Business Context and Reporting Period
This Form 8-K Current Report, dated December 11, 2017, details a material definitive agreement and debt refinancing activities by Baker Hughes, a GE company, LLC ("BHGE LLC") and its co-obligor, Baker Hughes Co-Obligor, Inc. The filing reports the completion of a private placement of senior notes and the concurrent expiration of cash tender offers for existing debt.
Key Financial Metrics and Debt Structure
The company completed a private placement of $3.95 billion in aggregate principal amount of senior notes, structured as follows:
- 2022 Notes: $1.25 billion at 2.773% interest, maturing December 15, 2022.
- 2027 Notes: $1.35 billion at 3.337% interest, maturing December 15, 2027.
- 2047 Notes: $1.35 billion at 4.080% interest, maturing December 15, 2047.
Interest is payable semi-annually beginning June 15, 2018. The notes are senior unsecured obligations, ranking equal to existing senior indebtedness and structurally subordinated to subsidiary obligations.
Material Changes and Use of Proceeds
The primary material change is the refinancing of higher-cost debt. BHGE LLC intends to use the net proceeds from the new offering to:
- Purchase outstanding 7.50% senior notes due 2018 and 6.00% senior notes due 2018 (the "2018 Notes") via tender offers.
- Purchase up to $175 million of outstanding 8.550% debentures due 2024 and 6.875% notes due 2029.
- Redeem any remaining 2018 Notes not purchased in the tender offers.
- Pay transaction fees and expenses.
- Utilize remaining proceeds for general corporate purposes, including potential share repurchases.
On December 11, 2017, BHGE LLC announced the expiration of the tender offers for the 2018 Notes and issued notices to redeem any remaining 2018 Notes on January 10, 2018.
Guidance, Risks, and Contingencies
Registration Rights: The Issuers entered into a Registration Rights Agreement to file a registration statement for an exchange offer of the new notes for registered notes. The company must complete this exchange offer by December 11, 2018, or it will be obligated to pay additional interest.
Redemption Terms: The Issuers may redeem the notes prior to specific dates (one month prior for 2022 Notes, three months prior for 2027 Notes, six months prior for 2047 Notes) at a make-whole redemption price. After these dates, redemption is permitted at principal plus accrued interest.
Risks: The filing notes that the notes are not registered under the Securities Act and may not be offered or sold in the U.S. absent registration or an exemption. The filing does not constitute a notice of redemption for the 2018 Notes.
Investor Verification Checklist
- Verify the final amount of 2018 Notes tendered and the specific volume of debt retired versus the $3.95 billion raised.
- Confirm the timeline and status of the exchange offer registration statement required by December 11, 2018.
- Review the specific redemption notice details for the 2018 Notes scheduled for January 10, 2018.
- Assess the impact of the new interest rates (2.773% - 4.080%) on future interest expense compared to the retired 6.00% - 8.550% debt.