Virtu Financial, Inc. current report, 01 March 2019

Business Context and Reporting Period

Company: Virtu Financial, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: March 1, 2019
Event: Completion of the acquisition of Investment Technology Group, Inc. ("ITG") and entry into a new Credit Agreement.

Key Financial Metrics and Debt Structure

This filing details a significant refinancing and acquisition financing event rather than standard operating results. Key financial terms include:

  • Acquisition Consideration: ITG shareholders received $30.30 per share in cash.
  • New Term Loan: $1.5 billion senior secured first lien term loan drawn in full on the Closing Date.
    • $404.5 million used to repay existing term loan facilities.
    • $1,095 million used to finance acquisition consideration and fees.
  • Revolving Facility: $50.0 million senior secured first lien revolving facility (includes $5.0 million letter of credit and $5.0 million swingline subfacilities).
  • Interest Rates:
    • Base Rate: Prime, Federal Funds + 0.5%, or Adjusted LIBOR + 1.0% (plus 1.00% floor), plus a margin of 2.50% (stepdown to 2.25% based on leverage).
    • Adjusted LIBOR: Adjusted LIBOR (plus 0% floor), plus a margin of 3.50% (stepdown to 3.25% based on leverage).
  • Commitment Fee: 0.50% per annum on unused revolving amounts (stepdowns to 0.375% and 0.25%).
  • Amortization: Term loans amortize at 1.0% of the original aggregate principal amount annually.

Material Changes Versus Prior Period

  • Termination of Prior Debt: The Fourth Amended and Restated Credit Agreement (dated June 30, 2017) was terminated on the Closing Date.
  • Capital Structure Change: The company assumed obligations of the Acquisition Borrower, consolidating debt under the new Credit Agreement.
  • Acquisition Completion: ITG shares were cancelled and converted to cash, finalizing the merger announced in November 2018.

Outlook, Risks, and Contingencies

Maturity Dates and Springing Provisions:

  • Term Loans: Mature on the seventh anniversary of the Closing Date (March 2026). However, a "term springing maturity date" applies if at least $400.0 million of the existing 6.750% second lien notes due 2022 are not repaid or refinanced 91 days prior to the notes' maturity.
  • Revolving Facility: Terminates on the third anniversary of the Closing Date (March 2022). A "revolving springing maturity date" applies if the repayment requirement for the second lien notes is not met 182 days prior to the notes' maturity.

Covenants and Obligations:

  • Leverage Ratio: The revolving facility is subject to a springing net first lien leverage ratio based on usage. Interest margins and commitment fees step down based on the first lien leverage ratio.
  • Contingent Payments: Borrower is subject to contingent principal payments based on excess cash flow and other triggering events.
  • Collateral: Borrowings are secured by substantially all assets of the Borrower and guarantors (Virtu Financial and material non-regulated restricted subsidiaries).

Financial Results: The filing text does not provide revenue, profit, cash flow, or margin data for the reporting period.

Investor Verification Checklist

  • Verify the status of the $400.0 million repayment requirement for the 6.750% second lien notes due 2022 to determine if springing maturity dates will be triggered.
  • Review the full text of the Credit Agreement (to be filed in the next Form 10-Q) for detailed covenant definitions and exceptions.
  • Assess the impact of the $1.5 billion term loan and $50 million revolver on the company's overall leverage ratio and interest coverage.
  • Confirm the integration progress of ITG and the realization of synergies mentioned in the November 2018 Merger Agreement.