Business Context and Reporting Period
KBR, Inc. filed this Form 8-K on September 25, 2015, to report the entry into a new material definitive agreement. The filing details the replacement of a prior credit facility with a new five-year unsecured revolving credit agreement.
Key Financial Metrics and Liquidity
- Credit Facility Size: $1.0 billion unsecured revolving credit agreement.
- Term: Five years, expiring September 25, 2020.
- Expansion Option: Commitments may be increased by up to an additional $500 million subject to conditions.
- Extension Option: The agreement may be extended by two additional one-year terms.
- Interest Rates: Variable rates based on LIBOR plus 1.375% to 1.75% or Base Rate plus 0.375% to 0.75%.
- Commitment Fees: 0.225% to 0.25% per annum on unused commitments.
- Financial Covenants:
- Maximum consolidated debt to consolidated EBITDA ratio: 3.5 to 1.
- Minimum consolidated net worth: $1.2 billion plus 50% of consolidated net income for each quarter ending on or after September 30, 2015.
Material Changes Versus Prior Period
The new Credit Agreement replaces the five-year unsecured revolving credit agreement dated December 2, 2011. The Prior Credit Agreement was terminated upon the closing of the new agreement. The new facility maintains similar customary covenants but establishes updated financial thresholds and interest rate margins.
Outlook, Risks, and Management Commentary
The agreement is guaranteed by certain of KBR's domestic subsidiaries and is intended for general corporate purposes, including cash advances and the issuance of up to $1.0 billion in letters of credit. The applicable interest margin is determined by the Company's ratio of consolidated debt to consolidated EBITDA. The filing does not provide specific revenue, profit, or cash flow figures for the period, nor does it contain forward-looking guidance beyond the terms of the credit facility.
Key Facts for Investor Verification
- Verify the current consolidated debt to EBITDA ratio to ensure compliance with the 3.5 to 1 covenant.
- Confirm the current consolidated net worth against the $1.2 billion minimum threshold plus applicable net income adjustments.
- Review the specific terms regarding the $500 million expansion option and the two one-year extension options.
- Monitor the impact of variable interest rates on future interest expense given the LIBOR and Base Rate spreads.