Business Context and Reporting Period
Company: Distribution Solutions Group, Inc. (DSGR)
Filing Type: Form 8-K (Current Report)
Date of Report: August 16, 2024
Event Date: August 14, 2024
Context: The Company entered into a Third Amendment to its Amended and Restated Credit Agreement to facilitate the acquisition of Source Atlantic Limited.
Key Financial Metrics and Capital Structure
- Incremental Term Loan: $200 million added via the Third Amendment.
- Revolving Credit Facility: Increased from $200 million to $255 million.
- Future Expansion Capacity: The agreement permits an additional increase in commitments of up to $300 million, subject to lender approval and covenant compliance.
- Interest Rates:
- Alternate Base Rate/Canadian Prime Rate + 0.0% to 1.75% margin.
- Adjusted Term SOFR/CORRA Rate + 1.0% to 2.75% margin.
- Margins are determined by the Company's total net leverage ratio.
- Maturity Date: April 1, 2027.
- Principal Repayment: Quarterly payments of $2.5 million on the Incremental Term Loan commencing December 31, 2024.
Material Changes and Use of Proceeds
The primary material change is the amendment of the credit facility to fund the previously disclosed acquisition of Source Atlantic Limited. Proceeds from the $200 million Incremental Term Loan were used to pay the purchase price, fees, and other expenses associated with this acquisition. The Company also increased its revolving credit availability by $55 million.
Guidance, Risks, and Covenants
- Financial Covenants: The Company must maintain a consolidated minimum interest coverage ratio and a maximum total net leverage ratio as defined in the agreement.
- Restrictive Covenants: The agreement limits the Company's ability to dispose of assets, incur additional indebtedness, issue preferred stock, make restricted payments (including dividends), create liens, make investments, engage in mergers, or change lines of business.
- Security: Obligations are secured by a first priority security interest in substantially all assets of the Company and its guarantors.
- Events of Default: Include nonpayment, covenant breaches, cross-defaults, bankruptcy, and change of control. A default interest rate of 2.0% per annum above the applicable rate applies upon default.
- Forward-Looking Risks: The Company highlights risks related to integrating Source Atlantic Limited and the potential for actual results to differ from projections due to uncertainties in the business environment.
Investor Verification Checklist
- Verify the total purchase price and specific terms of the Source Atlantic Limited acquisition in the referenced press release (Exhibit 99.1).
- Review the full text of the Third Amendment (Exhibit 10.1) for specific definitions of the interest coverage and leverage ratio covenants.
- Monitor the Company's ability to meet the quarterly $2.5 million principal repayment starting December 31, 2024.
- Assess the impact of the increased debt load on the Company's pro forma leverage ratio and compliance with financial maintenance covenants.
- Check for any subsequent filings regarding the integration progress of Source Atlantic Limited.