Business Context and Reporting Period
This Form 8-K, filed on August 9, 2018, by SYNNEX Corporation (now TD SYNNEX Corp), reports the entry into a new material definitive credit agreement and the termination of a prior debt commitment. The filing is directly related to the proposed acquisition of Convergys Corporation, announced in June 2018. The document also notes that the U.S. Federal Trade Commission granted early termination of the Hart-Scott-Rodino waiting period on July 30, 2018, a key condition for closing the merger.
Key Financial Metrics and Debt Structure
The filing details the terms of a new Credit Agreement entered into on August 9, 2018, with JPMorgan Chase Bank, N.A., as administrative agent. Key financial terms include:
- Total Term Loan Capacity: Up to $1.8 billion in aggregate principal amount.
- Initial Funding: Required prior to December 28, 2018 (subject to extension), contingent on the completion of the Convergys merger.
- Additional Funding: Up to five additional loans totaling up to $350 million available within 90 days of the initial funding, specifically to repurchase or settle Convergys convertible debentures.
- Maturity: Five years from the initial funding date.
- Repayment: Quarterly installments of 1.25% of the outstanding principal, commencing after the second full fiscal quarter post-funding, with the remaining balance due at maturity.
- Interest Rates:
- LIBOR Loans: LIBOR plus an Applicable Rate ranging from 1.25% to 1.75% based on the Consolidated Leverage Ratio.
- Base Rate Loans: Base Rate (greatest of 0.5% + Fed Funds/Overnight Rate, LIBOR + 1.0%, or Prime) plus an Applicable Rate ranging from 0.25% to 0.75%.
- Collateral: Secured by substantially all assets of SYNNEX and certain Domestic Subsidiaries.
Material Changes and Covenants
The filing reports the termination of a previous $3.57 billion Bridge Facility commitment letter dated June 28, 2018, specifically reducing the $1.8 billion "Tranche A" commitment to zero upon entering the new agreement. The new Credit Agreement imposes strict financial covenants:
- Consolidated Leverage Ratio:
- Maximum 4.0:1.0 prior to the closing of the Mergers.
- Maximum 4.25:1.0 from the first fiscal quarter after closing through the fifth full fiscal quarter.
- Maximum 4.0:1.0 from the sixth full fiscal quarter after closing.
- Consolidated Interest Coverage Ratio: Must be equal to or greater than 3.50:1.0.
- Restrictive Covenants: Limits on incurring additional indebtedness, creating liens, asset dispositions, stock repurchases, and affiliate transactions.
The filing text does not provide specific revenue, profit, cash flow, or liquidity metrics for SYNNEX or Convergys for the current period, as this is a transactional filing rather than a periodic financial report.
Outlook, Risks, and Contingencies
The completion of the Convergys acquisition and the funding of the new credit facility are subject to several material contingencies:
- Conditions Precedent: Funding is contingent on the completion of the Mergers, the non-occurrence of a material adverse effect on Convergys, and the accuracy of representations and warranties.
- Regulatory and Shareholder Approval: The merger remains subject to approvals by stockholders of both SYNNEX and Convergys, as well as any remaining regulatory approvals.
- Forward-Looking Risks: The company highlights risks related to the failure to obtain necessary approvals in the anticipated timeframe, potential litigation, regulatory actions, and general market or economic conditions.
Investor Verification Checklist
- Verify the status of shareholder approvals for the SYNNEX-Convergys merger in the upcoming proxy materials.
- Confirm the exact "Initial Funding Date" once the merger closes to determine the start of interest accrual and repayment schedules.
- Monitor the Consolidated Leverage Ratio post-merger to ensure compliance with the 4.25:1.0 and subsequent 4.0:1.0 covenants.
- Review the joint proxy statement/prospectus (Form S-4) for detailed financial projections and risk factors regarding the combined entity.
- Track the tender offer process for Convergys convertible debentures, as the additional $350 million loan tranche is specifically earmarked for their settlement.