Business Context and Reporting Period
Company: Fox Factory Holding Corp.
Filing Type: Form 8-K (Current Report)
Date of Report: June 17, 2020
Event Date: June 12, 2020 (Launch of amendment process)
Context: The Company initiated a process to amend its Amended and Restated Credit Agreement dated March 11, 2020. As of the filing date, the Company secured approval from the requisite number of lenders for the "First Amendment," with execution intended for June 19, 2020.
Key Financial Metrics and Debt Structure
The filing does not provide specific revenue, profit, cash flow, or liquidity figures. The report focuses exclusively on the terms of the credit facility amendment:
- Debt Instrument: Amended and Restated Credit Agreement with Bank of America, N.A. as Administrative Agent.
- Aggregate Amount: The First Amendment will not change the aggregate amount of the credit facility.
- Maturity Date: The final maturity date remains unchanged.
- Interest Rate Floor: The minimum Eurodollar rate increases from 0% to 0.50%.
Material Changes Versus Prior Period
The First Amendment introduces significant changes to the financial covenants and pricing structure compared to the existing agreement:
- Covenant Metric Change: Replaces the existing leverage ratio (which did not exclude unrestricted cash) with a new consolidated net leverage ratio (which excludes unrestricted cash and cash equivalents).
- Covenant Thresholds:
- Current Requirement: Leverage ratio not to exceed 3.75 to 1.00.
- New Requirement: Consolidated net leverage ratio not to exceed 4.25 to 1.00 (commencing Q1 2021).
- Future Requirement: Decreases to 4.00 to 1.00 for the second fiscal quarter of 2021 and quarterly thereafter.
- Pricing Tiers: Adds a new tier of pricing when the consolidated net leverage ratio exceeds 3.50 to 1.00.
- EBITDA Adjustments: Permits the add-back of up to $10 million in non-recurring relocation expenses to consolidated EBITDA through June 4, 2021.
- Hedging: Permits the Company to enter into certain permitted hedge transactions.
Guidance, Outlook, Risks, and Contingencies
- Execution Risk: The Company states there can be no assurance that the First Amendment will be completed on favorable terms or at all. The Company reserves the right to decide not to pursue the amendment before completion.
- Future Filing: Upon entering into the First Amendment, the Company will file a subsequent Form 8-K containing the complete text of the amendment and the credit agreement.
- Regulatory Status: The information in Item 7.01 is furnished and not deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934.
Important Facts for Investor Verification
- Verify the execution of the First Amendment on or after June 19, 2020, via the subsequent Form 8-K filing.
- Monitor the Company's consolidated net leverage ratio to ensure compliance with the new 4.25 to 1.00 threshold starting the fiscal quarter ending July 3, 2020.
- Assess the impact of the increased minimum Eurodollar rate (0.50%) and new pricing tiers on future interest expense.
- Review the utilization of the $10 million EBITDA add-back for relocation expenses in upcoming quarterly reports.