Business Context and Reporting Period
Company: Avery Dennison Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: December 22, 2011
Event: Entry into a Material Definitive Agreement regarding corporate credit facilities.
Key Financial Metrics and Debt Structure
This filing details the restructuring of the Company's revolving credit facility rather than reporting operational financial results (revenue, profit, or cash flow).
- Total Credit Facility: $675 million in revolving loans.
- Expansion Option: Commitments may be increased by up to $250 million subject to lender discretion.
- Maturity Date: December 22, 2016 (with potential for one-year extensions).
- Interest Margins (Base Rate): 0.00% to 0.650% per annum (rating-dependent).
- Interest Margins (Eurocurrency Rate): 0.875% to 1.650% per annum (rating-dependent).
- Commitment Fees: 0.125% to 0.350% per annum (rating-dependent).
Material Changes Versus Prior Period
The Company entered into a Second Amended and Restated Credit Agreement, replacing the First Amended and Restated Credit Agreement dated August 10, 2007. This action updates the terms, capacity, and maturity of the Company's primary revolving credit facility.
Financial Covenants and Risks
The new Credit Agreement imposes specific financial maintenance covenants:
- Maximum Leverage Ratio: Consolidated debt to consolidated EBITDA must not exceed 3.50 to 1.00.
- Minimum Interest Coverage Ratio: Consolidated EBIT to consolidated interest expense must not be less than 3.00 to 1.00.
Other Provisions: The agreement includes customary affirmative and negative covenants limiting mergers, asset sales, liens, investments, contingent obligations, and subsidiary indebtedness. Loans may be prepaid without premium or penalty, subject to breakage costs for Eurocurrency rate loans.
Investor Verification Checklist
- Verify the Company's current consolidated debt and EBITDA to ensure compliance with the 3.50:1.00 leverage ratio.
- Confirm the Company's current EBIT and interest expense to ensure compliance with the 3.00:1.00 interest coverage ratio.
- Review the Company's current credit rating to determine the applicable interest margin and commitment fee tiers.
- Examine the full text of Exhibit 10.1 for specific definitions of "Consolidated Debt" and "Consolidated EBITDA" used in covenant calculations.