Business Context and Reporting Period
This Form 8-K, filed on August 9, 2017, by Babcock & Wilcox Enterprises, Inc., reports the entry into material definitive agreements regarding its debt structure. The filing details an amendment to the existing senior secured revolving credit facility and the execution of a new second lien term loan facility.
Key Financial Metrics and Debt Structure
Amended Credit Agreement (Senior Facility)
- Facility Size: Reduced from $600.0 million to $500.0 million.
- Borrowing Limit: Restricted to $250.0 million during the covenant relief period.
- Interest Rates: LIBOR + 5.0% or Base Rate + 4.0%.
- Fees: 1.0% commitment fee on unused portions; 2.50% on financial letters of credit; 1.50% on performance/commercial letters of credit; $1.5 million annual facility fee.
- Liquidity Requirement: Must maintain at least $75.0 million in liquidity as of the last business day of any calendar month.
- Capital Expenditures: Limited to $27.5 million per fiscal year.
Second Lien Credit Agreement
- Principal Amount: $175.9 million term loan (fully drawn) plus up to $20.0 million delayed draw term loan.
- Interest Rates: 10% per annum on the term loan; 12% per annum on the delayed draw term loan.
- Maturity: December 30, 2020.
- Use of Proceeds: Approximately $50.9 million used to repurchase 4.8 million shares of common stock held by an affiliate of American Industrial Partners (AIP).
Material Changes and Covenant Modifications
The Amendment No. 3 to the Credit Agreement introduces significant covenant relief and structural changes:
- EBITDA Adjustments: Excludes up to $115.2 million of Renewable segment contract charges, up to $4.0 million of restructuring expenses, foreign exchange gains/losses, and amendment fees.
- Leverage Ratio: Replaced maximum leverage ratio with a maximum senior debt leverage ratio, ranging from 8.50:1.0 (Q4 2017/Q1 2018) down to 3.00:1.0 (Q3 2019 onwards).
- Interest Coverage Ratio: Decreased minimum consolidated interest coverage ratio, ranging from 1.00:1.0 (Q4 2017/Q1 2018) up to 2.00:1.0 (Q3 2019 onwards).
- Restrictions: Limits on incurring debt/liens, acquisitions, and investments during the covenant relief period. Requires repayment of outstanding borrowings with certain excess cash.
- Loss Cap: Limits net income losses attributable to certain Vølund projects to no more than $25.0 million per quarter starting Q3 2017.
Outlook, Risks, and Management Commentary
The filing indicates a "covenant relief period" that will end when specific conditions are met, but no earlier than the compliance certificate for the fiscal quarter ending December 31, 2018. The company is required to hire a third-party consultant and increase reporting obligations. The Second Lien Credit Agreement is secured by second-priority liens and includes prepayment penalties (make-whole premium in year 1, 3.0% in year 2, 2.0% in year 3).
Key Facts for Investor Verification
- Verify the company's ability to maintain the required $75.0 million liquidity threshold under the amended terms.
- Monitor the $115.2 million EBITDA add-back for Renewable segment contracts and its impact on reported leverage ratios.
- Assess the impact of the $175.9 million second lien debt and 10% interest rate on future cash flow and interest coverage.
- Track compliance with the $27.5 million annual capital expenditure cap and the $25.0 million quarterly loss cap on Vølund projects.
- Confirm the status of the covenant relief period and the timeline for returning to standard covenant levels by December 31, 2018.