Business Context and Reporting Period
Company: Fox Factory Holding Corp.
Filing Type: Form 8-K (Current Report)
Date of Report: March 11, 2020
Reporting Period: Immediate event reporting for transactions closed on March 11, 2020.
Key Financial Metrics and Capital Structure
This filing details a significant refinancing and acquisition event rather than periodic operating results. Key financial figures include:
- Acquisition Cost: Approximately $328 million paid for the acquisition of SCA Performance Holdings, Inc. (excluding vehicle inventory and $13 million in contingent retention incentives).
- Term Loan Facility: $400 million total; $400 million borrowed on the closing date.
- Revolving Credit Facility: $250 million aggregate capacity; $42 million borrowed on the closing date.
- Debt Maturity: Both Term Loan and Revolving Credit Facility mature on March 11, 2025.
- Financial Covenants:
- Leverage Ratio: Not to exceed 3.75 to 1.00 (increasing to 4.00 to 1.00 after permitted acquisitions).
- Fixed Charge Coverage Ratio: Not less than 1.50 to 1.00.
- Interest Rates:
- Eurodollar loans: LIBOR + 1.00% to 1.75%.
- Base rate loans: Prime/Federal Funds + 0% to 0.75%.
Material Changes Versus Prior Period
The filing reports the following material changes effective March 11, 2020:
- Debt Restructuring: The Company entered into an Amended and Restated Credit Agreement, replacing its previous credit facility structure. This increased the total available credit and added a new $400 million term loan.
- Acquisition Completion: The Company completed the acquisition of SCA Performance Holdings, Inc., a transaction previously announced on February 12, 2020.
- Agreement Termination: A prior Commitment Letter dated February 11, 2020, regarding a syndication of a $300 million term loan was terminated in its entirety upon the execution of the new Credit Agreement.
Outlook, Risks, and Contingencies
Management Commentary and Use of Proceeds: The proceeds from the new Term Loan were used to finance the acquisition of SCA Performance Holdings and for general corporate purposes. Proceeds from the Revolving Credit Facility were used for general corporate purposes, with future advances intended for working capital and capital expenditures.
Risks and Contingencies:
- Default Risk: An event of default could result in the termination of the Revolving Loan Commitment, immediate acceleration of all outstanding loans, and the requirement to cash collateralize letters of credit. This could materially impair the Company's ability to conduct business.
- Covenant Compliance: The Company must maintain specific leverage and fixed charge coverage ratios as of the end of each fiscal quarter, commencing with the quarter ending April 3, 2020.
- Collateral: The debt obligations are secured by substantially all assets of the Company and its domestic subsidiaries.
Unusual Items: The filing notes that financial statements and pro forma financial information regarding the acquired business will be filed in an amendment to this report within 71 calendar days.
Investor Verification Checklist
- Verify the final purchase price adjustments for the SCA Performance Holdings acquisition, including escrow funding details.
- Monitor the Company's compliance with the new leverage ratio (3.75:1.00) and fixed charge coverage ratio (1.50:1.00) starting with the fiscal quarter ending April 3, 2020.
- Review the upcoming amendment to this 8-K (due within 71 days) for the pro forma financial information and financial statements of the acquired business.
- Assess the impact of the $400 million term loan repayment schedule, which begins in the second fiscal quarter of 2020.