Business Context and Reporting Period
Company: Babcock & Wilcox Enterprises, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: April 5, 2019
Context: The Company entered into Amendment No. 16 to its Credit Agreement and a Letter Agreement regarding equitization transactions to address liquidity needs, specifically to fund settlement agreements for European Völund loss projects and working capital.
Key Financial Metrics and Capital Structure
- New Debt Commitments: $150.0 million in additional Tranche A-3 last out term loans from B. Riley FBR, Inc.
- Incremental Facility: Up to $15.0 million uncommitted facility.
- Interest Rates (Last Out Term Loans):
- Standard: 7.5% cash + 8% payable in kind (PIK).
- Prepayment Period (if Rights Offering completed within 6 months): 12% cash.
- Failure to Complete Rights Offering: 7.5% cash + 10.5% PIK.
- Original Issue Discount: 3.2% of gross cash proceeds for Tranche A-3 loans.
- Liquidity Covenant: Minimum liquidity requirement reduced from $40.0 million to $30.0 million.
- Maturity Date: Extended to December 31, 2020 for all last out term loans.
- Loss Basket: Reset to $10.0 million for certain Völund contracts.
Material Changes and Agreements
The filing details significant changes to the Company's capital structure and governance:
- Equitization Transactions: A Letter Agreement was signed to effect:
- Rights Offering: $50.0 million offering at $0.30 per share to prepay Tranche A-3 loans.
- Debt Exchange: Exchange of Tranche A-1 loans for common stock at $0.30 per share.
- Warrant Issuance: 16,667,667 warrants issued to B. Riley at $0.01 exercise price.
- Backstop: B. Riley committed to backstop unsubscribed shares in the Rights Offering.
- Corporate Actions: Proposed 1:10 reverse stock split and increase in authorized shares to 500.0 million, subject to shareholder approval.
- Governance Changes: B. Riley and Vintage Capital Management LLC (significant stockholders) will negotiate rights to nominate up to three directors each and receive pre-emptive rights on future equity issuances.
- Covenant Modifications: EBITDA definition modified to include addbacks for Völund losses and amendment fees; interest coverage and leverage ratio requirements changed.
Outlook, Risks, and Contingencies
- Shareholder Approval: The Rights Offering, Debt Exchange, Warrant Issuance, reverse stock split, and governance changes are contingent upon shareholder approval at the 2019 Annual Meeting.
- Going Concern: Forward-looking statements highlight risks regarding the Company's ability to continue as a going concern and obtain sufficient financing.
- Regulatory and Operational Risks: Risks include failure to obtain regulatory approvals, cancellations of backlog, inability to perform contracts on budget, and limitations on net operating loss carryforwards due to ownership changes.
- Event of Default: A new event of default was created for failure to terminate the existing revolving credit facility by March 15, 2020.
Investor Verification Checklist
- Verify the outcome of the shareholder vote at the 2019 Annual Meeting regarding the Equitization Transactions and reverse stock split.
- Confirm the subscription levels of the $50.0 million Rights Offering and whether B. Riley exercised its backstop commitment.
- Monitor the Company's ability to meet the new minimum liquidity requirement of $30.0 million.
- Review the impact of the 3.2% original issue discount and high interest rates (up to 12% cash or 18.5% total with PIK) on future cash flow.
- Assess the progress of the Völund project settlements and the utilization of the new loss basket.