CDW Corp Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by CDW Corporation on April 12, 2011, regarding events occurring on April 13, 2011. The filing details the completion of a debt refinancing transaction involving the issuance of new senior notes and the concurrent tender offer to retire existing high-interest debt.
Key Financial Metrics and Transaction Details
- New Debt Issuance: CDW Escrow Corporation issued $725 million aggregate principal amount of 8.5% Senior Notes due 2019.
- Interest Terms: The new notes bear interest at 8.5% per annum, payable semi-annually starting October 1, 2011.
- Debt Retirement: Proceeds were used to pay consideration for $665,138,000 of existing senior notes (comprising 11.00% Senior Exchange Notes and 11.50%/12.25% Senior PIK Election Notes due 2015).
- Tender Offer Results: The company received tenders for approximately $992 million (82% of outstanding existing notes) but accepted only $665.1 million on a pro rata basis.
- Liquidity Impact: Gross proceeds from the new issuance were deposited into a segregated escrow account to fund the tender offer.
Material Changes Versus Prior Period
The primary material change is the reduction of the company's cost of debt. The transaction replaces existing senior notes carrying interest rates of 11.00% to 12.25% with new notes at 8.5%. Additionally, the maturity profile has been extended, with the new notes maturing in 2019 compared to the 2015 maturity of the retired debt.
Guidance, Risks, and Covenants
- Covenants: The new indenture restricts the company's ability to incur additional indebtedness, issue preferred stock, pay dividends, create liens, or engage in certain asset transfers and affiliate transactions.
- Registration Rights Risk: The company must file an exchange offer registration statement with the SEC and complete the offer by February 7, 2012. Failure to do so will result in an interest rate penalty of 0.25% per annum, increasing to a maximum of 0.50% per annum.
- Redemption Terms: The company may redeem the notes prior to April 1, 2015, at a "make-whole" premium. After that date, redemption is possible at declining premiums. Up to 40% of the notes may be redeemed prior to April 1, 2014, using equity offering proceeds at 108.5% of principal.
- Change of Control: Note holders have the right to require repurchase at 101% of principal plus accrued interest in the event of a change of control.
Investor Verification Checklist
- Verify the exact amount of existing debt retired versus the total amount tendered to understand the pro rata acceptance ratio.
- Confirm the timeline for the required SEC exchange offer registration to avoid the 0.25% to 0.50% interest rate penalty.
- Review the specific covenants in the Supplemental Indenture (Exhibit 4.2) regarding restrictions on future dividends and additional indebtedness.
- Assess the impact of the interest rate reduction (from ~11-12% to 8.5%) on future cash flow projections.