Business Context and Reporting Period
This Form 8-K Current Report was filed by Archrock, Inc. on March 21, 2019. The filing details the entry into material definitive agreements and the creation of direct financial obligations by the Company and its subsidiaries.
Key Financial Metrics and Obligations
- Debt Issuance: Completed a private offering of $500,000,000 aggregate principal amount of 6.875% senior notes due 2027.
- Interest Rate: 6.875% per year, payable semi-annually in arrears beginning October 1, 2019.
- Maturity Date: April 1, 2027.
- Guarantees: The notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Archrock, Inc. and certain subsidiaries.
- Credit Facility: Entered into an omnibus joinder agreement to the existing Credit Agreement, whereby specific subsidiaries became guarantors and pledged substantially all assets as security.
Material Changes and Agreements
The primary material change is the execution of the Indenture for the new senior notes and the Credit Agreement Joinder. The new notes rank equally in right of payment with all existing and future senior indebtedness. The Credit Agreement Joinder expands the pool of guarantors and collateral for the Company's existing credit facility.
Terms, Covenants, and Risks
Redemption Provisions
- Pre-April 1, 2022: Issuers may redeem notes at 100% of principal plus a "make-whole" premium. Alternatively, up to 35% of the aggregate principal may be redeemed using equity offering proceeds at 106.875% of principal.
- Post-April 1, 2022: Redemption prices decline annually from 105.156% in 2022 to 100.000% in 2025 and thereafter.
Covenants
The Indenture limits the Company's ability to make distributions, repurchase stock, incur additional indebtedness, create liens, sell assets, or merge. Many covenants will terminate if the notes achieve an investment-grade rating from both Moody's and S&P Global Ratings.
Events of Default
Standard events of default include failure to pay interest or principal, covenant breaches, cross-defaults, and bankruptcy. In the event of bankruptcy or insolvency, all outstanding notes become immediately due. A change of control triggers a repurchase offer at 101% of the aggregate principal amount plus accrued interest.
Investor Verification Checklist
- Verify the use of proceeds from the $500 million notes offering.
- Confirm the current credit rating status of the notes relative to the covenant termination triggers.
- Review the specific subsidiaries included in the Credit Agreement Joinder and the scope of assets pledged.
- Assess the impact of the new debt service obligations (6.875% interest) on future cash flow projections.