Business Context and Reporting Period
Company: Ducommun Incorporated
Filing Type: Form 8-K (Current Report)
Date of Report: June 26, 2015
Event: Entry into a new Credit Agreement and termination of the existing credit facility.
Key Financial Metrics and Capital Structure
- New Credit Facilities:
- Term Loan Facility: $275.0 million senior secured delayed draw term loan (undrawn at closing).
- Revolving Credit Facility: $200.0 million senior secured revolving credit facility ($65.0 million drawn at closing).
- Subfacilities: Includes a $25.0 million letters of credit subfacility and a $20.0 million swingline subfacility.
- Debt Repayment: Proceeds from the $65.0 million draw were used to prepay all outstanding loans and accrued interest under the previous Credit Agreement (dated June 28, 2011).
- Senior Notes Redemption: The company intends to use future borrowings to redeem all outstanding 9.75% senior notes due 2018.
- Redemption Terms: Senior Notes will be redeemed at 104.875% of principal plus accrued interest on July 27, 2015.
- Interest Rates:
- Eurodollar Rate + 1.50% to 2.75% per annum.
- Base Rate + 0.50% to 1.75% per annum.
- Commitment Fees: 0.175% to 0.300% on undrawn portions.
Material Changes Versus Prior Period
- Termination of Prior Agreement: The Existing Credit Agreement with UBS AG was terminated upon full repayment.
- Increased Capacity: The new agreement provides a total potential capacity of $475.0 million ($275.0M term + $200.0M revolver), compared to the prior facility which was fully paid off.
- Incremental Capacity: The company has the option to increase commitments by up to $100.0 million plus additional amounts, provided the pro forma consolidated total net adjusted leverage ratio does not exceed 3.00.
Guidance, Covenants, and Risks
- Financial Covenants:
- Leverage Ratio: Maximum consolidated total net adjusted leverage ratio initially set at 4.50, stepping down to 3.50 by the fiscal quarter ending March 31, 2020.
- Coverage Ratio: Minimum consolidated fixed charge coverage ratio of 1.25.
- Amortization Schedule (Term Loan):
- Years 1-2: 5.00% per annum.
- Year 3: 7.50% per annum.
- Years 4-5: 10.00% per annum.
- Final Maturity: June 26, 2020.
- Mandatory Prepayments: Required from 100% of net proceeds from asset sales, casualty proceeds, and certain debt issuances.
- Collateral: Obligations are secured by substantially all assets of Ducommun and Subsidiary Guarantors.
- Events of Default: Include payment defaults, covenant breaches, bankruptcy, and change of control.
Investor Verification Checklist
- Verify the exact principal amount of the 9.75% Senior Notes due 2018 to calculate the total redemption cost (104.875% of principal).
- Confirm the company's current consolidated total net adjusted leverage ratio to ensure compliance with the initial 4.50 covenant limit.
- Review the full text of the Credit Agreement (Exhibit 10.1) for specific definitions of "Base Rate" and "Eurodollar Rate" and any additional negative covenants.
- Monitor the July 27, 2015 redemption date to ensure sufficient liquidity is available to fund the Senior Notes buyback.
- Check for any subsequent filings regarding the utilization of the $275.0 million delayed draw term loan facility.