Business Context and Reporting Period
Company: GrafTech International Ltd.
Filing Type: Form 8-K (Current Report)
Date of Report: May 4, 2015
Event: Entry into a Material Definitive Agreement (Investment Agreement) with BCP IV GrafTech Holdings LP, an affiliate of Brookfield Capital Partners Ltd.
Key Financial Metrics and Transaction Details
- Aggregate Purchase Price: $150,000,000 in cash.
- Securities Issued:
- Series A Convertible Preferred Stock: Amount equal to 19.9% of outstanding common stock.
- Series B Convertible Preferred Stock: Amount equal to 150,000 less the number of Series A Preferred Shares.
- Dividend Rate: 7.0% per annum (cumulative, payable quarterly in arrears). Increases to 8.0% if payments are not made timely.
- Conversion Price (Series A): $5.00 per common share (subject to anti-dilution adjustments).
- Liquidation Preference: Greater of $1,000 per share plus accrued dividends or the conversion value.
- Transaction Expenses: Company to reimburse Brookfield up to $500,000 for out-of-pocket fees and expenses.
Material Changes and Strategic Intent
The primary material change is the capital raise intended to address immediate debt obligations. The proceeds from the sale of the Preferred Stock will be used, along with other cash and borrowing resources, to repay the Company's senior subordinated notes maturing in November 2015.
Capital Structure Impact: The Preferred Stock ranks junior to existing and future indebtedness but senior to common stock regarding dividends and liquidation.
Guidance, Outlook, and Governance Changes
- Board Representation: Brookfield gains the right to designate two board members while owning at least 75% of the common stock issuable upon conversion of Series A Preferred Stock. This reduces to one member if ownership falls between 25% and 75%.
- Veto Rights: Holders of a majority of Preferred Stock have veto rights over issuances of senior/parity securities and adverse changes to the certificate of incorporation as long as 25% of Series A shares are outstanding.
- Preemptive Rights: Brookfield has preemptive rights to maintain proportionate equity ownership in future equity offerings while holding 25% or more of the Preferred Stock.
- Redemption:
- Series A: Mandatory redemption at holder's option after the seventh anniversary; Company option after the fourth anniversary if stock price exceeds 175% of conversion price for 40 of 60 trading days.
- Series B: Mandatory redemption at holder's option if stockholder approval for conversion is not obtained by a specified date.
- Change of Control: Holders have the right to require repurchase of shares at a make-whole premium upon a change of control.
Investor Verification Checklist
- Verify the exact number of Series A and Series B shares issued based on the outstanding common stock count at closing.
- Confirm the status of the Hart-Scott-Rodino (HSR) waiting period and other regulatory approvals required for the Closing.
- Review the specific terms of the "Stockholder Approval" required for Series B conversion at the 2015 annual stockholders meeting.
- Assess the impact of the 7.0% cumulative dividend obligation on future cash flows and liquidity.
- Examine the full text of the Investment Agreement (Exhibit 10.1) for detailed covenants and representations.