Business Context and Reporting Period
This Form 8-K Current Report was filed by GrafTech International Ltd. on April 25, 2018, covering events occurring between April 19, 2018, and April 23, 2018. The filing details material agreements and corporate governance changes executed in connection with the Company's Initial Public Offering (IPO) of 35,000,000 shares of common stock owned by BCP IV GrafTech Holdings LP ("Brookfield").
Key Financial Metrics and Agreements
The filing does not report operational financial metrics such as revenue, profit, or cash flow for a specific period. Instead, it discloses the following financial obligations and structures:
- Promissory Note: A $750 million promissory note issued to Brookfield as a dividend. The note is unsecured but guaranteed by domestic subsidiaries.
- Interest Rate: Adjusted LIBO Rate plus 4.50% per annum, increasing to an additional 2.00% per annum starting from the third anniversary.
- Maturity and Repayment: Matures eight years from issuance. Requires 5% annual principal repayment in quarterly installments, with the remainder due at maturity.
- Excess Cash Flow Prepayments: Mandatory prepayments based on Excess Cash Flow commencing with the fiscal year ending December 31, 2019.
- Existing Debt Facilities: The Company maintains a $1,500 million senior secured term loan facility and a $250 million senior secured revolving credit facility.
- Director Compensation: New non-employee directors receive an annual retainer of $125,000, with 50% paid in deferred share units (DSUs) until ownership thresholds are met.
Material Changes and Conditions
The issuance of the $750 million Promissory Note is subject to specific conditions based on the Company's financial health:
- Leverage Ratio Condition: The note is conditioned on the Senior Secured First Lien Net Leverage Ratio (based on Q1 2018 results) being equal to or less than 1.75:1.00. If this ratio is not met, the principal amount of the note will be reduced to the amount that results in a 1.75:1.00 ratio.
- Default Status: No Default or Event of Default under the Credit Agreement could have occurred or result from the note issuance.
- Board Expansion: The Board of Directors was expanded from four to seven members with the appointment of Brian L. Acton, Michel J. Dumas, and Anthony R. Taccone.
Guidance, Risks, and Contingencies
The filing outlines significant covenants and future obligations that restrict the Company's financial flexibility:
- Restrictive Covenants: The Promissory Note limits the Company's ability to incur additional indebtedness (except for refinancing or specific facilities), pay dividends, repurchase stock, make investments, sell assets, or enter into affiliate transactions.
- Tax Receivable Agreement: The Company agreed to pay 85% of cash tax savings (U.S. federal and Swiss) realized from utilizing pre-IPO tax assets to Existing Stockholders. Interest on these payments is LIBOR plus 1.00%.
- Registration Rights: Brookfield retains demand and shelf registration rights for its shares and debt securities, with the Company bearing registration expenses.
- Stockholder Rights: Brookfield retains the right to nominate directors (higher of 37.5% of the Board or three members) and select the Chairman of the Board as long as it owns at least 25% of the outstanding common stock.
Investor Verification Checklist
- Verify the Company's Q1 2018 Senior Secured First Lien Net Leverage Ratio to confirm if the full $750 million Promissory Note was issued or if the principal was reduced.
- Review the Credit Agreement (Exhibit 10.1 to the Registration Statement) to understand the specific definitions of "Excess Cash Flow" and "Default."
- Assess the impact of the Tax Receivable Agreement on future cash flows, specifically the 85% payout of tax savings to Brookfield.
- Confirm the current ownership percentage of Brookfield to determine the extent of their board nomination rights.
- Monitor the Company's ability to meet the 5% annual principal amortization and potential Excess Cash Flow prepayment requirements starting in 2019.