Business Context and Reporting Period
This Form 8-K, dated June 27, 2013, reports on SAIC, Inc. and Science Applications International Corporation. The filing details the entry into a material definitive credit agreement in anticipation of a "Spinoff Transaction," which involves contributing technical, engineering, and enterprise IT services businesses to a wholly-owned subsidiary, SAIC Gemini, Inc., followed by a special dividend and distribution of shares to stockholders.
Key Financial Metrics and Debt Structure
The filing establishes new debt facilities for SAIC Gemini, Inc., with SAIC, Inc. acting as guarantor until the spinoff is complete. The Credit Agreement includes:
- Revolving Credit Facility: Five-year unsecured facility with an initial aggregate principal amount of up to $200,000,000.
- Term Loan Facility: Five-year unsecured facility with an initial aggregate principal amount of $500,000,000.
- Total Credit Facilities: $700,000,000.
- Interest Rates: Variable rates based on LIBOR/EURIBOR or Citibank's base rate. Margins range from 1.50% to 2.75% for LIBOR/EURIBOR loans and 0.50% to 1.75% for base rate loans, dependent on the Leverage Ratio.
The filing text does not provide current revenue, profit, cash flow, or existing liquidity metrics for the reporting period.
Material Changes and Covenants
The primary material change is the establishment of the $700 million credit facility to support the corporate restructuring. The agreement imposes significant restrictive covenants on SAIC Gemini and its subsidiaries, including limitations on:
- Liens, mergers, and consolidations.
- Changes in accounting principles or nature of business.
- Dividends and issuances of capital stock.
- Transactions with affiliates and subsidiary indebtedness.
Financial Covenants: The agreement requires the maintenance of:
- A Leverage Ratio of not greater than 3.25:1.00.
- An Interest Coverage Ratio of at least 3.50:1.00.
Outlook, Risks, and Contingencies
The credit facilities are contingent upon the successful completion of the Spinoff Transaction. The filing outlines customary events of default, including bankruptcy, insolvency, nonpayment, cross-defaults, breach of covenants, ERISA events, material monetary judgments, and change of control events. In the event of a continuing default, the administrative agent may terminate commitments and declare all outstanding principal and interest immediately payable.
Investor Verification Checklist
- Verify the status of the "Spinoff Transaction" and the timeline for the release of SAIC's guarantee obligations.
- Confirm the current Leverage Ratio and Interest Coverage Ratio to ensure compliance with the 3.25:1.00 and 3.50:1.00 covenants.
- Review the full text of the Credit Agreement (Exhibit 10.1) for specific definitions of "Leverage Ratio" and "Interest Coverage Ratio."
- Assess the impact of the new $700 million debt load on the pro forma capital structure of the spun-off entity.