Victory Capital Holdings, Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated June 28, 2019 (with events occurring through July 1, 2019), details the completion of a material acquisition and the execution of new financing arrangements by Victory Capital Holdings, Inc. The filing reports the finalization of the acquisition of USAA Asset Management Company and USAA Transfer Agency Company (collectively, the "USAA Acquired Companies") and the entry into a new credit facility to fund the transaction.
Key Financial Metrics and Transaction Details
- Acquisition Price: The cash closing purchase price was approximately $850.0 million, subject to transaction-related payments and post-closing adjustments.
- Contingent Consideration: Total purchase consideration includes up to an additional $150.0 million in contingent payments over four years, based on the annual revenue of "non-managed money" assets under management.
- New Debt Facility (2019 Credit Agreement):
- Seven-year term loan: $1.1 billion aggregate principal amount.
- Five-year revolving credit facility: $100 million aggregate commitments (unfunded at closing), including a $10 million sub-limit for letters of credit.
- Interest Rates: LIBOR plus 3.25% or Alternate Base Rate plus 2.25%.
- Amortization: 1.00% per annum on term loans.
- Financial Covenant: Maximum first lien leverage ratio of 3.80 to 1.00 (applicable when revolving borrowings exceed 35.0% of commitments).
- Debt Repayment: Proceeds were used to repay all indebtedness under the previous 2018 Credit Agreement, which was terminated on the closing date.
Material Changes Versus Prior Period
The primary material change is the structural shift in the Company's balance sheet and operations resulting from the acquisition. The Company has transitioned from its 2018 Credit Agreement to a significantly larger 2019 Credit Agreement to support the acquisition. The Company now owns 100% of the USAA Acquired Companies, expanding its asset management and transfer agency capabilities. The previous credit facility with Royal Bank of Canada has been fully extinguished.
Outlook, Risks, and Contingencies
- Future Cash Obligations: The Company faces potential future cash outflows of up to $150.0 million contingent on the revenue performance of the acquired "non-managed money" assets over the next four years.
- Mandatory Prepayments: The 2019 Credit Agreement requires mandatory prepayments of term loans using a percentage (0% to 50%) of annual excess cash flow, commencing with the fiscal year ending December 31, 2020.
- Covenants and Restrictions: The new credit agreement imposes customary affirmative and negative covenants restricting additional indebtedness, asset dispositions, and dividends, subject to specific thresholds.
- Financial Reporting: Pro forma financial information and financial statements of the acquired business are not included in this filing but are expected to be filed on Form 8-K/A within 71 calendar days.
Investor Verification Checklist
- Verify the final closing purchase price and any post-closing adjustments once the Form 8-K/A is filed.
- Review the upcoming pro forma financial information to assess the impact of the $1.1 billion term loan on leverage ratios and interest coverage.
- Monitor the revenue run-rate of the "non-managed money" assets to estimate the likelihood of achieving the $150.0 million contingent payment.
- Confirm the specific terms of the "excess cash flow" definition in the 2019 Credit Agreement to understand future mandatory prepayment obligations.
- Check for any subsequent filings regarding the integration of USAA Acquired Companies and potential changes to the Company's capital structure.