Business Context and Reporting Period
Company: Constellation Brands, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 2, 2013
Event: Entry into a Material Definitive Agreement (Restatement Agreement) to amend and restate the 2012 Credit Agreement.
The filing details the restructuring of the Company's credit facilities to finance the "Beer Business Acquisition," which includes the purchase of the remaining 50% interest in Crown Imports LLC and the acquisition of Grupo Modelo's brewery and service companies in Mexico from Anheuser-Busch InBev (ABI).
Key Financial Metrics and Debt Structure
Debt Facilities Established/Modified:
- U.S. Term A Facility: Repayment terms adjusted; maturity set to five years from the Restatement Effective Date.
- U.S. Term A-1 Facility: Maturity set to six years from the Restatement Effective Date.
- New U.S. Term A-2 Facility: A new delayed draw facility of $675 million replacing the prior Term A-2 facility.
- European Term Loan Facilities: A new $1.5 billion delayed draw facility consisting of:
- European Term A Facility: $500 million committed loan.
- European Term B Facility: $1.0 billion loan.
- Revolving Credit Facility: Maturity adjusted to five years from the Restatement Effective Date.
Financial Covenants:
- Maximum Consolidated Net Leverage Ratio:
- 5.75 to 1.0 until approximately one year after the Restatement Effective Date.
- 5.50 to 1.0 thereafter.
Outstanding Debt as of April 22, 2013 (Pre-Restatement):
- U.S. Term A Facility: $515.6 million (Interest rate: 2.0%).
- U.S. Term A-1 Facility: $246.9 million (Interest rate: 2.2%).
- Letters of Credit: Approximately $14.4 million.
- Available Revolving Credit: Approximately $835.6 million.
- Outstanding Revolving/Swingline Loans: None.
Interest Rates and Fees:
- U.S. Term A/A-2 Margins: LIBOR + 1.25% to 2.25% or Base Rate + 0.25% to 1.25% (based on debt ratio).
- U.S. Term A-1 Margins: LIBOR + 1.50% to 2.50% or Base Rate + 0.50% to 1.50% (based on debt ratio).
- European Term A Margins: LIBOR + 1.25% to 2.25% or Base Rate + 0.25% to 1.25% (based on debt ratio).
- European Term B Margins: Expected LIBOR (min 0.75%) + 2.0% (declining to 1.75% if debt ratio < 4.25 to 1.0).
- Ticking Fees: Applicable on undrawn commitments for Term A-2 and European Term A facilities, ranging from 0.0% to 1.25% per annum depending on lender status.
Material Changes Versus Prior Period
- Facility Restructuring: The prior Term A-2 facility was terminated due to amendments in the acquisition terms (addition of the Brewery Purchase). It has been replaced by a new $675 million delayed draw Term A-2 facility.
- New European Financing: Creation of a $1.5 billion European term loan facility (Term A and Term B) to support the acquisition, with CIH International S.à r.l. as the borrower and the Company as guarantor.
- Covenant Adjustments: The maximum consolidated net leverage ratio was revised to 5.75 to 1.0 initially, stepping down to 5.50 to 1.0 after one year.
- Incremental Facilities Cap: Adjusted from a formula-based cap to a flat cap of $750.0 million.
- Guarantees: Crown Imports and CBBH added as guarantors for U.S. facilities; Company guarantees European facilities.
Guidance, Outlook, Risks, and Contingencies
Use of Proceeds: Proceeds from the U.S. and European Term Loans, along with revolver borrowings, will finance the Beer Business Acquisition, refinance existing loans, and cover related expenses.
Conditions Precedent: Lender obligations to fund are subject to the closing of the Beer Business Acquisition without material adverse change, delivery of solvency certificates, and payment of fees.
Risks and Contingencies:
- Prepayment Premiums: If European Term B Loans are prepaid or repriced within one year of the Restatement Effective Date, a 1% prepayment premium applies.
- Yield Protection: If incremental term loans have an effective yield exceeding the European Term B Loans by more than 50 basis points, margins on European Term B Loans will increase to maintain a 50 basis point spread.
- Related Party Transactions: Certain lenders are affiliates of the Sands family (Company founders) or have executive officers serving on lender boards. Lenders also provided underwriting services for recent Senior Notes offerings.
Key Facts for Investor Verification
- Verify the closing date of the Beer Business Acquisition, as the "Restatement Effective Date" and funding of new facilities are contingent upon this event.
- Monitor the Company's consolidated net leverage ratio to ensure compliance with the new 5.75 to 1.0 (initial) and 5.50 to 1.0 (subsequent) covenants.
- Review the final terms of the European Term B Facility, as margins, original issue discount, and fees are subject to a Joinder Agreement to be executed on the Restatement Effective Date.
- Assess the impact of ticking fees on undrawn commitments for the Term A-2 and European Term A facilities prior to funding.
- Confirm the status of the $500 million 3.750% Senior Notes due 2021 and $1,050 million 4.250% Senior Notes due 2023, which are held in escrow pending the acquisition closing.