Business Context and Reporting Period
NewMarket Corporation (NewMarket) filed this Form 8-K on June 30, 2009, reporting events occurring on June 25, 2009, and June 30, 2009. The filing details the entry into a material definitive agreement regarding an interest rate swap and a supplemental agreement to its revolving credit facility.
Key Financial Metrics and Agreements
- Interest Rate Swap: Entered into a swap with Goldman Sachs Bank USA with a notional amount of $97 million.
- Swap Terms: NewMarket pays a fixed rate of 5.3075% and receives variable payments based on 3-month Libor. The termination date is January 19, 2022.
- Accounting Impact: The swap is recorded at fair value without hedge accounting. Changes in fair value are immediately recognized in earnings. As of June 25, 2009, the fair value was a liability of $11.1 million.
- Revolving Credit Facility: Total facility commitment increased to $139.25 million following a $10 million increase in commitment from Citizens Bank of Pennsylvania.
Material Changes and Background
The interest rate swap was executed to preserve a rate lock originally associated with a loan application for the Foundry Park I office project in Richmond, Virginia. The original loan application and rate lock agreement with Principal Commercial Funding were terminated because the terms could not be syndicated under current market conditions. NewMarket assumed Principal's position in the swap to maintain the rate lock for potential future financing of the project.
Outlook, Risks, and Management Commentary
- Financing Outlook: Foundry Park is investigating alternative financing for the Foundry Park I project and believes acceptable terms can be obtained.
- Forward-Looking Risks: The company highlights uncertainties regarding credit market conditions and the ability to complete the Foundry Park I construction within budget and on time.
- Default Provisions: The ISDA Master Agreement includes standard events of default, including failure to pay, breach of agreement, credit support default, and cross-defaults.
Investor Verification Checklist
- Verify the status of alternative financing for the Foundry Park I office project.
- Monitor the impact of the $11.1 million initial liability and subsequent fair value fluctuations on quarterly earnings.
- Review the utilization of the expanded $139.25 million revolving credit facility.
- Assess the company's exposure to interest rate movements given the fixed-rate payment obligation on the swap.