Item 1.01.
Entry into a Material Definitive Agreement.
Entry into a Receivables Purchase Agreement
. On February 23, 2018, AAR CORP. (the Company), as seller representative and servicer, together with certain of its subsidiaries, as sellers (individually, a Seller and collectively, the Sellers), entered into a Purchase Agreement with Citibank, N.A., as buyer (the Buyer), for the sale, from time to time, of certain accounts receivable due from certain account debtors of the Sellers (the Purchase Agreement). Under the Purchase Agreement, the maximum amount of receivables purchases outstanding at any one time will not exceed $150 million. The actual amount available to draw upon varies based on eligibility requirements set forth in the Purchase Agreement, including customary criteria and limits. The transaction will result in the ongoing true sale of eligible receivables.
The purchase price for a receivable sold under the Purchase Agreement shall equal its aggregate net invoice amount minus a discount margin based on (i) LIBOR plus a credit spread of between .75% and 1.35% and (ii) the expected due date of the purchased receivable.
Except with respect to the limited recourse provisions set forth in the Purchase Agreement, each purchase of a purchased receivable is made without recourse to the applicable Seller and such Seller shall have no liability to Buyer for any account debtors failure to pay any purchased receivable when it is due and payable under the terms applicable thereto. Buyer has agreed to assume the risk of the non-payment of any purchased receivable to the extent it is the result of an insolvency event of the applicable account debtor (subject to the Sellers responsibility for the payment of certain limited loss recourse amounts in accordance with the Purchase Agreement).
The term of the Purchase Agreement runs through February 22, 2019. However, such date shall be automatically extended for annual successive 364-day terms unless a party provides written notice to the other person not less than 30 days prior to the expiration of such term, that such person does not intend to extend the term of the Purchase Agreement. The Purchase Agreement also may terminate earlier under certain circumstances as set forth therein.
The Purchase Agreement contains terms and conditions (including representations, covenants, conditions precedent and termination events) customary for transactions of this type.
The Company has provided the Buyer a performance undertaking to cause the due and punctual performance and observance by each Seller and its successors and assigns of all of the terms, covenants, conditions, agreements and undertakings on the part of such Seller to be performed or observed under the Purchase Agreement.
Citibank, N.A. also is one of the participating lenders under the Credit Agreement, as defined below. The Company may in the future engage Citibank N.A. or one of its affiliates to provide commercial banking, investment banking, and other services for which the Company or its affiliates pay customary fees and commissions.
The foregoing description of the Purchase Agreement is qualified in its entirety by reference to the full text of the Purchase Agreement. A copy of the Purchase Agreement is filed as Exhibit 10.1 and incorporated herein by reference.
Amendment to Credit Agreement
. On February 23, 2018, AAR CORP. (the Company) entered into an Amendment No. 8 (the Amendment) to its credit agreement dated April 12, 2011, as amended, with various financial institutions, as lenders and Bank of America, N.A., as administrative agent for the lenders (the Credit Agreement).
The Amendment modified the Credit Agreement to address and permit the receivables Purchase Agreement.
Except as specifically amended and modified by the Amendment, the terms and conditions of the Credit Agreement remain in effect.
The foregoing description of the Amendment is qualified in its entirety by reference to the full text of the Amendment and the Credit Agreement. A copy of the Amendment is filed as Exhibit 10.2 and incorporated herein by reference
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