Business Context and Reporting Period
This Form 8-K Current Report, dated October 1, 2018, details a material definitive agreement entered into by ExlService Holdings, Inc. The primary event is the issuance of convertible senior notes to an affiliate of The Orogen Group LLC, with the transaction closing on October 4, 2018.
Key Financial Metrics and Transaction Details
- Debt Issuance: $150,000,000 aggregate principal amount of 3.50% Convertible Senior Notes due October 1, 2024.
- Interest Rate: 3.50% per annum, payable semi-annually in arrears (first payment April 1, 2019).
- Conversion Terms: Initial conversion rate of 13.3333 shares of Common Stock per $1,000 principal amount (approximate conversion price of $75 per share).
- Settlement: The Company may settle conversions in cash, shares of Common Stock, or a combination thereof at its election.
- Seniority: Notes are senior unsecured obligations, ranking equal to existing senior unsecured indebtedness.
- Liquidity Impact: The filing does not provide specific cash flow or liquidity metrics resulting from the transaction, though the issuance represents a significant capital raise.
Material Changes and Governance
- Board Expansion: The Board of Directors increased from nine to ten members.
- New Director: Vikram S. Pandit, designated by the Purchaser, was appointed as a Class III director effective October 4, 2018.
- Standstill Agreement: The Purchaser agreed to a standstill prohibiting certain actions (e.g., acquiring more than 20% ownership, making tender offers) until the later of the removal of the Orogen-affiliated director or the two-year anniversary of the closing.
- Transfer Restrictions: The Purchaser is restricted from transferring the Notes or underlying shares for a period ending on the earlier of two years post-closing or a change of control.
- Credit Agreement Amendment: The Company amended its existing Credit Agreement to permit the issuance of the Notes.
Guidance, Risks, and Contingencies
- Redemption Rights: The Company may redeem the Notes in whole (not in part) on or after October 1, 2021, if the Common Stock closing price exceeds 150% of the conversion price for 20 of 30 consecutive trading days.
- Make-Whole Provisions: Conversion rates may increase upon a "Make-Whole Fundamental Change," such as a sale of substantially all assets or a change of control.
- Preemptive Rights: The Purchaser has the right to purchase up to its pro rata share of any future equity issuances by the Company.
- Registration Rights: The Company must file a shelf registration statement for the public resale of the Notes and convertible shares by February 1, 2019.
- Risk of Default: Events of default allow for the acceleration of the entire principal and accrued interest.
Investor Verification Checklist
- Verify the exact closing date and receipt of proceeds ($150 million) in subsequent financial statements.
- Confirm the impact of the new debt on the Company's leverage ratios and debt covenants under the amended Credit Agreement.
- Monitor the Company's stock price relative to the $75 conversion price to assess potential dilution or redemption triggers.
- Review the full text of the Investment Agreement (Exhibit 10.1) and Indenture (Exhibit 4.1) for specific definitions of "Fundamental Change" and "Make-Whole" adjustments.
- Track the filing of the shelf registration statement by the February 1, 2019 deadline.