Business Context and Reporting Period
This Form 8-K Current Report, dated August 5, 2019, is filed by SunCoke Energy, Inc. (NYSE: SXC). The filing details the entry into a material definitive agreement involving the amendment and restatement of the company's credit facility and the execution of a supplemental indenture to guarantee subsidiary debt following the merger of SunCoke Energy Partners, L.P. into SunCoke Energy, Inc.
Key Financial Metrics and Debt Structure
The filing focuses on debt restructuring rather than operational performance metrics. Key financial terms include:
- Revolving Credit Facility: A new $400 million secured credit facility was established.
- Letters of Credit: A sublimit of $80 million is available within the facility.
- Maturity Date: The facility matures on August 5, 2024.
- Interest Rates:
- Adjusted Eurodollar Rate (LIBOR) plus a margin of 1.50% to 2.50%.
- Alternate Base Rate (ABR) plus a margin of 0.50% to 1.50%.
- Fees:
- Commitment fee on unused commitments: 0.175% to 0.350%.
- Letter of credit fees: 1.50% to 2.50%.
- Fronting fee: 0.125% per annum.
- Incremental Capacity: Borrowers may obtain additional loans up to $250 million or an unlimited amount if the pro forma Consolidated Net Leverage Ratio remains at or below 3.50.
Material Changes Versus Prior Period
The primary material change is the refinancing of the existing credit agreement dated May 24, 2017. The new agreement increases total revolving commitments and extends the termination date. Additionally, SunCoke Energy, Inc. entered into a First Supplemental Indenture to act as a parent company guarantor for the senior unsecured 7.50% notes due 2025 issued by its subsidiary, SunCoke Energy Partners, L.P. This change was necessitated by the June 28, 2019 merger, which eliminated the subsidiary's independent SEC reporting obligations.
Guidance, Covenants, and Risks
The filing outlines specific financial covenants and risks associated with the new debt structure:
- Financial Covenants:
- Maximum Leverage: Consolidated net funded debt to EBITDA ratio must not exceed 4.50 to 1.0.
- Minimum Coverage: EBITDA to interest expense ratio must not be less than 2.50 to 1.0.
- Testing Period: Covenants are tested for any period of four consecutive fiscal quarters, commencing with the quarter ending September 30, 2019.
- Restrictive Covenants: The agreement limits the ability to incur additional indebtedness, make distributions, prepay other debt, make investments, sell assets, incur liens, enter into affiliate transactions, or consolidate/merge.
- Use of Proceeds: Funds will be used for capital expenditures, acquisitions, working capital, distributions, repayment of other indebtedness, and general corporate purposes.
- Default Risks: An event of default allows lenders to accelerate amounts due, terminate commitments, and foreclose on collateral. Obligations are secured by liens on real and personal property in Ohio and Louisiana.
Note: The filing does not provide specific revenue, profit, cash flow, or liquidity figures for the current or prior periods.
Key Facts for Investor Verification
- Verify the company's current Consolidated Net Leverage Ratio and EBITDA to Interest Expense Ratio to ensure compliance with the new 4.50x and 2.50x covenants effective September 30, 2019.
- Confirm the status of the 7.50% notes due 2025 and the implications of the new parent company guarantee on the credit profile of the subsidiary.
- Monitor the unused commitment fees and interest rate margins, which fluctuate based on the company's leverage ratio.
- Review the incremental borrowing capacity terms, specifically the 3.50x leverage threshold required for unlimited additional borrowing.
- Assess the impact of the merger on the consolidated financial reporting structure and the elimination of the subsidiary's independent reporting.