Business Context and Reporting Period
This Form 8-K, filed on August 28, 2014, reports events occurring on August 22, 2014, for WEX Inc. The filing details the entry into material definitive agreements to modify existing bank borrowing arrangements. These modifications were executed to facilitate additional financings and investments required for the consummation of the acquisition of the Esso Card Business, pursuant to an agreement dated July 10, 2014.
Key Financial Metrics and Debt Structure
The filing outlines a significant restructuring of the Company's credit facilities under a Second Amended and Restated Credit Agreement:
- Term Loan Facility: Increased from $277.5 million to $500 million, maturing on January 31, 2018. This includes a new tranche of $222.5 million.
- Revolving Credit Facility: Maintained at $700 million, terminating on January 31, 2018. This includes a $150 million sublimit for letters of credit and a $20 million sublimit for swingline loans.
- Interest Rates: Variable rates based on the Eurocurrency Rate or Federal Funds/Prime Rate plus a margin ranging from 1.25% to 2.75% (or 0.25% to 1.75% for base rates), dependent on the leverage ratio.
- Commitment Fees: Quarterly fees on the unused portion of the facility ranging from 0.20% to 0.45% per annum.
- Collateral: Obligations are secured by a pledge of 65% of the stock of Card Holdings Australia and 65% of partnership interests in Wright Express Holdings 4, LP.
Material Changes Versus Prior Period
The primary material change is the amendment and restatement of the First Amended Credit Agreement (dated January 18, 2013). Key changes include:
- Expansion of the term loan capacity by $222.5 million.
- Addition of Wright Express International Holdings Limited as a designated borrower.
- Modification of negative covenants to permit restricted payments and acquisitions under specific conditions.
- Execution of new guaranty and pledge agreements by the Company and its subsidiaries.
Guidance, Covenants, and Risks
The Credit Agreement imposes strict financial covenants and limitations on corporate actions:
- Financial Covenants:
- Consolidated EBIT to consolidated interest charges ratio must be no less than 3.00 to 1.00.
- Consolidated funded indebtedness to consolidated EBITDA ratio must be no more than 3.25 to 1.00 (measured quarterly).
- Note: The indebtedness-to-EBITDA ratio may be temporarily increased to 3.75 to 1.00 (for four quarters) or 4.25 to 1.00 (for two quarters) in connection with certain acquisitions.
- Restricted Payments: The Company is generally restricted from making dividends or other distributions unless it maintains a pro forma leverage ratio below 2.50:1.00, or makes cash dividends up to $50 million annually while remaining in pro forma compliance with financial ratios.
- Events of Default: Include non-payment, covenant violations, cross-defaults, bankruptcy, and specific regulatory enforcement actions against WEX Bank.
The filing does not provide specific revenue, profit, or cash flow figures for the reporting period, as this is a current report regarding a specific transaction rather than a periodic financial statement.
Investor Verification Checklist
- Verify the pro forma impact of the $222.5 million new term loan tranche on the Company's leverage ratios.
- Confirm the status of the Esso Card Business acquisition and whether the financing conditions have been fully satisfied.
- Review the specific terms of the "restricted payments" covenant to understand limitations on future dividend payouts.
- Assess the risk of default given the requirement to maintain an EBIT-to-interest ratio of at least 3.00:1.00.
- Monitor the utilization of the $700 million revolving credit facility and the associated commitment fees.