Business Context and Reporting Period
Company: Ormat Technologies, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: September 14, 2016
Event: Entry into a Material Definitive Agreement and Creation of a Direct Financial Obligation.
Key Financial Metrics and Debt Structure
The Company issued senior unsecured bonds in an aggregate principal amount of $204.3 million in an unregistered offering outside the United States. The issuance consists of two series:
- Series 2 Bonds: $67.2 million principal; matures September 2020; fixed interest rate of 3.7% per annum.
- Series 3 Bonds: $137.1 million principal; matures September 2022; fixed interest rate of 4.45% per annum.
Credit Rating: Rated "ilA+" by Maalot S&P with a stable outlook.
Interest Rate Adjustments: Rates are subject to increase based on credit rating downgrades or if the debt-to-Adjusted EBITDA ratio exceeds 4.5.
Material Changes and Covenants
This filing represents a significant increase in the Company's debt obligations. The Trust Deeds include the following financial covenants and restrictions:
- Debt-to-Adjusted EBITDA: Must be maintained below 6.0. Interest rates increase by 0.50% if the ratio exceeds 4.5.
- Minimum Equity: Must maintain equity (excluding noncontrolling interests) of at least $650 million.
- Equity-to-Assets Ratio: Must be not less than 25%.
- Dividend Restrictions: Dividends are prohibited if equity falls below $800 million. Otherwise, annual dividends are restricted to less than 50% of net income.
Events of Default/Acceleration: Bonds may be accelerated if the equity-to-assets ratio falls below 25% for two consecutive quarters, the debt-to-Adjusted EBITDA ratio exceeds 6.0 at any time, or minimum equity falls below $650 million for two consecutive quarters.
Outlook, Risks, and Use of Proceeds
Use of Proceeds: The Company is subject to mandatory redemption if it does not use the proceeds within 180 days to prepay outstanding bonds maturing in August 2017.
Redemption Terms: The Company may redeem bonds early (not more than once per quarter) following listing at a price equal to the greater of the principal plus accrued interest or the present value of remaining payments discounted at benchmark Treasury yields plus 1%.
Risks: Risks include potential interest rate hikes due to rating downgrades or covenant breaches, and mandatory redemption if listing or prepayment conditions are not met.
Investor Verification Checklist
- Verify the Company's current Debt-to-Adjusted EBITDA ratio to ensure compliance with the 4.5 and 6.0 thresholds.
- Confirm the Company's consolidated equity position (excluding noncontrolling interests) remains above $650 million and $800 million.
- Monitor the status of the August 2017 bond prepayment to avoid mandatory redemption of the new bonds.
- Check for any credit rating changes by Maalot S&P that could trigger interest rate increases.
- Review the listing status of the Bonds on the TACT-Institutional trading system within 60 days of issuance.