Business Context and Reporting Period
This Form 8-K, filed on May 27, 2021, by HC2 Holdings, Inc. (HC2), reports the closing of a material acquisition and the entry into a new material definitive credit agreement by its subsidiary, DBM Global Inc. (DBM). The filing details the acquisition of Banker Steel Holdco LLC and the refinancing of existing debt to fund the transaction.
Key Financial Metrics and Transaction Details
Acquisition Financing
- Total Purchase Price: $145.0 million (subject to working capital adjustments).
- Financing Sources:
- $64.1 million from the new Revolving Credit Facility.
- $49.6 million in sellers' notes (subordinated debt).
- $6.3 million in assumed indebtedness.
- $25.0 million in cash capital from HC2.
New Credit Facility
- Total Capacity: $220.0 million senior secured debt.
- Structure: $110.0 million Revolving Facility (maturing May 31, 2024) and $110.0 million Term Loan Facility (maturing May 31, 2026).
- Interest Rates:
- Revolving: Prime Rate less 1.10% initially (subject to leverage-based pricing).
- Term Loan: Fixed at 3.25% per annum.
- Financial Covenants: Fixed Charge Coverage Ratio minimum of 1.20 to 1.00; Senior Funded Indebtedness to EBITDA Ratio maximum of 2.50 to 1.0.
Sellers' Notes
- Note 1: $30.0 million at 4.0% interest, 3-year maturity with quarterly principal and interest payments.
- Note 2: $19.6 million at 8.0% interest, 3-year maturity (interest-only first year, then amortized over 10 years with a balloon payment).
Material Changes Versus Prior Period
On May 27, 2021, DBM terminated its prior debt agreements, including the Fourth Amended and Restated Credit and Security Agreement with Wells Fargo Bank and the Prior TCW Financing Agreement. All outstanding borrowings under these prior agreements were repaid in full using proceeds from the new Credit Facility, with no prepayment penalties incurred. This represents a complete refinancing of the company's senior debt structure.
Acquisition of Banker Steel
DBM acquired 100% of Banker Steel Holdco LLC, a provider of fabricated structural steel and erection services based in Lynchburg, Virginia. The acquisition expands HC2's footprint in the East Coast and Southeast commercial and industrial construction markets. Banker Steel operates through six entities, including Banker Steel Co., LLC and NYC Constructors, LLC.
Guidance, Outlook, and Risks
The filing does not provide specific forward-looking financial guidance or revenue projections for the upcoming fiscal periods. Management commentary is limited to the strategic rationale of funding the acquisition and providing working capital capacity.
Risks and Contingencies
- Covenant Compliance: The new Credit Agreement imposes strict financial covenants, including limits on leverage and requirements for fixed charge coverage. Failure to meet these could trigger an event of default.
- Debt Obligations: The transaction significantly increases leverage, with mandatory prepayment requirements tied to asset dispositions, equity issuances, and capital contributions.
- Collateral: The new debt is secured by a first priority lien on substantially all tangible and intangible personal property of DBM and its subsidiaries, as well as ten parcels of real estate.
- Pro Forma Data: Pro forma financial information and financial statements for the acquired business are not yet available and will be filed within 71 calendar days.
Investor Verification Checklist
- Verify the final purchase price of Banker Steel after working capital and post-closing adjustments.
- Review the upcoming 71-day filing for pro forma financial information to assess the impact of the acquisition on HC2's leverage ratios.
- Monitor the company's ability to maintain the Fixed Charge Coverage Ratio of 1.20 to 1.00 and the Senior Funded Indebtedness to EBITDA Ratio below 2.50 to 1.0.
- Confirm the integration progress of Banker Steel's six operating companies and the retention of key management, including CEO Don Banker.
- Assess the impact of the $49.6 million in subordinated sellers' notes on future cash flow requirements, particularly the balloon payment on the 8.0% note.