Business Context and Reporting Period
Company: Babcock & Wilcox Enterprises, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 9, 2018
Event: Entry into Amendment No. 8 to the Credit Agreement dated May 11, 2015.
Key Financial Metrics and Debt Structure
This filing details modifications to the Company's senior secured revolving credit facility (U.S. Revolving Credit Facility) rather than reporting operational financial results. Key terms include:
- Facility Size: Up to $600.0 million.
- Maturity Date: June 30, 2020.
- Interest Rates (LIBOR Option): LIBOR + 5.0% (2018), + 6.0% (2019), + 7.0% (2020).
- Interest Rates (Base Rate Option): Base Rate + 4.0% (2018), + 5.0% (2019), + 6.0% (2020).
- Fees: 1.0% commitment fee on unused portions; 2.5% facility fee on financial letters of credit; 1.5% on performance/commercial letters of credit; $1.5 million annual facility fee.
- Capital Expenditure Limit: Consolidated capex limited to $27.5 million per fiscal year.
Material Changes and Covenant Modifications
The Amendment No. 8 introduces significant changes to financial covenants and operational requirements:
- Liquidity Requirement: Reduced from a minimum of $65.0 million to $50.0 million (or $40.0 million upon specific asset sales and loan funding).
- EBITDA Adjustments: Definition modified to exclude up to an additional $72.8 million of charges for Renewable segment contracts (including Q2 2018) and allow further add-backs for restructuring expenses.
- Asset Sale Proceeds: Company may retain up to $25.0 million of net cash proceeds from asset sales after receiving last-out loan funding.
- Loss Allowance: Permits an additional $15.0 million of cumulative net income losses for eight specified Völund contracts for the quarter ending September 30, 2018.
- Asset Sale Deadline: Requirement to sell at least $100 million of assets accelerated from March 31, 2019, to October 31, 2018.
- Customer Concessions: Requirement to achieve concessions from renewable contract customers by September 30, 2018, generating at least $25.0 million in incremental benefits.
- Additional Borrowing: Permits and requires raising up to an additional net $30.0 million in last-out loans.
Financial Covenants and Outlook
The Amended Credit Agreement establishes the following financial covenant thresholds tested on a rolling four-quarter basis:
| Period Ending | Max Senior Debt Leverage Ratio | Min Interest Coverage Ratio |
|---|---|---|
| June 30, 2018 | 9.75:1.0 | 1.00:1.0 |
| September 30, 2018 | 9.75:1.0 | 1.25:1.0 |
| December 31, 2018 | 4.00:1.0 | 2.00:1.0 |
| March 31, 2019 | 3.50:1.0 | 2.50:1.0 |
| June 30, 2019 and thereafter | 2.25:1.0 | 3.50:1.0 |
Risks and Contingencies: The amendment adds events of default related to the termination or rejection of certain Renewables segment contracts. The filing notes that the Company must meet specific contract completion milestones for six European Renewable loss contracts.
Investor Verification Checklist
- Verify the Company's ability to meet the accelerated asset sale deadline of October 31, 2018 ($100 million target).
- Confirm the status of concessions from renewable contract customers required by September 30, 2018 ($25.0 million benefit target).
- Monitor the Company's compliance with the new, stricter leverage and interest coverage ratios starting December 31, 2018.
- Review the specific details of the eight Völund contracts and the six European Renewable loss contracts referenced in the amendment.
- Assess the impact of the increased interest rate margins (up to 7.0% over LIBOR) on future cash flows.