Item 2.03. Creation of a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement of a Registrant.
Amendment of Debt Arrangements
On July 6, 2022, Quanex entered into a Second
Amended and Restated 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 amending and restating its existing credit facility.
The second amended and restated credit facility
(the “New 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 by 65% of the voting equity interests in Quanex’s first tier foreign subsidiaries, and
is guaranteed, in whole or in part, by substantially all of the Company’s domestic subsidiaries.
All amounts outstanding under the Company’s
existing credit facility, totaling $58 million, were converted to SOFR borrowings under the New Credit Facility.
Credit Agreement
The Credit Agreement evidencing the New Credit
Facility is a five-year revolving credit facility of up to an aggregate principal amount of $325 million. Pursuant to the Credit Agreement,
among other things:
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(a) |
a sublimit up to $20 million for letters of credit is maintained; |
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(b) |
a sublimit up to $15 million for swingline loans is maintained; |
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(c) |
the interest rate options were modified to be the following three: (i) a customary base rate, which is subject to an additional margin with a range from 25 bps to 100 bps; (ii) a Secured Overnight Financing (“SOFR”) + Credit Spread Adjustment (“CSA”) rate, which is subject to an additional margin with a range from 135 bps to 210 bps; and (iii) a Sterling Overnight Index Average (“SONIA”) rate, which is subject to an additional margin with a range from 128.26 bps to 203.26 bps; and |
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(d) |
the financial covenants were modified to require Quanex to maintain (a) a consolidated net leverage ratio not exceeding 3.25 to 1.00 (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 minimum interest coverage ratio of at least 3.00 to 1.00. Each of the covenants are measured as of the last day of each fiscal quarter. |
Consistent with the existing credit facility, the
New Credit Facility includes 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) and mandatory prepayment provisions customary for revolving credit facilities,
and subject to certain conditions, customary optional prepayment provisions available without premium or penalty. With certain limited
exceptions, subsequently acquired or formed direct and indirect domestic subsidiaries will be required to join in the New Credit Facility
as guarantors and pledge substantially all of their non-real estate assets to secure all or a specified portion of the New 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.