Business Context and Reporting Period
Company: Open Text Corporation (OpenText)
Filing Type: Form 8-K (Current Report)
Date of Report: November 24, 2021
Event: Creation of a direct financial obligation via the issuance of senior unsecured notes.
Key Financial Metrics and Debt Structure
This filing details a debt refinancing transaction involving the issuance of $1.5 billion in aggregate principal amount of new notes:
- OTC Notes: $850 million aggregate principal, 3.875% senior unsecured fixed rate notes due December 1, 2029.
- OTHI Notes: $650 million aggregate principal, 4.125% senior unsecured fixed rate notes due December 1, 2031 (issued by Open Text Holdings, Inc., a wholly-owned indirect subsidiary).
- Interest Payments: Semi-annually in arrears on June 1 and December 1, commencing June 1, 2022.
- Use of Proceeds: Substantial portion to redeem $850 million of 5.875% notes due 2026 (2026 Notes) and pay a $25 million make-whole premium. Remaining proceeds for fees, expenses, and general corporate purposes including potential acquisitions.
Financial Impact: The make-whole premium of $25 million and the write-off of approximately $2.5 million (before-tax) of unamortized debt issuance and premium costs will be recorded as a charge to Other income (expense), net in the quarter ended December 31, 2021.
Material Changes Versus Prior Period
The primary material change is the replacement of higher-cost debt with lower-cost debt:
- Debt Replacement: The new issuance facilitates the full redemption of the 2026 Notes (5.875% coupon) on December 9, 2021.
- Interest Rate Reduction: The new OTC Notes carry a 3.875% coupon, significantly lower than the 5.875% coupon on the debt being retired.
- Maturity Extension: The new notes extend maturities to 2029 and 2031, compared to the 2026 maturity of the retired notes.
Guidance, Outlook, Risks, and Contingencies
Management Commentary: The transaction is intended to optimize the capital structure by reducing interest costs and extending the debt maturity profile. Proceeds will also support general corporate purposes and potential future acquisitions.
Risks and Covenants: The indentures contain covenants limiting the ability to create liens, incur additional indebtedness without subsidiary guarantees, and consolidate or merge. Events of default may require immediate repayment of principal and interest.
Redemption Terms:
- OTC Notes: Callable prior to December 1, 2024, at a premium. Callable at par or specified prices after December 1, 2024. Change of control repurchase offer at 101% of principal.
- OTHI Notes: Callable prior to December 1, 2026, at a premium. Callable at par or specified prices after December 1, 2026. Change of control repurchase offer at 101% of principal.
Important Facts for Investor Verification
- Verify the exact timing of the redemption of the 2026 Notes (scheduled for December 9, 2021) and the associated $25 million make-whole premium payment.
- Confirm the impact of the $27.5 million total charge (premium + write-offs) on the Q4 2021 net income and earnings per share.
- Review the subsidiary guarantee structure to ensure all relevant entities are included as guarantors for the new notes.
- Monitor the company's liquidity position post-transaction to ensure sufficient cash flow for the new semi-annual interest payments starting June 2022.