Item 1.01 Entry into a Material Definitive Agreement
On December 29, 2017, American Woodmark Corporation, a Virginia corporation (the “Company”), entered into a credit agreement (the “Credit Agreement”) with a syndicate of lenders arranged by Wells Fargo Securities, LLC, Wells Fargo Bank, National Association, as administrative agent for the lenders (in such capacity, the “Administrative Agent”), and certain other agents, in connection with the completion of its acquisition of RSI Home Products, Inc. (“RSI”) as discussed in Item 2.01 below. The Credit Agreement provides for a $100 million, 5-year revolving loan facility, a $250 million, 5-year initial term loan facility and a $250 million delayed draw term loan facility. The revolving credit facility also includes a sub-facility for the issuance of up to $25 million of letters of credit.
The Company borrowed the entire $250 million of initial term loans and approximately $50 million of revolving loans on December 29, 2017 in connection with the closing of the acquisition discussed in Item 2.01 below. Subject to the satisfaction of certain conditions, the Company may borrow the delayed draw term loans at any time prior to March 31, 2018, at which time any portion of the delayed draw term loan facility that remains undrawn will be automatically cancelled. The Company is required to repay aggregate outstanding term loans, including the initial term loans and any delayed draw term loans, in quarterly installments beginning on April 30, 2018. All then outstanding loans, including term loans and revolving loans, must be repaid at final maturity on December 29, 2022, together with any accrued and unpaid interest. The Company may prepay outstanding loans at any time, in whole or in part, without premium or penalty upon providing notice of such prepayment to the lenders as specified in the Credit Agreement. The Company may also be required to prepay the term loans in certain specified amounts upon the occurrence of certain specified events, including the receipt of any proceeds from certain additional debt issuances or asset sales. Any amounts prepaid with respect to the term loans may not be reborrowed by the Company.
Outstanding loans will bear interest based on a fluctuating rate measured by reference to either, at the Company’s option, a base rate plus an applicable margin or LIBOR plus an applicable margin. The applicable margin is determined by reference to the Company’s then-current “Total Funded Debt to EBITDA Ratio.” The initial applicable margin with respect to base rate loans is 1% and the initial applicable margin with respect to LIBOR loans is 2%. Interest on each base rate loan is due and payable in arrears on the last business day of each fiscal quarter beginning on April 30, 2018. Interest on each LIBOR loan is due and payable on the last day of each “interest period” applicable to such LIBOR loan. The Company may convert any outstanding loans between base rate loans and LIBOR loans upon providing notice to the lenders as specified in the Credit Agreement. A letter of credit fee will accrue on the face amount of outstanding letters of credit at a per annum rate equal to the applicable margin on LIBOR loans, payable quarterly in arrears.
The Company will also incur a quarterly commitment fee on the average daily unused portion of the revolving loan facility during the applicable quarter at a rate per annum rate also determined by reference to the Company’s then-current “Total Funded Debt to EBITDA Ratio”. The initial commitment fee is 0.25% per annum. The Company may permanently reduce, without premium or penalty, the amount of the revolving loan facility at any time upon providing notice to the lenders as specified in the Credit Agreement. In the event that the delayed draw term loan is not either funded or terminated in full prior to February 28, 2018, the Company must pay a ticking fee of 0.30% per annum on the full delayed draw term loan facility of $250 million.
The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants. The affirmative covenants require the Company to provide the lenders with certain financial statements, business plans, compliance certificates and other documents and reports and to comply with certain laws and the terms of the Company’s material contracts. The Company may use the proceeds of revolving loans for working capital and general corporate purposes and may only use the proceeds from the delayed draw term loans, if borrowed, to refinance, in part, RSI’s existing 6½% Senior Secured Second Lien Notes due 2023 (the “Senior Notes”). The negative covenants restrict the Company’s ability to incur additional indebtedness, create additional liens on its assets, make certain investments, dispose of its assets or engage in a merger or other similar transaction or engage in transactions with affiliates, subject, in each case, to the various exceptions and conditions described in
the Credit Agreement. The negative covenants further restrict the Company’s ability to make certain restricted payments, including the payment of dividends in certain limited circumstances.
The Credit Agreement includes certain customary events of default. If an event of default occurs and is continuing, the lenders are entitled to take various actions, including the acceleration of the maturity of all loans and to take all actions permitted to be taken by a secured creditor against the collateral under the security documents referenced below and applicable law.
The Company’s obligations under the Credit Agreement are guaranteed by the Company’s subsidiaries other than RSI and its subsidiaries pursuant to a subsidiary guaranty agreement dated as of December 29, 2017, in favor of the Administrative Agent (the “Subsidiary Guaranty Agreement”). Each subsidiary guarantor and the Company has entered into a collateral agreement dated as of December 29, 2017, in favor of the Administrative Agent (the “Collateral Agreement”) to secure its obligations with a pledge of substantially all of its personal property. Under the terms of the Credit Agreement, following any refinancing of the Senior Notes, RSI and its domestic subsidiaries will also become guarantors under the Subsidiary Guaranty Agreement and become parties to the Collateral Agreement to secure their obligations with a pledge of substantially all of their respective personal property.
The foregoing description of the Credit Agreement and the Collateral Agreement does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement and the Collateral Agreement, copies of which are filed as Exhibits 10.1 and 10.2 hereto and incorporated herein by reference.