Business Context and Reporting Period
Company: CTS Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: February 14, 2019
Event Date: February 12, 2019
Context: The Company entered into a new five-year Credit Agreement to replace its expiring facility and refinanced existing borrowings.
Key Financial Metrics and Debt Structure
This filing details a new financing arrangement rather than reporting operational financial results (revenue, profit, or cash flow). Key debt metrics include:
- Facility Size: $300 million revolving credit facility.
- Expansion Option: May be increased by $150 million subject to approval.
- Sublimits: $15 million swing line; $10 million letter of credit.
- Refinancing: $50 million of borrowings under the prior agreement were refinanced.
- Interest Rates: Base rate + 0.00% to 1.00% margin OR LIBOR + 1.00% to 2.00% margin (based on leverage ratio).
- Fees: Letter of credit issuance fee of 0.125%; commitment fee on unused portion ranging from 0.20% to 0.30%.
Material Changes Versus Prior Period
- Agreement Replacement: The new Credit Agreement replaces the Prior Credit Agreement which was due to expire on August 10, 2020.
- Termination: The Prior Credit Agreement was terminated effective February 12, 2019.
- Lender Composition: The new agreement includes BMO Harris Bank N.A. (Administrative Agent), BMO Capital Markets, Bank of America, Wells Fargo, PNC Bank, The Northern Trust Company, and U.S. Bank N.A.
Covenants, Risks, and Management Commentary
Covenants: The agreement includes customary limitations on incurring debt, making investments, acquisitions, incurring liens, disposing of assets, and making non-cash distributions.
Financial Covenants:
- Maximum Total Leverage Ratio: 3.5 to 1 (can be increased to 4.0 to 1 for four quarters following a permitted acquisition of $100 million or greater).
- Minimum Fixed Charge Coverage Ratio: 1.25 to 1.
Risks and Contingencies: Events of default include failure to pay principal or interest, covenant non-compliance, false representations, or cross-defaults. Upon default, lenders may accelerate amounts due. The filing notes that lenders and their affiliates may provide other commercial banking services to the Company.
Investor Verification Checklist
- Verify the current total leverage ratio to ensure compliance with the 3.5 to 1 covenant.
- Confirm the current fixed charge coverage ratio meets the 1.25 to 1 minimum requirement.
- Review the full text of Exhibit 10.1 (Credit Agreement) for specific definitions of "permitted acquisition" and exceptions to covenants.
- Monitor the Company's unused commitment fee costs based on the current leverage ratio tier.
- Check for any subsequent filings regarding the exercise of the $150 million accordion feature.