Core & Main, Inc. current report, 22 July 2021

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Core & Main, Inc. Form 8-K Summary

Reporting context: Filed July 28, 2021, reporting events occurring primarily on July 22 and July 27, 2021, in connection with Core & Main’s initial public offering and related capitalization and financing transactions. The filing does not provide operating results for a comparable reporting period.

IPO and Capitalization

  • On July 27, 2021, the company completed its IPO of 34,883,721 shares of Class A common stock at $20.00 per share, representing approximately $697.7 million of gross proceeds before underwriting discounts, commissions, and expenses.
  • On July 22, 2021, the company issued 119,950,882 shares of Class A common stock to former limited partners in exchange for partnership interests, with a corresponding retirement of Class B common stock. The issuance was exempt from registration under Section 4(a)(2).
  • The IPO was accompanied by a master reorganization, amended partnership agreement, registration rights agreement, stockholders agreement, exchange agreement, and tax receivable agreements.

Debt, Liquidity, and Financing

  • The company entered into a new $1.5 billion seven-year term loan facility maturing July 27, 2028. The facility has nominal quarterly amortization equal to 0.25% of initial principal annually, with the remaining balance due at maturity.
  • The term loan bears interest at either adjusted LIBOR plus 2.50% or an alternate base rate plus 1.50%, subject to applicable terms and a 0.00% LIBOR floor.
  • Proceeds from the new term loan were used to redeem outstanding notes, prepay approximately $1.2578 billion outstanding under the existing term loan facility as of May 2, 2021, and pay related fees, premiums, and expenses.
  • The asset-based revolving credit facility was increased from $700 million to $850 million and extended to a five-year maturity ending July 27, 2026. At July 27, 2021, there were no borrowings and $9.1 million of letters of credit outstanding.
  • ABL borrowings bear floating-rate interest based on adjusted LIBOR plus margins ranging from 1.25% to 1.75%, or an alternate base rate plus margins ranging from 0.25% to 0.75%. Unused commitments carry a 0.25% annual fee.
  • The ABL facility is subject to borrowing-base availability and includes a minimum fixed-charge coverage ratio of 1.00 to 1.00 when availability falls below specified thresholds.

Material Changes and Debt Retirements

  • The company elected to redeem all $750 million of 6.125% Senior Notes due 2025 on August 15, 2021 at 101.531% of principal, plus accrued interest. Funds sufficient to pay the redemption price were deposited with the trustee, and the notes and indenture were acknowledged as satisfied and discharged on July 27, 2021.
  • All $300 million of 8.625%/9.375% Senior PIK Toggle Notes due 2024 were redeemed on July 27, 2021 at 102.000% of principal, plus accrued interest. The notes and indenture were acknowledged as satisfied and discharged.
  • The new term loan replaced the existing term loan facility and funded the retirement of the senior notes and PIK Toggle Notes, materially changing the company’s debt maturity profile and interest-rate exposure.
  • A prior consulting agreement with Clayton, Dubilier & Rice and a prior registration rights agreement were terminated in connection with the IPO.

Outlook, Risks, and Other Items

  • The filing provides no revenue guidance, earnings guidance, operating outlook, margin outlook, or management forecast.
  • Key financing risks include substantial indebtedness, floating interest rates, mandatory prepayment provisions, restrictive covenants, and security interests covering substantially all assets, subject to stated priorities and exceptions.
  • The term loan requires mandatory prepayments from specified asset sale and insurance proceeds, certain debt offerings, and in some circumstances 50% of annual excess cash flow.
  • The ABL facility’s borrowing capacity depends on eligible inventory and receivables, reserves, letters of credit, and other borrowing-base adjustments. The filing states that no amounts were drawn at the July 27, 2021 closing date.
  • The board adopted a 2021 Omnibus Equity Incentive Plan and the company adopted an Employee Stock Purchase Plan, which may result in future equity issuance and dilution.
  • The company’s amended and restated certificate of incorporation and bylaws became effective in connection with the IPO.

Investor Verification Points

  • Verify the final IPO proceeds net of underwriting discounts, commissions, offering expenses, and any use-of-proceeds adjustments.
  • Confirm the post-transaction debt balance, applicable interest rates, accrued fees, and the final allocation of IPO and term-loan proceeds.
  • Review the term loan and ABL covenant definitions, mandatory prepayment provisions, borrowing-base availability, and collateral priorities.
  • Assess the impact of tax receivable agreements, registration rights, stockholders agreements, and continuing ownership by former limited partners and affiliates of Clayton, Dubilier & Rice.
  • Review subsequent periodic filings for operating performance, leverage, liquidity, interest expense, and any equity dilution from incentive or exchange arrangements.