E.L.F. Beauty, Inc. current report, 30 April 2021

Full document

Business Context and Reporting Period

Company: E.L.F. Beauty, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: April 30, 2021
Event: Entry into a Material Definitive Agreement (New Credit Agreement)

Key Financial Metrics and Debt Structure

This filing details the refinancing of the company's debt facilities rather than reporting operational financial results (revenue, profit, or cash flow) for a specific period.

  • New Credit Facilities: A five-year agreement consisting of a $100 million revolving credit facility and a $100 million term loan facility.
  • Interest Rates (Closing Date):
    • Adjusted LIBOR: 1.375% margin (range 1.25% to 2.125% based on leverage).
    • Floating Base Rate: 0.375% margin (range 0.25% to 1.125% based on leverage).
  • Unused Fee: 0.15% on the average daily unutilized commitments (range 0.10% to 0.30%).
  • Amortization: Quarterly installments of $1,250,000 on the term loan beginning September 30, 2021.
  • Maturity Date: April 30, 2026 for both facilities.

Material Changes Versus Prior Period

The New Credit Agreement amends and restates the existing Credit Agreement dated December 23, 2016 ("Old Credit Agreement"). Key changes include:

  • Refinancing: The new agreement refinances loans under the Old Credit Agreement.
  • Structure: Establishes a new five-year term for both the revolving and term loan facilities.
  • Prepayment Requirements: Introduces mandatory prepayments using 50% of annual excess cash flow (reducible to 0% if leverage is ≤ 3.00:1.00), 100% of net proceeds from asset sales, and 100% of net proceeds from new debt issuances.

Guidance, Covenants, and Risks

Financial Covenants:

  • Consolidated Total Net Leverage Ratio: Must not exceed 3.25 to 1.00 (temporarily permitted up to 3.75 to 1.00 following a Material Acquisition).
  • Consolidated Fixed Charge Coverage Ratio: Must not be less than 1.15 to 1.00.
Negative Covenants:
  • Restrictions on incurring additional indebtedness, creating liens, making investments, disposing of assets, and engaging in mergers.
  • Restrictions on restricted payments, including dividends in certain circumstances.
Security: Obligations are secured by a pledge of substantially all of the Company's personal property and guaranteed by subsidiaries.

Investor Verification Checklist

  • Verify the company's current Consolidated Total Net Leverage Ratio to ensure compliance with the 3.25:1.00 covenant.
  • Confirm the Consolidated Fixed Charge Coverage Ratio meets the minimum 1.15:1.00 threshold.
  • Review the definition of "Excess Cash Flow" to understand potential mandatory prepayment obligations.
  • Monitor the interest rate environment, as the cost of borrowing is tied to LIBOR and the Base Rate plus variable margins.
  • Check for any Material Acquisitions that might temporarily allow a higher leverage ratio.