Business Context and Reporting Period
Company: CB Richard Ellis Group, Inc. (CBRE)
Filing Type: Form 8-K (Current Report)
Date of Report: March 24, 2009
Event: Entry into a Material Definitive Agreement involving a Second Amended and Restated Credit Agreement and an Amended and Restated Guarantee and Pledge Agreement with Credit Suisse and other lenders.
Key Financial Metrics and Debt Structure
Existing Debt Facilities:
- Term Loans: Aggregate principal amount of $2.5 billion.
- Tranche A: $1.1 billion (5-year).
- Tranche B: $1.1 billion (7-year).
- Tranche A-1: $300 million (5-year).
- Revolving Credit Facility: Up to $600 million.
Covenant Adjustments (Effective until March 31, 2011):
- Permitted Leverage Ratio: Increased from 3.75:1.00 to 4.25:1.00.
- Interest Coverage Ratio: Decreased from 2.25:1.00 to 2.00:1.00.
Interest Rate Margins: Margins for Tranche A, Revolving, Tranche A-1, and Tranche B loans were increased based on leverage ratios. A minimum Adjusted LIBO Rate of 2% per annum applies.
Immediate Prepayments: The Company made a $100 million prepayment on Tranche A and/or Tranche A-1 term loans and a voluntary $5.5 million prepayment on the Tranche B term loan upon closing.
Material Changes Versus Prior Period
The filing details a significant amendment to the credit agreement dated December 20, 2006. Key changes include:
- Relaxed Covenants: Higher leverage and lower interest coverage thresholds permitted through 2011 to accommodate current market conditions.
- Increased Borrowing Costs: Higher interest rate spreads applied across all loan tranches and the revolving facility.
- Restrictions on Capital Returns: Restricted payments (e.g., dividends, share repurchases) are limited until December 31, 2009. Post-2009, they are permitted only if the pro forma leverage ratio is 3.00:1.00 or lower.
- EBITDA Adjustments: Added ability to add back up to $75 million in cost-saving expenses and up to $150 million in pro forma net run rate cost savings to covenant EBITDA through December 31, 2010.
- Collateral Expansion: The Guarantee and Pledge Agreement was amended to grant a security interest in substantially all domestic personal property assets, in addition to existing stock pledges.
Guidance, Outlook, and Risks
Management Commentary and Strategy:
- The amendment permits a modified reverse Dutch auction to purchase outstanding loans at less than par, though success is not assured.
- The Company may establish a receivables financing facility.
- Loans must be prepaid from excess cash flow based on leverage ratios.
Risks and Contingencies:
- Cost of Capital: Increased interest rate margins will raise the cost of debt.
- Liquidity Constraints: Restrictions on restricted payments limit flexibility for shareholder returns.
- Acquisition Limits: New negative covenants restrict acquisitions and additional investments.
- Subordinated Debt: Subordinated debt may be excluded from total debt for covenant purposes, subject to restrictions.
Financial Outlook: The filing does not provide specific revenue, profit, or cash flow guidance for future periods. It focuses on debt restructuring to maintain compliance with financial covenants.
Investor Verification Checklist
- Verify the current leverage ratio to determine the applicable interest rate spread tier.
- Confirm the impact of the increased interest rate margins on future interest expense.
- Review the specific terms of the "modified reverse Dutch auction" to assess potential debt reduction opportunities.
- Monitor the Company's ability to generate cost savings to utilize the EBITDA add-back provisions.
- Check for any subsequent filings regarding the establishment of the receivables financing facility.