Resideo Technologies, Inc. — Form 8-K Summary
Reporting date: October 25, 2018. The filing concerns financing completed in connection with Resideo’s planned spin-off from Honeywell, effective October 29, 2018 at 12:01 a.m. New York time.
Business Context and Reporting Period
This is a current report describing the release of proceeds from Resideo’s senior notes offering and the closing of new senior secured credit facilities. It does not report quarterly or annual operating results.
Financing and Key Financial Metrics
| Financing | Principal amount | Terms |
|---|---|---|
| Senior notes | $400 million | 6.125% senior notes due 2026 |
| Term B facility | $475 million | Seven-year senior secured first-lien term loan |
| Term A facility | $350 million | Five-year senior secured first-lien term loan |
| Revolving facility | $350 million | Five-year senior secured revolving facility |
- Resideo borrowed $825 million under the Term A and Term B facilities on the financing closing date.
- The revolving facility was undrawn at closing based on the filing, but is available for working capital and general corporate purposes. Up to $75 million may be used for letters of credit.
- The notes proceeds were released from escrow after satisfaction of closing conditions.
- Resideo expects to use the notes proceeds and term-loan borrowings to repay approximately $1.2 billion of intercompany debt owed to Honeywell or its subsidiaries, pay financing-related fees and expenses, and fund general corporate purposes.
- The filing provides no revenue, profit, cash-flow, margin, or liquidity balances.
Interest, Maturities, and Repayment Terms
- Credit-facility borrowings bear interest at the borrower’s option at either ABR or adjusted LIBOR, with applicable margins dependent on facility type and, for the Term A and revolving facilities, leverage ratio.
- The Term B margin is currently 2.00% for LIBOR loans and 1.00% for ABR loans.
- Term A and revolving-facility margins range from 2.00% to 1.50% for LIBOR loans and from 1.00% to 0.50% for ABR loans.
- The revolving facility carries a quarterly unused-commitment fee ranging from 0.25% to 0.35%.
- Term A and Term B loans require quarterly principal amortization. Mandatory prepayments may apply to certain new debt, asset-sale proceeds, and, beginning with fiscal 2019, 50% of excess cash flow, subject to leverage-based reductions.
Material Changes, Outlook, and Risks
- The financing establishes Resideo’s initial standalone debt structure following separation from Honeywell and replaces approximately $1.2 billion of expected intercompany indebtedness.
- The credit facilities are guaranteed jointly and severally by Resideo and substantially all qualifying wholly owned U.S. subsidiaries.
- The facilities are secured by first-priority interests in specified subsidiary equity, substantially all tangible and intangible personal property, and material real property, subject to customary exceptions.
- The agreement restricts additional debt and liens, asset dispositions, investments, acquisitions, dividends, equity repurchases, affiliate transactions, and other corporate actions.
- Financial covenants require a consolidated total leverage ratio of no more than 4.00 to 1.00, stepping down to 3.75 to 1.00 in the quarter ending December 31, 2019, 3.50 to 1.00 in the quarter ending December 31, 2020, and 3.25 to 1.00 in the quarter ending December 31, 2021.
- The consolidated interest coverage ratio must be at least 2.75 to 1.00.
- Key risks include floating-rate exposure to ABR and LIBOR, required amortization and potential excess-cash-flow prepayments, restrictions under the covenants, collateral and guarantee obligations, and customary events of default including payment defaults, cross-defaults, insolvency, and change of control.
Investor Verification Items
- Verify the final net proceeds from the $400 million notes offering and the actual allocation of financing fees and expenses.
- Confirm the amount and timing of repayment of Honeywell-related intercompany indebtedness.
- Review the complete Credit Agreement and related guarantee and security documents, which the filing states will be filed as an amendment.
- Verify actual borrowing rates, quarterly amortization schedules, unused revolver capacity, and any letters of credit issued after closing.
- Assess Resideo’s ability to meet the 2.75x interest coverage and progressively tighter leverage covenants after the spin-off.