Business Context and Reporting Period
Blue Bird Corporation (the "Company") filed a Form 8-K on December 15, 2016, reporting events occurring on December 12, 2016. The filing details the entry into a new material definitive credit agreement to refinance existing indebtedness and fund transaction costs.
Key Financial Metrics and Debt Structure
The Company established a new credit facility with the following components:
- Term Loan Facility: $160.0 million initial principal amount.
- Revolving Credit Facility: $75.0 million aggregate commitments, including a $15.0 million letter of credit sub-facility and a $5.0 million swingline sub-facility.
- Incremental Facility: Up to $75.0 million in additional term loans or revolving commitments may be incurred subject to limitations (non-committed).
- Maturity Date: December 12, 2021 (5-year term).
- Collateral: Secured by a lien on substantially all assets of the Parents and the Borrower.
Interest Rates:
- Initial Period (until April 1, 2017): Base rate + 1.00% or LIBOR (1.00% floor) + 2.00%.
- Subsequent Period: Pricing tiers based on Total Net Leverage Ratio, ranging from Base rate + 0.75% to 1.50% and LIBOR + 1.75% to 2.50%.
Repayment Terms:
- Quarterly principal payments on the Term Loan: $2.0 million (2017 Q2–2020 Q1), $3.0 million (2020 Q2–2021 Q1), and $4.0 million (2021 Q2–2021 Q4).
- Mandatory prepayments required from asset dispositions, certain debt incurrences, and annual excess cash flow.
Material Changes and Covenants
The new agreement replaces certain existing indebtedness. The filing outlines strict financial maintenance covenants and restrictions:
- Total Net Leverage Ratio Cap:
- 4.00:1.00 (Closing Date through 2017 Q3).
- 3.75:1.00 (2017 Q4 through 2019 Q1).
- 3.50:1.00 (2019 Q2 and thereafter).
- Actual Leverage: As of December 12, 2016, the Total Net Leverage Ratio was 1.7:1.00.
- Restricted Payments: Dividends and distributions are permitted only if specific leverage ratios are met (e.g., maintaining a ratio 0.25x below the covenant requirement or not exceeding 2.75:1.00) and if the Company maintains at least $5.0 million in unrestricted cash plus revolver availability.
- Negative Covenants: Limitations on liens, asset dispositions, mergers, additional indebtedness, affiliate transactions, and change of control.
Outlook, Risks, and Contingencies
The filing identifies customary events of default, including failure to pay obligations, insolvency, defaults under other material debt, judgments, failure to comply with financial covenants, and change of control. The Company's ability to make restricted payments is contingent upon maintaining specific liquidity levels and leverage ratios. The filing does not provide specific revenue, profit, or cash flow projections beyond the covenant definitions.
Investor Verification Checklist
- Verify the exact amount of existing indebtedness repaid using the proceeds of the new $160.0 million term loan.
- Confirm the Company's current Total Net Leverage Ratio against the 4.00:1.00 covenant threshold for the initial period.
- Review the definition of "Total Net Leverage Ratio" and "EBITDA" in the Credit Agreement to understand add-backs not reflected in standard SEC reports.
- Assess the impact of mandatory prepayment clauses based on "annual excess cash flow" on future liquidity.
- Monitor the $5.0 million minimum liquidity requirement (Unrestricted Cash + Revolver Availability) required to authorize dividends or restricted payments.