Business Context and Reporting Period
BellRing Brands, Inc. filed this Form 8-K on October 21, 2019, reporting the closing of its initial public offering and related formation, financing, governance and commercial arrangements. BellRing is an emerging growth company and its Class A common stock trades on the NYSE under the symbol BRBR.
Key Financial Metrics, Financing and Liquidity
- IPO: 39,428,571 shares of Class A common stock were sold at $14.00 per share, including the underwriters’ full overallotment exercise.
- IPO proceeds: Approximately $516.4 million of net proceeds were received after underwriting discounts, commissions and offering expenses. The proceeds were contributed to BellRing Brands, LLC in exchange for LLC units.
- Debt assumed and repaid: BellRing Brands, LLC assumed a $1.225 billion Post bridge facility and used financing proceeds and IPO proceeds to repay the bridge loan in full, including accrued interest.
- New term debt: A $700.0 million Term B Facility was fully drawn on October 21, 2019. It bears interest at either the Eurodollar rate plus 5.00% or the applicable base rate plus 4.00%.
- Revolving facility: BellRing borrowed $100.0 million under a $200.0 million revolving credit facility. Letters of credit may be issued up to an aggregate $20.0 million.
- Debt maturity and amortization: The Term B and revolving facilities mature on October 21, 2024. The Term B Facility requires quarterly amortization of $8.75 million beginning March 31, 2020, with the remaining balance due at maturity.
- Collateral and guarantees: The debt is guaranteed by specified domestic subsidiaries and secured by substantially all assets of BellRing and its subsidiary guarantors, excluding real property.
- Operating metrics: The filing does not provide revenue, net income, cash flow, operating margins or a period-end cash balance.
Material Changes Versus the Prior Comparable Period
- The filing reflects BellRing’s transition to a separately public company through the IPO and the establishment of BellRing Brands, LLC as the operating subsidiary.
- BellRing replaced the Post bridge financing with the $700.0 million Term B Facility and $200.0 million revolving facility, of which $100.0 million was drawn at closing.
- Post retained the net cash proceeds of the bridge loan, while BellRing used the IPO and new debt proceeds to fund repayment, transaction costs, reimbursement of pre-IPO cash, and any remaining general corporate and working capital needs.
- Post retained significant economic and voting influence through 97,474,180 BellRing Brands, LLC units and one share of Class B common stock. The Class B share initially represents 67% of the combined voting power while Post and its affiliates own more than 50% of the LLC units.
Agreements, Outlook, Risks and Unusual Items
- Post-related arrangements: BellRing entered into amended LLC, employee matters, investor rights, tax matters, tax receivable and master services agreements with Post.
- Tax receivable obligation: BellRing generally must pay Post 85% of cash tax savings it realizes, or is deemed to realize, under specified circumstances.
- Master services: Post will provide legal, finance, internal audit, treasury, information technology, insurance, tax, payroll, office and related services after the IPO.
- Debt covenants: The Credit Agreement includes customary restrictions and requires BellRing to maintain a total net leverage ratio not exceeding 6.00 to 1.00, measured quarterly beginning March 31, 2020.
- Mandatory prepayments: Beginning with the fiscal year ending September 30, 2020, the Term B Facility generally requires prepayment of 75% of annual excess cash flow, reducible to 50% if a specified secured net leverage threshold is met.
- Interest and refinancing risk: The facilities carry substantial variable-rate interest margins and mature in 2024. The filing provides no management earnings guidance or operating outlook.
- Governance and indemnification: The company established its initial board and entered into indemnification agreements with directors and executive officers.
- Unusual items: The IPO and related formation transactions resulted in new Class A shares, Class B voting stock, LLC units and significant related-party arrangements with Post.
Important Facts for Investors to Verify
- Review the full Credit Agreement for interest-rate mechanics, covenants, mandatory prepayments, default provisions and collateral requirements.
- Assess BellRing’s leverage and future debt-service capacity after the $700.0 million term borrowing and $100.0 million revolving draw.
- Review the Tax Receivable Agreement to understand the timing and potential magnitude of payments to Post.
- Evaluate Post’s voting control, LLC unit redemption rights, registration rights and potential future dilution to Class A shareholders.
- Review the Master Services Agreement and other Post-related agreements for fees, termination provisions and conflicts of interest.
- Confirm subsequent filings for actual operating results, cash balances, debt balances, interest expense, leverage compliance and any management guidance.