BELLRING BRANDS, INC. current report, 21 October 2019

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Business Context and Reporting Period

BellRing Brands, Inc. filed this Form 8-K on October 21, 2019, reporting the closing of its initial public offering and related formation, financing, governance and commercial arrangements. BellRing is an emerging growth company and its Class A common stock trades on the NYSE under the symbol BRBR.

Key Financial Metrics, Financing and Liquidity

  • IPO: 39,428,571 shares of Class A common stock were sold at $14.00 per share, including the underwriters’ full overallotment exercise.
  • IPO proceeds: Approximately $516.4 million of net proceeds were received after underwriting discounts, commissions and offering expenses. The proceeds were contributed to BellRing Brands, LLC in exchange for LLC units.
  • Debt assumed and repaid: BellRing Brands, LLC assumed a $1.225 billion Post bridge facility and used financing proceeds and IPO proceeds to repay the bridge loan in full, including accrued interest.
  • New term debt: A $700.0 million Term B Facility was fully drawn on October 21, 2019. It bears interest at either the Eurodollar rate plus 5.00% or the applicable base rate plus 4.00%.
  • Revolving facility: BellRing borrowed $100.0 million under a $200.0 million revolving credit facility. Letters of credit may be issued up to an aggregate $20.0 million.
  • Debt maturity and amortization: The Term B and revolving facilities mature on October 21, 2024. The Term B Facility requires quarterly amortization of $8.75 million beginning March 31, 2020, with the remaining balance due at maturity.
  • Collateral and guarantees: The debt is guaranteed by specified domestic subsidiaries and secured by substantially all assets of BellRing and its subsidiary guarantors, excluding real property.
  • Operating metrics: The filing does not provide revenue, net income, cash flow, operating margins or a period-end cash balance.

Material Changes Versus the Prior Comparable Period

  • The filing reflects BellRing’s transition to a separately public company through the IPO and the establishment of BellRing Brands, LLC as the operating subsidiary.
  • BellRing replaced the Post bridge financing with the $700.0 million Term B Facility and $200.0 million revolving facility, of which $100.0 million was drawn at closing.
  • Post retained the net cash proceeds of the bridge loan, while BellRing used the IPO and new debt proceeds to fund repayment, transaction costs, reimbursement of pre-IPO cash, and any remaining general corporate and working capital needs.
  • Post retained significant economic and voting influence through 97,474,180 BellRing Brands, LLC units and one share of Class B common stock. The Class B share initially represents 67% of the combined voting power while Post and its affiliates own more than 50% of the LLC units.

Agreements, Outlook, Risks and Unusual Items

  • Post-related arrangements: BellRing entered into amended LLC, employee matters, investor rights, tax matters, tax receivable and master services agreements with Post.
  • Tax receivable obligation: BellRing generally must pay Post 85% of cash tax savings it realizes, or is deemed to realize, under specified circumstances.
  • Master services: Post will provide legal, finance, internal audit, treasury, information technology, insurance, tax, payroll, office and related services after the IPO.
  • Debt covenants: The Credit Agreement includes customary restrictions and requires BellRing to maintain a total net leverage ratio not exceeding 6.00 to 1.00, measured quarterly beginning March 31, 2020.
  • Mandatory prepayments: Beginning with the fiscal year ending September 30, 2020, the Term B Facility generally requires prepayment of 75% of annual excess cash flow, reducible to 50% if a specified secured net leverage threshold is met.
  • Interest and refinancing risk: The facilities carry substantial variable-rate interest margins and mature in 2024. The filing provides no management earnings guidance or operating outlook.
  • Governance and indemnification: The company established its initial board and entered into indemnification agreements with directors and executive officers.
  • Unusual items: The IPO and related formation transactions resulted in new Class A shares, Class B voting stock, LLC units and significant related-party arrangements with Post.

Important Facts for Investors to Verify

  1. Review the full Credit Agreement for interest-rate mechanics, covenants, mandatory prepayments, default provisions and collateral requirements.
  2. Assess BellRing’s leverage and future debt-service capacity after the $700.0 million term borrowing and $100.0 million revolving draw.
  3. Review the Tax Receivable Agreement to understand the timing and potential magnitude of payments to Post.
  4. Evaluate Post’s voting control, LLC unit redemption rights, registration rights and potential future dilution to Class A shareholders.
  5. Review the Master Services Agreement and other Post-related agreements for fees, termination provisions and conflicts of interest.
  6. Confirm subsequent filings for actual operating results, cash balances, debt balances, interest expense, leverage compliance and any management guidance.