Knowles Corp 8-K Summary: Material Definitive Agreement
Business Context and Reporting Period
This Form 8-K, dated December 31, 2014, reports that Knowles Corporation entered into an Amended and Restated Credit Agreement on that date. The agreement involves the Company, its subsidiary Knowles Luxembourg International S.à r.l., and JPMorgan Chase Bank, N.A., as the administrative agent.
Key Financial Metrics and Debt Structure
The new credit facility consists of two primary components:
- Revolving Credit Facility: $350 million (increased from $200 million).
- Term Loan Facility: $300 million (five-year senior secured).
As of December 31, 2014, the Company had $100 million outstanding under the revolving facility and $300 million outstanding under the term loan facility. The interest rate on these facilities was 1.91% as of the reporting date, variable based on LIBOR and the Company's leverage ratio. A commitment fee of 0.3% applied to the unused portion of the revolving facility.
Material Changes Versus Prior Period
The Amended and Restated Credit Agreement modified the Original Credit Agreement dated January 27, 2014, in the following ways:
- Increased the revolving credit facility from $200 million to $350 million.
- Increased the letter of credit subfacility from $25 million to $50 million.
- Eliminated the $35 million swing line subfacility.
- Reduced the capacity for additional incremental revolving or term loans from $250 million to $100 million.
The term loan facility includes an amortization schedule starting in Year 2 at 5.0% per annum, increasing to 10.0% for Years 3, 4, and 5, with the final balance due on January 27, 2019.
Outlook, Covenants, and Risks
Borrowings under the term loan and initial revolving borrowings were used to fund a cash payment to the Company's former parent company following its spin-off on February 28, 2014. Future revolving borrowings may be used for working capital, general corporate purposes, and share repurchases. Up to $100 million of the revolving facility is available in foreign currencies.
The agreement includes standard covenants restricting indebtedness, liens, and mergers. Key financial maintenance covenants require the Company to maintain:
- A minimum consolidated EBITDA to consolidated interest expense ratio of 3.25 to 1.0.
- A maximum consolidated total indebtedness to consolidated EBITDA ratio of 3.25 to 1.0.
The Company must prepay the term facility with 100% of net cash proceeds from asset sales or equity issuances by subsidiaries, subject to exceptions.
Key Facts for Investor Verification
- Verify the Company's current leverage ratio to ensure compliance with the 3.25:1.0 maximum debt-to-EBITDA covenant.
- Confirm the actual utilization of the $350 million revolving facility, noting $100 million was drawn as of December 31, 2014.
- Monitor the amortization schedule of the $300 million term loan, which begins in Year 2.
- Review the full text of the Amended and Restated Credit Agreement (Exhibit 10.1) for specific definitions of EBITDA and exceptions to prepayment requirements.