Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
New Debt Arrangements
On
July 29, 2016, Quanex entered into a Credit Agreement among Quanex; the lenders party thereto (the “Lenders”); and Wells Fargo Bank, National Association (“Wells Fargo”), as agent (in such capacity, the “Agent”)
for the Lenders (the “Credit Agreement”), for the purpose of establishing a $450 million credit facility comprising a $150 million Term Loan A and a revolving credit facility of up to an aggregate principal amount of $300 million
(collectively, the “Credit Facility”).
The Credit Facility is secured, in whole or in part, by substantially all of the
non-real estate property and assets of Quanex and its domestic subsidiaries, and is guaranteed, in whole or in part, by substantially all of the Company’s domestic subsidiaries.
Initial total borrowings of $300 million under the Credit Facility were used to (a) refinance certain existing indebtedness of Quanex
and its subsidiaries (the “Refinancing”), (b) make payment of fees, commissions, and expenses in connection with the Refinancing and the Company’s entry into the Credit Facility, and (c) finance ongoing working capital
requirements of Quanex and its subsidiaries and other general corporate purposes.
Payoff and Termination of Prior Debt Arrangement
On July 29, 2016, in connection with its entry into the Credit Facility, Quanex terminated (a) its existing $100 million asset-based
lending Credit Agreement, among Quanex and certain domestic subsidiaries of Quanex, as US Borrowers; Edgetech (UK) Limited and HL Plastics Limited, as UK Borrowers; Edgetech Europe GmbH, as German Borrower; the lenders party thereto (the “ABL
Lenders”); and Wells Fargo Bank, as agent for the ABL Lenders (the “ABL Credit Agreement”); and (b) its existing $310 million Term Loan B Credit Agreement, among Quanex, as Borrower; the lenders party thereto (the “Term
Lenders”); and Wells Fargo, as agent for the Term Lenders (the “Term Loan Agreement,” and, together with ABL Credit Agreement, the “Prior Credit Agreements”). As a result of their termination, Quanex and its
subsidiaries have no further obligations under the Prior Credit Agreements. The termination of the Prior Credit Agreements and the payment of any and all outstanding amounts due thereunder were conditions precedent to the closing of the Credit
Facility. In connection with the termination of the Prior Credit Agreements, Quanex repaid a total of $313,703,931, which included a 1.00% prepayment call premium.
Credit Agreement
The Credit
Agreement is a five-year, $450 million senior secured credit facility comprising a $150 million Term Loan A credit facility and a $300 million revolving credit facility. Pursuant to the Credit Agreement, among other things:
|
|
(a)
|
there is a sublimit up to $15 million for letters of credit;
|
|
|
(b)
|
there is a sublimit up to $15 million for swingline loans;
|
|
|
(c)
|
there is a formulaic sublimit not to exceed $25 million for direct loans to the Company’s UK subsidiary, Flamstead Holdings;
|
|
|
(d)
|
there is a formulaic sublimit not to exceed €10 million for direct loans to the German Borrower;
|
|
|
(e)
|
subject to certain requirements, including the absence of a default, Quanex may from time to time incur an increase in incremental revolving or term loan commitments in an aggregate principal amount not to exceed
$150 million, without the necessity of Lender consent, by obtaining additional commitments from Lenders (who have no obligation to do so);
|
|
|
(f)
|
in addition to existing Lenders, Quanex may seek commitments from third party lenders in connection with any incremental loan commitment increase, subject to certain consent rights given to the Term Agent;
|
|
|
(g)
|
customary base rate and LIBOR rate interest options are available, in each case, plus applicable margins set at various pricing levels, with a range of from 50 bps to 125 bps for loans priced at the base rate and 150
bps to 225 bps for loans priced at the LIBOR rate;
|
|
|
(h)
|
prior to maturity, the term loan portion of the Credit Facility will amortize in equal quarterly installments of 5% during the first year, 10% during years 2 through 4, and 15% during year 5, with the entire unpaid
balance due on the maturity date;
|
|
|
(i)
|
there are customary representations and warranties, affirmative covenants, negative covenants, and provisions governing an event of default (including acceleration of payment in connection with Quanex’s failure to
pay all or any portion of any obligations, principal, or any amount payable under a letter of credit);
|
|
|
(j)
|
there are financial covenants requiring Quanex to maintain (a) a consolidated leverage ratio not exceeding 3.50 to 1.00 for the period from closing through January 30, 2017; 3.25 to 1.00 for the period from
January 31, 2017 through January 30, 2018; and 3.00 to 1.00 for all periods thereafter (with the maximum ratio amount subject to an optional 0.50x increase for four quarters following the consummation of a permitted acquisition) ; and
(b) a consolidated fixed charge coverage ratio of at least 1.10 to 1.00. Each of the covenants are measured as of the last day of each fiscal quarter;
|
|
|
(k)
|
there are customary mandatory prepayment provisions, and subject to certain conditions, customary optional prepayment provisions available without premium or penalty; and
|
|
|
(l)
|
with certain limited exceptions, subsequently acquired or formed direct and indirect domestic subsidiaries will be required to join in the Credit Facility as guarantors and pledge substantially all of their non-real
estate assets to secure all or a specified portion of the Credit Facility obligations.
|
The representations, warranties, and
covenants contained in the Credit Agreement were made only for purposes of the Credit Agreement and as of specific dates, were solely for the benefit of the parties to the Credit Agreement, and may be subject to limitations agreed upon by those
contracting parties. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to the Credit Agreement instead of establishing these matters as facts, and may be subject to standards of
materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Credit Agreement and should not rely on the representations, warranties, and covenants or any
descriptions thereof as characterizations of the actual state of facts or condition of any of the parties to the Credit Agreement or any of their respective stockholders, subsidiaries, or affiliates. Moreover, information concerning the subject
matter of the representations and warranties may change after the date the Credit Agreement is entered into, which subsequent information may or may not be fully reflected in the public disclosures of Quanex.
The foregoing description of the Credit Agreement is not complete and is qualified in its entirety by reference to the full text of the Credit
Agreement, a copy of which is attached as Exhibit 10.1 to this Current Report and incorporated herein by reference.