Business Context and Reporting Period
Smart Sand, Inc. (SND) filed this Form 8-K on December 16, 2019, reporting material events occurring on December 13, 2019. The company, an emerging growth company incorporated in Delaware, operates mining and processing facilities, including a key site in Oakdale, Wisconsin.
Key Financial Metrics and Agreements
- Equipment Financing (Sale-Leaseback): Entered into a Master Lease Agreement (MLA) with Nexseer Capital for substantially all equipment at the Oakdale facility.
- Total consideration received: $23.0 million.
- Term: Matures December 13, 2024.
- Use of Proceeds: Primarily to repay existing credit facility borrowings in full; remainder for general working capital.
- Security: Lien on substantially all other assets of the Lessees, subordinated to the new ABL Credit Facility.
- New ABL Credit Facility: Established a five-year senior secured asset-based revolving credit facility.
- Aggregate principal amount: Up to $20.0 million.
- Initial borrowing base: $19.8 million available (unfunded at issuance).
- Interest Rates: LIBOR + 2.00% or Alternate Base Rate (ABR) + 1.00%.
- Collateral: First-priority security interest in assets (excluding Oakdale Assets); second-priority security interest in Oakdale Assets.
- Covenants: Includes a minimum fixed charge coverage ratio of 1.0 to 1.0 in certain circumstances.
Material Changes Versus Prior Period
The company terminated its prior senior secured revolving credit facility (dated December 8, 2016), which had a maturity date of June 30, 2020 and a capacity of up to $52.5 million. This facility was fully repaid using proceeds from the new equipment financing transaction.
Outlook, Risks, and Contingencies
- Debt Structure: The company has restructured its debt to include a sale-leaseback arrangement for equipment and a new, smaller revolving credit facility secured by inventory and accounts receivable.
- Covenants: The new ABL Credit Facility imposes restrictions on incurring additional liens, indebtedness, restricted payments, mergers, and asset dispositions.
- Future Obligations: The MLA provides the right to purchase equipment during months 7 through 54 at a percentage of the purchase price, or at fair market value at the end of the term.
Investor Verification Checklist
- Verify the exact amount of the "Prior Credit Facility" repaid versus the portion of the $23.0 million proceeds allocated to general working capital.
- Review the specific terms of the "percentage of the purchase price" for the early buyout option under the Master Lease Agreement.
- Confirm the current borrowing base availability under the new ABL facility, as it is subject to reserves on inventory and accounts receivable.
- Examine the subordination agreement details regarding the lien on the Oakdale Assets versus the new ABL facility.