Science Applications International Corp current report, 13 March 2020

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Business Context and Reporting Period

Company: Science Applications International Corporation (SAIC)
Filing Type: Form 8-K (Current Report)
Date of Report: March 13, 2020
Event: Completion of the acquisition of Unisys Federal, an operating unit of Unisys Corporation, providing infrastructure modernization, cloud migration, and managed services to U.S. federal agencies and the Department of Defense.

Key Financial Metrics and Transaction Details

Acquisition Consideration: Approximately $1.2 billion in cash, subject to a post-closing true-up.
Financing Structure:

  • Term Loan B2: $600 million senior secured term loan (borrowed in full, subject to a $6.0 million original issue discount).
  • Senior Notes: $400 million aggregate principal amount of 4.875% Senior Notes due 2028 (net proceeds approximately $393.6 million).
  • Other Sources: Cash on balance sheet and proceeds from the sale of receivables under a factoring facility.
Debt Terms:
  • Term Loan B2: Variable interest rate (LIBOR + 2.25% or Base Rate + 1.25%); matures March 13, 2027; quarterly amortization of 0.25% beginning April 30, 2020.
  • Existing Tranche B Loans: Applicable margin increased to 1.875% (LIBOR) and 0.875% (Base Rate) due to "most favored nation" clause.
  • Senior Notes: Senior unsecured obligations; redeemable prior to April 1, 2023, with a make-whole premium; subject to change of control repurchase offer at 101% of principal.
Liquidity and Cash Flow: The filing does not provide specific pre-transaction liquidity balances or cash flow metrics for the reporting period, noting only that cash on hand and receivable sales were utilized to fund the remainder of the purchase price.

Material Changes Versus Prior Period

Balance Sheet Impact: Significant increase in debt obligations due to the new $600 million Term Loan B2 and $400 million Senior Notes. The company assumed certain liabilities of the acquired business.
Operational Change: Expansion of capabilities in federal IT services through the addition of Unisys Federal.
Credit Agreement Amendment: Entered into a Second Amendment to the Credit Agreement to establish the Term Loan B2 facility and adjust margins on existing loans.

Guidance, Outlook, Risks, and Contingencies

Management Commentary: The acquisition was funded through a mix of new debt, existing cash, and receivable sales. Net proceeds from the Notes and Term Loan were used for the acquisition and fees, with any balance retained for general corporate purposes.
Risks and Covenants:

  • Debt Covenants: The Indenture limits the ability to incur additional indebtedness, pay dividends, repurchase stock, or make certain investments and asset dispositions.
  • Prepayment Fees: A 1.00% fee applies if the Term Loan B2 is repaid prior to September 13, 2020, using proceeds from certain new indebtedness.
  • Events of Default: Include nonpayment, bankruptcy, and breach of agreements.
Unusual Items: The aggregate purchase price is subject to a further true-up after closing.
Future Filings: Financial statements of the acquired business and pro forma financial information will be filed within 71 calendar days of this report.

Investor Verification Checklist

  • Verify the final purchase price after the post-closing true-up adjustment.
  • Review the upcoming pro forma financial information (due within 71 days) to assess the impact of the new debt load on leverage ratios.
  • Confirm the specific liabilities assumed from Unisys Federal once the financial statements of the acquired business are filed.
  • Monitor compliance with the new debt covenants, particularly restrictions on dividends and additional indebtedness.
  • Assess the integration timeline and expected revenue contribution of Unisys Federal to SAIC's federal portfolio.