Business Context and Reporting Period
Company: SYNNEX Corporation (now TD SYNNEX Corp)
Filing Type: Form 8-K (Current Report)
Date of Report: November 27, 2013
Context: The filing discloses the entry into a new material definitive credit agreement, the termination of a prior credit agreement, an amendment to an accounts receivable securitization program, and updates regarding a pending acquisition of assets from IBM.
Key Financial Metrics and Debt Structure
New Credit Facility (Effective Nov 27, 2013):
- Revolving Loans: Up to $275.0 million.
- Term Loan: Up to $225.0 million.
- Incremental Capacity: Option to increase commitments by up to $125.0 million.
- Maturity Date: November 27, 2018.
- Interest Rates (LIBOR-based): LIBOR + Applicable Rate (1.75% to 2.25% based on leverage).
- Interest Rates (Base Rate): Greatest of (Federal Funds + 0.5%, LIBOR + 1.0%, or Prime) + Applicable Rate (0.75% to 1.25% based on leverage).
Securitization Program Amendment:
- Effective Cost: Blended rate including prevailing dealer commercial paper rates and daily LIBOR.
- Fees: 0.425% per annum program fee on used commitment; 0.425% per annum facility fee on aggregate commitment.
Financial Covenants:
- Consolidated Leverage Ratio: Must not exceed 3.50 to 1.0.
- Consolidated Fixed Charge Coverage Ratio: Minimum 1.20 to 1.0 through fiscal year 2015; minimum 1.25 to 1.0 thereafter.
Revenue, Profit, and Cash Flow: The filing text does not provide specific values for revenue, profit, cash flow, or margins for the reporting period.
Material Changes Versus Prior Period
- Termination of Prior Debt: SYNNEX paid in full and terminated its Fourth Amended and Restated Credit Agreement dated November 12, 2010.
- Refinancing: Replaced the 2010 facility with the new 2013 Credit Agreement, extending the maturity to 2018 and establishing new leverage and coverage covenants.
- Securitization Adjustment: Modified the U.S. accounts receivable securitization program to align covenants with the new Credit Agreement and adjusted the effective borrowing cost structure.
Guidance, Outlook, Risks, and Unusual Items
Acquisition Update (IBM):
- Status: Master Asset Purchase Agreement entered into on September 10, 2013.
- Expected Closing: Anticipated in the first calendar quarter of 2014.
Risks and Contingencies:
- Acquisition Risks: Failure to consummate the deal, lack of regulatory approval, integration challenges, diversion of management attention, and retention of key employees.
- Covenant Restrictions: The new Credit Agreement restricts incurrence of additional indebtedness, creation of liens, mergers, asset dispositions, stock repurchases, and certain affiliate transactions.
- Collateral: Obligations are secured by substantially all assets of SYNNEX and certain Domestic Subsidiaries.
Key Facts for Investor Verification
- Verify the actual drawdown amounts under the new $500 million ($275M revolving + $225M term) facility.
- Confirm the final closing date of the IBM asset acquisition, currently targeted for Q1 2014.
- Monitor compliance with the new Consolidated Leverage Ratio cap of 3.50 to 1.0 and Fixed Charge Coverage Ratio minimums.
- Review the impact of the new interest rate spreads (1.75%-2.25% over LIBOR) on future interest expense compared to the terminated 2010 agreement.
- Check for any subsequent filings regarding regulatory approvals for the IBM transaction.