Business Context and Reporting Period
Company: Babcock & Wilcox Enterprises, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: January 31, 2020
Event: Entry into a Material Definitive Agreement (Amendment No. 20 to Credit Agreement) and a Backstop Commitment Letter.
Key Financial Metrics and Debt Structure
This filing details a restructuring of the Company's credit facilities rather than reporting standard operating results (revenue, profit, or cash flow) for a specific period. Key financial terms include:
- Amendment Fees: $3.3 million payable immediately in connection with Amendment No. 20.
- Refinancing Fees: Upon consummation of the planned refinancing, the Company must pay $7 million in amendment and deferred fees. $8.9 million of fees are waived, and $9.5 million are deferred.
- Revolving Credit Facility: Current sub-limit set at $205 million. Post-refinancing, the new facility will be limited to $195 million ($30 million for working capital; $165 million for letters of credit).
- Debt Cap: Total debt relating to the refinancing may not exceed $275 million in aggregate principal amount.
- Interest Rates (Post-Refinancing): Revolving loans at LIBOR + 5.00% or Base Rate + 4.00%; Letters of credit at 4.00%.
- Liquidity Requirement: Minimum required liquidity increased from $30 million to $40 million.
- EBITDA Definition: Modified to include add-backs for up to $5 million of business restructuring expenses (Jan 1, 2020 – Jan 1, 2022) and all restructuring-related professional fees.
Material Changes Versus Prior Period
The filing outlines significant modifications to the Company's existing Credit Agreement dated May 11, 2015:
- New Commitments: Addition of $30 million in Tranche A-4 last out term loans from B. Riley FBR, Inc.
- Covenant Adjustments: Removal of the covenant regarding corporate action milestones and deletion of covenants requiring a consultant and chief implementation officer.
- Default Provisions: Addition of a new event of default related to breaches of the Backstop Commitment Letter.
- Dividend Policy: Introduction of a provision permitting a cash dividend of up to $6 million per fiscal quarter under certain circumstances.
- Board Composition: Potential reduction of the Board of Directors to 5 members, with B. Riley retaining the right to appoint 2 members.
Guidance, Outlook, Risks, and Unusual Items
Refinancing Plan: The Company and lenders agreed to a term sheet to refinance and restate the Credit Agreement by May 11, 2020. This requires raising at least $200 million in new debt or equity. Proceeds must be used to repay existing revolving credit loans and refinance certain term loans.
Backstop Arrangement: B. Riley FBR, Inc. has entered into a Backstop Commitment Letter to fund any shortfall in the required $200 million refinancing if third-party funding is insufficient.
Risks and Contingencies:
- Going Concern: The filing explicitly lists the Company's ability to continue as a going concern as a risk factor.
- Refinancing Uncertainty: Risks include the ability to complete the refinancing on the expected timeline and terms.
- Operational Risks: Specific mention of productivity and schedule issues in the Völund & Other Renewable segment and European EPC projects.
- Asset Impairment: Risk of recognizing asset impairments due to declines in asset value or disposal efforts.
Unusual Items: The EBITDA definition modification allows for significant add-backs related to restructuring expenses, which may impact covenant compliance calculations.
Investor Verification Checklist
- Verify the Company's ability to secure the required $200 million in new financing by May 11, 2020.
- Confirm the status of the Völund & Other Renewable segment projects and associated cost overruns.
- Monitor the Company's liquidity position against the new $40 million minimum requirement.
- Review the impact of the $3.3 million immediate amendment fee and future fee obligations on cash flow.
- Assess the implications of B. Riley's increased influence on the Board of Directors and governance.