Business Context and Reporting Period
Company: Rayonier Advanced Materials Inc. (RYAM)
Filing Type: Form 8-K (Current Report)
Date of Report: June 5, 2020
Event: Entry into a Second Amendment to the Amended and Restated Credit Agreement dated November 17, 2017.
Key Financial Metrics and Debt Structure
This filing details amendments to the Company's senior secured credit facilities rather than reporting operational financial results (revenue, profit, or cash flow). Key debt-related metrics established by the amendment include:
- Leverage Ratio: Switched from a net leverage ratio to a first lien secured gross leverage ratio. The permitted ratio varies by fiscal quarter:
- 2020: 6.65:1.00 to 5.75:1.00
- 2021: 6.25:1.00 to 4.25:1.00
- Q1 2022: 3.50:1.00
- Thereafter: 3.25:1.00
- Interest Coverage Ratio: Permitted to range between 1.40:1.00 and 1.75:1.00 in 2020, 2.10:1.00 and 1.55:1.00 in 2021, 2.70:1.00 in Q1 2022, and 3.00:1.00 thereafter.
- Liquidity Access: From April 1, 2020, the Company may utilize up to $140 million of commitments under the USD Revolving Facility and multicurrency revolving credit facility, subject to conditions.
- Cash Sweep Requirement: The Company must prepay the Revolving Facility with cash and permitted investments held in excess of $60 million.
- Interest Rate Floor: A 1.00% LIBOR floor is now in effect.
- Amendment Fees: The Company paid fees equal to 0.30% of the aggregate principal amount of term loans and revolving commitments outstanding.
Note: The filing text does not provide specific values for current revenue, net income, operating cash flow, or total debt outstanding as of the report date.
Material Changes Versus Prior Period
The primary material change is the relaxation of financial covenants to provide relief during the current fiscal period. Specifically:
- Transition from a net leverage ratio test to a gross leverage ratio test.
- Significant increase in the maximum allowable leverage ratios for 2020 and 2021 compared to the previous agreement terms.
- Reduction in the minimum required interest coverage ratios for 2020 and 2021.
- Introduction of a mandatory cash sweep mechanism for excess liquidity above $60 million.
Guidance, Outlook, and Risks
Management Commentary: The Company issued a press release (Exhibit 99.1) characterizing the transaction as providing "extended financial covenant relief and additional liquidity."
Risks and Contingencies:
- Covenant Compliance: The Company must adhere to the new, albeit relaxed, leverage and coverage ratios tested quarterly on a pro forma trailing twelve-month basis.
- Liquidity Constraints: While access to up to $140 million is permitted, the requirement to prepay the facility with cash exceeding $60 million limits the ability to hoard excess liquidity.
- Interest Rate Risk: The implementation of a 1.00% LIBOR floor may increase borrowing costs if market rates fall below this threshold.
Investor Verification Checklist
- Verify the Company's current pro forma trailing twelve-month EBITDA to assess compliance with the new gross leverage ratio caps.
- Confirm the current cash balance and permitted investments to determine if the $60 million threshold triggers a mandatory prepayment.
- Review the specific conditions attached to the utilization of the $140 million in revolving credit commitments.
- Examine the impact of the 1.00% LIBOR floor on future interest expense projections.
- Check subsequent filings for any further amendments or covenant waivers.