Business Context and Reporting Period
This Form 8-K, filed on October 27, 2015, by Greatbatch, Inc. (noting the metadata reference to Integer Holdings Corp is inconsistent with the filing text), reports the completion of the acquisition of Lake Region Medical Holdings, Inc. ("Lake Region"). The transaction was finalized on October 27, 2015, pursuant to an Agreement and Plan of Merger dated August 27, 2015. Lake Region continues as an indirect wholly-owned subsidiary of Greatbatch.
Key Financial Metrics and Capital Structure
The filing details significant new debt obligations and equity issuance to fund the acquisition and refinance existing debt. No operating revenue, profit, or cash flow metrics for the reporting period are provided in this current report.
- Acquisition Consideration: Approximately $462 million in cash and 4.98 million newly issued shares of Greatbatch common stock.
- Debt Repayment: Approximately $1.0 billion of Lake Region's outstanding funded indebtedness was paid off.
- Senior Secured Credit Facilities:
- Term Loan A (TLA): $375 million, maturing October 27, 2021.
- Term Loan B (TLB): $1,025 million, maturing October 27, 2022.
- Revolving Credit Facility: $200 million, maturing October 27, 2020 (no amounts drawn at closing).
- Senior Notes: $360 million aggregate principal amount of 9.125% Senior Notes due 2023.
- Equity Compensation: Issuance of 119,900 replacement options and approximately $16.3 million paid to cash out other in-the-money equity awards.
Material Changes Versus Prior Period
The primary material change is the consolidation of Lake Region into Greatbatch, significantly altering the company's asset base and capital structure. Concurrent with the new financing, Greatbatch Ltd. terminated its Second Amended and Restated Credit Agreement dated September 20, 2013, and repaid all outstanding borrowings thereunder in full. The company's leverage profile has shifted to accommodate the new Term Loan Facilities and Senior Notes.
Guidance, Outlook, Risks, and Covenants
The filing does not provide forward-looking revenue or earnings guidance. However, it outlines strict financial covenants and risks associated with the new debt instruments:
- Financial Covenants: The Revolving Credit Facility and TLA Facility require a maximum total net leverage ratio of 6.50:1.00 (subject to step-downs) and a minimum interest coverage ratio of 3.00:1.00. The TLB Facility has no financial maintenance covenants.
- Restrictive Covenants: The new credit agreement and indenture restrict the company's ability to incur additional indebtedness, create liens, pay dividends, repurchase stock, or make certain investments without meeting specific conditions.
- Stockholder Restrictions: A Stockholders Agreement with KKR and Bain Capital restricts the transfer of shares by these stockholders for six months post-closing and limits their ability to acquire additional shares.
- Events of Default: Includes nonpayment, breach of covenants, and change of control, which could trigger acceleration of debt.
Investor Verification Checklist
- Verify the pro forma financial statements (revenue, EBITDA, leverage ratios) to be filed within 71 days to assess the combined entity's financial health.
- Confirm the actual interest rates applicable post-closing, as initial margins are subject to adjustment based on the first full fiscal quarter's compliance certificate.
- Review the detailed amortization schedule for the Term Loan A and B facilities to understand future cash flow obligations.
- Monitor the company's ability to meet the 6.50:1.00 net leverage ratio covenant immediately following the acquisition.
- Check for any subsequent filings regarding the $16.3 million cash-out of Lake Region equity awards and its impact on short-term liquidity.