Business Context and Reporting Period
This Form 8-K, filed by Fortive Corporation on September 30, 2020, reports events occurring on September 29, 2020. The filing details a material definitive agreement entered into by Vontier Corporation, a wholly-owned subsidiary of Fortive, to establish new credit facilities in preparation for the proposed separation of Vontier from Fortive.
Key Financial Metrics and Debt Structure
The filing establishes a new credit facility structure for Vontier with a total potential capacity of $2.55 billion. No funds were borrowed at the closing of the agreement.
- Three-Year Term Loans: $800 million senior unsecured delayed draw term loan facility.
- Two-Year Term Loans: $1 billion senior unsecured delayed draw term loan facility.
- Revolving Credit Facility: $750 million senior unsecured multi-currency revolving credit facility (includes $25 million swingline sublimit and $75 million letter of credit sublimit).
- Expansion Option: Vontier may request increases to the Revolving Credit Facility of up to an additional $250 million.
- Interest Rates: Variable rates based on Eurocurrency or Base Rate plus margins ranging from 25 to 200 basis points, dependent on leverage ratios or credit ratings.
- Fees: Facility fees and ticking fees range from 12.5 to 32.5 basis points per annum.
Material Changes and Covenants
The primary material change is the creation of these debt obligations, which are contingent upon the consummation of the Separation. The Credit Agreement imposes strict financial covenants on Vontier:
- Consolidated Leverage Ratio: Must be maintained at 3.75 to 1.00 or less. This may be temporarily increased to 4.25 to 1.00 for up to two instances in connection with permitted acquisitions of $100 million or more.
- Consolidated Interest Coverage Ratio: Must be maintained at at least 3.50 to 1.00.
- Testing Period: Ratios will be tested at the end of each fiscal quarter, commencing with the quarter ending December 31, 2020.
Outlook, Management Commentary, and Risks
Vontier intends to use the net proceeds from the Term Loans to fund a cash distribution to Fortive as partial consideration for the transfer of Fortive's Industrial Technologies business assets and liabilities. The Revolving Credit Facility and remaining Term Loan proceeds are designated for ongoing working capital requirements and general corporate purposes post-separation.
Risks and Contingencies:
- Borrowing is subject to the prior or substantially current consummation of the Separation.
- The agreement contains customary negative covenants restricting liens, indebtedness, mergers, asset sales, dividends, and affiliate transactions.
- Events of default could result in the immediate acceleration of all outstanding obligations.
Investor Verification Checklist
- Verify the status and expected timeline of the proposed Separation of Vontier from Fortive.
- Confirm the specific interest rate margins applicable based on Vontier's current leverage ratio or credit rating status.
- Review the detailed terms of the "permitted acquisition" covenant that allows for a temporary increase in the leverage ratio cap.
- Monitor the first covenant test date scheduled for the fiscal quarter ending December 31, 2020.
- Assess the impact of the cash distribution to Fortive on Vontier's immediate liquidity position post-separation.