Business Context and Reporting Period
Company: Fox Factory Holding Corp.
Filing Type: Form 8-K (Current Report)
Date of Report: April 5, 2022
Event: Entry into a new material definitive credit agreement and termination of the prior credit agreement.
Key Financial Metrics and Debt Structure
- New Revolving Credit Facility: Aggregate capacity of $650.0 million.
- Initial Borrowing: $423.0 million drawn on the closing date.
- Use of Proceeds: Repayment of all outstanding amounts under the Prior Credit Agreement and general corporate purposes.
- Maturity Date: April 5, 2027.
- Interest Rates:
- Adjusted Term SOFR loans: Term SOFR + 0.10% + margin (1.00% to 2.00%).
- Base rate loans: Highest of (Federal Funds Rate + 0.50%, Prime Rate, or Adjusted Term SOFR + 1.00%) + margin (0.00% to 1.00%).
- Fees:
- Commitment fee: 0.150% to 0.250% per annum on undrawn commitments.
- Letter of credit fee: 1.00% to 2.00% based on leverage ratio.
- Collateral: Secured by substantially all assets of the Company and Material Subsidiaries (subsidiaries with >5% of total assets or revenues).
Material Changes Versus Prior Period
- Facility Capacity Increase: The new facility ($650.0 million revolving) replaces the Prior Credit Agreement, which had a $250.0 million revolving line and a $400.0 million term loan.
- Term Structure: The new agreement is a revolving facility with no term loan component, extending the maturity from March 11, 2025, to April 5, 2027.
- Termination: The Prior Credit Agreement was terminated with no early termination penalties incurred.
- Interest Benchmark: Transitioned from LIBOR-based rates under the prior agreement to Adjusted Term SOFR or base rate options.
Covenants, Risks, and Management Commentary
- Financial Covenants:
- Consolidated Net Leverage Ratio: Must not exceed 4.00 to 1.00 (increases to 4.50 to 1.00 for four quarters following a permitted acquisition exceeding $75.0 million).
- Consolidated Interest Coverage Ratio: Must not be less than 3.00 to 1.00.
- Risks: An event of default could result in the termination of the commitment, immediate acceleration of all outstanding loans, and cash collateralization of letters of credit, which may materially impair the Company's ability to conduct business.
- Future Use: Future advances are intended for working capital, capital expenditures, and general corporate purposes.
Investor Verification Checklist
- Verify the Company's current Consolidated Net Leverage Ratio and Interest Coverage Ratio against the new 4.00:1.00 and 3.00:1.00 thresholds.
- Confirm the exact amount of undrawn capacity remaining after the $423.0 million initial draw ($227.0 million).
- Review the full text of the Credit Agreement (Exhibit 10.1) for specific definitions of "Permitted Acquisition" and other covenant nuances.
- Monitor the Company's liquidity position given the shift from a term loan structure to a fully revolving facility.