0.
- Leverage Ratio: Not greater than 3.5 to 1.0.
Distribution Restrictions: Equity distributions are restricted unless specific conditions are met, including a pro forma fixed charge coverage ratio of at least 1.0 to 1.0, a leverage ratio not exceeding 3.5 to 1.0, and excess availability of at least the greater of 20% of the Borrowing Limit or $27.0 million.
Amortization: The Term Loan Facility will begin amortizing in quarterly installments of $15.625 million starting the first full quarter after the first anniversary of the closing date.
Risks: The facility is secured by substantially all personal property assets of the Borrower and guarantors. An event of default could result in immediate acceleration of all outstanding amounts.
Investor Verification Checklist
- Verify the full text of the Credit Agreement (Exhibit 10.1) for detailed definitions of "Eligible Receivables" and "Eligible Inventory" which drive the borrowing base.
- Confirm the specific sustainability metrics and the verification process for the interest rate adjustments.
- Monitor the Company's ability to maintain the required excess availability ($27.0 million minimum) to permit future equity distributions.
- Review the amortization schedule for the Term Loan Facility beginning in 2026.
- Check for any subsequent filings regarding the utilization of the expansion options ($200 million total potential increase).