Business Context and Reporting Period
This Form 8-K Current Report from Morningstar, Inc. covers events occurring on July 2, 2019. The filing primarily announces the completion of a major acquisition and the establishment of a new financing structure to support it.
Key Financial Metrics and Debt Structure
The filing details a new Senior Credit Agreement with Bank of America, N.A., establishing a five-year multi-currency credit facility with a total borrowing capacity of $750 million. This facility is structured as follows:
- Revolving Credit Facility: $300 million (includes a $100 million swingline sublimit and capacity for up to $50 million in letters of credit).
- Term Facility: $450 million.
As of July 2, 2019, the aggregate principal balance outstanding under the new Credit Agreement was $610 million. The proceeds from the Term Facility and initial borrowings under the Revolving Credit Facility were used solely to finance the acquisition of Ratings Acquisition Corp (DBRS).
The agreement includes the following financial covenants:
- Consolidated Leverage Ratio: Not greater than 3.50 to 1.00 (increased to 3.75 to 1.00 for the four fiscal quarters following a Material Acquisition).
- Consolidated Interest Coverage Ratio: Not less than 3.00 to 1.00.
The filing does not provide specific revenue, profit, cash flow, or margin figures for the reporting period.
Material Changes
Acquisition Completion: Morningstar completed the acquisition of Ratings Acquisition Corp (DBRS), a Cayman Islands exempted company. DBRS is now an indirect wholly-owned subsidiary of Morningstar. The transaction was financed through a combination of cash on hand and the new borrowings described above.
Debt Restructuring: In connection with the new Credit Agreement, Morningstar repaid all outstanding obligations under its previous Amended and Restated Credit Agreement dated November 4, 2016.
Outlook, Risks, and Contingencies
Future Use of Proceeds: Future borrowings under the Revolving Credit Facility may be used for working capital, capital expenditures, and other lawful corporate purposes.
Guarantees: Morningstar's obligations are unconditionally guaranteed by its subsidiaries, including Morningstar Investment Management LLC, Morningstar Research Services LLC, and Morningstar Ratings Holding Corp. Future domestic subsidiaries contributing 10% or more of consolidated revenue will also be required to guarantee the debt.
Upcoming Filings: Morningstar intends to file the required financial statements of the acquired business and pro forma financial information in an amendment to this report within 71 days of the required filing date.
Investor Verification Checklist
- Verify the total purchase price of the DBRS acquisition by reviewing the press release (Exhibit 99.1) and the Merger Agreement (Exhibit 2.1).
- Monitor the upcoming amendment to this 8-K for the pro forma financial information to understand the combined entity's leverage and earnings impact.
- Review the full text of the Credit Agreement (Exhibit 10.1) for detailed definitions of "Material Acquisition" and specific covenant calculation methodologies.
- Confirm the exact amount of cash on hand used alongside the $610 million in debt to fund the acquisition.