Business Context and Reporting Period
Company: Zimmer Holdings, Inc.
Filing Date: May 29, 2014 (Form 8-K)
Context: The Company entered into material definitive credit agreements to finance the proposed acquisition of Biomet, Inc. (the "Biomet Acquisition").
Key Financial Metrics and Agreements
This filing details the establishment of new debt facilities rather than reporting operational financial results (revenue, profit, or cash flow) for a specific period.
- Bridge Credit Agreement: A 364-day unsecured committed bridge facility in the principal amount of $7.66 billion.
- Term Loan Facility: A 5-year unsecured term loan facility in the principal amount of $3.0 billion.
- Revolving Facility: A 5-year unsecured multicurrency revolving facility in the principal amount of $1.35 billion.
- Debt Covenants:
- Bridge Agreement: Maximum consolidated indebtedness to consolidated EBITDA ratio of 5.0 to 1.0.
- Credit Agreement: Maximum ratio of 3.0 to 1.0 prior to Term Loan Funding Date; 5.0 to 1.0 thereafter.
- Interest Rates: Floating rates based on LIBOR or alternate base rates plus an applicable margin determined by credit rating.
Material Changes Versus Prior Period
The Multicurrency Revolving Facility replaces the Company's existing credit agreement dated May 9, 2012. The new facility extends the maturity date to May 29, 2019 (with two available one-year extensions), compared to the previous maturity of May 9, 2017.
Guidance, Outlook, and Risks
Use of Proceeds: Proceeds from the Bridge Credit Agreement and Term Facility are restricted to funding the Biomet Acquisition, including paying LVB indebtedness and transaction costs. The Revolving Facility is for general corporate purposes.
Conditions Precedent: Funding of the Bridge and Term loans is conditioned on the consummation of the Biomet Acquisition. Commitments automatically terminate if the Merger Agreement is terminated or the "Outside Date" passes.
Risks and Restrictions:
- Credit Rating Impact: If the Company falls below an investment grade credit rating, additional restrictions apply, including limitations on investments and dividend payments.
- Prepayment Requirements: The Company must prepay loans with 100% of net cash proceeds from specified asset sales, equity issuances, or new indebtedness.
- Fees: The Company is subject to duration fees, facility fees, and ticking fees on unused commitments.
Investor Verification Checklist
- Verify the status of the Biomet Acquisition and whether the "Outside Date" has been extended.
- Confirm the Company's current senior unsecured long-term credit rating to determine applicable interest margins and covenant restrictions.
- Review the full text of the Bridge Credit Agreement (Exhibit 10.1) and Credit Agreement (Exhibit 10.2) for specific default events and negative covenants.
- Monitor the Company's consolidated indebtedness to EBITDA ratio to ensure compliance with the 5.0 to 1.0 threshold post-acquisition.