Mayville Engineering Company, Inc. current report, 30 June 2020

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Business Context and Reporting Period

Mayville Engineering Company, Inc. filed a Current Report on Form 8-K dated June 30, 2020. The filing reports entry into the Second Amendment to the Company’s amended and restated credit agreement dated September 26, 2019.

Financial Metrics and Liquidity

The filing does not provide revenue, profit, cash flow, margin, debt balance, liquidity, or other operating-financial metrics. It indicates that the Company obtained temporary relief from its Consolidated Total Leverage Ratio covenant.

Material Changes Versus the Prior Comparable Period

  • From June 30, 2020 through December 31, 2021, or an earlier elected date, the leverage covenant ceiling will be temporarily increased.
  • The ceiling is 4.25 to 1 for quarters ending June 30, 2020 through December 31, 2020, declining in quarterly increments to 3.25 to 1 for the quarter ending December 31, 2021.
  • During the relief period, LIBOR borrowing margins may increase to 2.75%, base-rate margins will increase correspondingly, and the quarterly commitment fee will range from 0.20% to 0.50%, depending on leverage.
  • A 0.75% LIBOR floor was added.

Guidance, Outlook, Risks, Contingencies, and Unusual Items

  • Dividends and share repurchases are limited to an aggregate of $10 million during the covenant relief period.
  • Acquisitions are prohibited during the covenant relief period.
  • Capital expenditures are limited to $20 million in any fiscal year, subject to proration if the relief period ends during a fiscal year.
  • The amendment provides financial flexibility but increases borrowing costs and restricts capital allocation and investment activities.
  • The filing does not provide management earnings guidance or a broader operating outlook.

Important Facts for Investors to Verify

  1. Review the complete Second Amendment filed as Exhibit 10 for all covenant definitions, conditions, events of default, and lender rights.
  2. Verify the Company’s actual Consolidated Total Leverage Ratio and compliance with the stepped covenant limits in subsequent filings.
  3. Assess borrowing costs, liquidity, and debt maturities in subsequent financial statements.
  4. Monitor compliance with the $10 million distribution limit, acquisition prohibition, and capital expenditure cap.
  5. Determine whether the Company elects to end the covenant relief period before December 31, 2021.