Business Context and Reporting Period
This Form 8-K, filed on July 10, 2015, by Exterran Holdings, Inc. (now Archrock, Inc.), details the entry into material definitive agreements in preparation for the planned separation of the company's U.S. contract operations and U.S. aftermarket services businesses from its international and global fabrication businesses. The separation is scheduled to be consummated on or before October 30, 2015. Upon completion, the international and fabrication businesses will be owned by a new entity, Exterran Corporation ("SpinCo").
Key Financial Metrics and Credit Facilities
The filing establishes two new revolving credit facilities to support the post-separation entities. No borrowings are currently outstanding under either facility as conditions precedent have not yet been satisfied.
- RemainCo Credit Facility (Archrock): A $300 million revolving credit facility for the U.S. businesses. It includes an option to increase commitments by up to $150 million and allows for up to $50 million in letters of credit.
- SpinCo Credit Facility (Exterran Corp): A $750 million revolving credit facility for the international and fabrication businesses. It includes an option to increase commitments by up to $350 million and allows for up to $500 million in letters of credit.
- Interest Rates: Borrowings will bear interest at Base Rate or LIBOR/EURIBOR plus an applicable margin determined by a leverage ratio pricing grid.
- Fees: Ticking fees of 0.30% apply from September 23, 2015, until the Initial Availability Date. Commitment fees on unused amounts range from 0.25% to 0.50% per annum after availability.
Material Changes and Covenants
The primary material change is the replacement of the existing Senior Secured Credit Agreement (dated July 8, 2011) with the new facilities upon the consummation of the separation. Both new agreements impose strict financial covenants effective from the Initial Availability Date:
- RemainCo Covenants: Must maintain an Interest Coverage Ratio of at least 2.25:1.00 and a Total Leverage Ratio not greater than 4.25:1.00 (4.75:1.00 during specified acquisition periods).
- SpinCo Covenants: Must maintain an Interest Coverage Ratio of at least 2.25:1.00, a Total Leverage Ratio not greater than 4.50:1.00, and a Senior Secured Leverage Ratio not greater than 2.75:1.00.
- Security: Both facilities are secured by substantially all assets of the respective entities and their significant domestic subsidiaries, as well as equity interests in restricted subsidiaries.
Guidance, Outlook, and Corporate Governance
The filing references a press release issued on July 13, 2015, containing preliminary financial results for the businesses to be spun off for the quarter ended June 30, 2015. However, the specific revenue, profit, or cash flow figures are not detailed within the text of this 8-K filing.
Regarding corporate governance, the Board of Directors announced that five directors (William M. Goodyear, John P. Ryan, Christopher T. Seaver, Richard R. Stewart, and Ieda Gomes Yell) are expected to resign from Exterran Holdings upon the completion of the separation to join the board of SpinCo. These resignations are not due to any disagreements with the company.
Investor Verification Checklist
- Verify the consummation of the separation by the October 30, 2015 deadline to ensure the credit facilities do not terminate.
- Review the preliminary Q2 2015 financial results for the SpinCo businesses referenced in Exhibit 99.1, as specific numbers are not in this filing.
- Monitor the satisfaction of conditions precedent required to access the $300 million (RemainCo) and $750 million (SpinCo) credit facilities.
- Confirm the payoff and termination of the July 8, 2011 Senior Secured Credit Agreement as a condition for the RemainCo facility.
- Assess the impact of the new leverage and interest coverage covenants on future capital flexibility for both entities.