Paycom Software, Inc. - Form 8-K Summary
Business Context and Reporting Period
Paycom Software, Inc. filed this Current Report on Form 8-K on December 7, 2017, to disclose the entry into a new senior secured term credit agreement and the termination of existing credit facilities. The filing was signed by the Chief Financial Officer on December 12, 2017.
Key Financial Metrics and Debt Structure
- New Credit Facility: A senior secured term credit agreement with an aggregate principal amount of $60.0 million.
- Disbursed Amount: Term loans made on the Effective Date totaled $35.5 million (calculated as $60.0 million total capacity minus $24.5 million remaining capacity).
- Refinanced Debt: The Company terminated three prior credit agreements with an aggregate outstanding principal and accrued interest of approximately $57.6 million.
- Remaining Capacity: $24.5 million available for future drawdowns under the new agreement.
- Maturity Date: September 7, 2025.
- Interest Rates: Prime rate plus 1.0% or adjusted LIBO rate plus 1.5%.
- Collateral: Secured by a mortgage and first priority security interest in the Company's headquarters property.
Material Changes Versus Prior Period
The Company replaced three existing credit agreements with Kirkpatrick Bank (dated 2011, 2015, and 2016) with a single new agreement involving JPMorgan Chase Bank, N.A., Bank of America, N.A., and Kirkpatrick Bank. This transaction refinanced existing indebtedness and established a new borrowing structure with a maturity date extending to 2025.
Guidance, Covenants, and Risks
- Financial Covenants: The agreement requires maintaining a fixed charge coverage ratio of not less than 1.5 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0.
- Use of Proceeds: Initial proceeds were used to refinance existing debt. Future proceeds may finance construction costs for a building on the mortgaged property, including landscaping and groundwork.
- Restrictive Covenants: The agreement limits the ability to grant liens, incur additional debt, effect mergers, make investments, dispose of assets, or pay dividends, subject to customary exceptions.
- Events of Default: Include payment defaults, breaches of covenants, cross-defaults, bankruptcy, and change in control. Consequences may include acceleration of obligations, termination of commitments, and a 2.0% interest rate increase.
Investor Verification Checklist
- Verify the Company's current fixed charge coverage ratio and funded indebtedness to EBITDA ratio to ensure compliance with the new 1.5x and 2.0x covenants.
- Confirm the status of the construction project on the mortgaged property and the timeline for utilizing the remaining $24.5 million borrowing capacity.
- Review the specific terms of the prepayment penalties paid to terminate the prior Kirkpatrick Bank agreements.
- Assess the impact of the new debt structure on the Company's liquidity and future dividend policy given the new restrictions.