Business Context and Reporting Period
Resideo Technologies, Inc. filed a Form 8-K dated February 12, 2021, reporting a refinancing of its senior secured credit facilities and related amendments. The filing also reports completion of a partial redemption of senior notes on February 16, 2021, and a related press release issued February 17, 2021.
Key Financial and Capital Structure Metrics
| Item | Reported information |
|---|---|
| Senior secured financing | $1.45 billion total commitment |
| Term loan facility | $950 million, seven-year senior secured term B loan; fully borrowed at closing |
| Revolving credit facility | $500 million, five-year senior secured revolving facility; no amounts drawn at closing |
| Letters of credit | Up to $75 million may be issued under the revolving facility |
| Senior notes redemption | $140 million principal amount of 6.125% Senior Notes due 2026 redeemed on February 16, 2021 |
| Redemption price | 106.125% of principal, plus accrued and unpaid interest through the redemption date |
| Senior notes remaining | $260 million aggregate principal amount after the redemption |
| Interest rates | Borrower may elect ABR or adjusted LIBOR. Term loan margins are 2.25% for LIBOR loans and 1.25% for ABR loans. Revolver margins vary with leverage from 2.25% to 1.75% for LIBOR loans and 1.25% to 0.75% for ABR loans. |
| Revolver commitment fee | 0.25% to 0.35% annually on unused commitments, based on leverage |
| Financial covenants | Consolidated total leverage ratio no greater than 3.50 to 1.00, stepping down to 3.25 to 1.00 in the quarter ending March 31, 2022, and 3.00 to 1.00 in the quarter ending September 30, 2022; interest coverage ratio no less than 2.75 to 1.00 |
Material Changes Versus the Prior Comparable Period
- The existing October 2018 credit agreement, as previously amended, was amended and restated in full.
- Net proceeds from the new term loan were used to repay all outstanding term loans under the prior credit agreement and to pay related fees and expenses. Excess proceeds remained available for general corporate purposes.
- The revolving facility was undrawn in connection with the refinancing, although it remains available for working capital and general corporate purposes.
- The company completed the previously announced partial redemption of its 2026 senior notes, reducing outstanding principal from $400 million to $260 million.
- The refinancing introduced or maintained leverage and interest coverage requirements, restrictions on additional debt, liens, asset sales, investments, distributions and other corporate actions.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The filing does not provide revenue, earnings, margin, operating cash flow, free cash flow or company business outlook guidance.
- The senior credit facilities are secured by substantially all specified equity interests, tangible and intangible personal property, and material real property of the borrower and guarantors, subject to customary exceptions.
- Resideo and substantially all relevant U.S. wholly owned subsidiaries provide joint and several guarantees of the senior credit facilities.
- Mandatory prepayments may be required upon certain debt incurrences, non-ordinary-course asset sales or other dispositions, and beginning with fiscal year 2021, a portion of excess cash flow, subject to leverage-based step-downs.
- The term loan requires quarterly principal amortization under the credit agreement. Voluntary prepayments are generally permitted without penalty, subject to customary costs and a 1% repricing premium during the first six months.
- Interest expense may fluctuate with ABR, LIBOR and the company’s leverage ratio. The filing text does not provide the outstanding balance of the prior term loans, refinancing fees, the amount of excess proceeds, or the post-refinancing weighted-average interest rate.
- The Indemnification and Reimbursement Agreement with Honeywell International Inc. was amended so its covenants substantially conform to those in the amended credit agreement.
- Customary events of default include payment defaults, cross-defaults, bankruptcy or insolvency events and change-of-control events.
Important Facts for Investors to Verify
- Confirm the final outstanding balance, amortization schedule and pricing of the $950 million term loan, including the effect of the applicable leverage-based margins.
- Verify the amount of refinancing fees and expenses and how much excess term-loan proceeds remained available for general corporate purposes.
- Monitor compliance with the 3.50-to-1.00 leverage covenant, the 2.75-to-1.00 interest coverage covenant and future covenant step-downs.
- Confirm the post-redemption $260 million senior-notes balance and the cash cost of the 106.125% redemption price plus accrued interest.
- Review the complete credit agreement and collateral documents for restrictions, mandatory prepayment provisions, security interests and events of default.
- Assess future interest-rate exposure, refinancing risk and liquidity, as the filing does not include a full balance sheet, cash balance, cash flow statement or liquidity analysis.