Item 1.01 Entry into a Material Definitive Agreement.
On June 5, 2018, Patrick Industries, Inc. (the “Company” or “Patrick”) entered into a Second Amended and Restated Credit Agreement, dated as of June 5, 2018, (the “2018 Credit Agreement”) by and among the Company, the Lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. The 2018 Credit Agreement amends and restates the Company’s previous credit agreement dated April 28, 2015 (the "2015 Credit Agreement").
The 2018 Credit Agreement provides for an $800 million revolving credit facility and a $100 million term loan (the "2018 Credit Facility"). The March 17, 2022 maturity date for borrowings under both the revolving credit facility and the term loan remains unchanged. The 2018 Credit Agreement continues to be secured by substantially all personal property assets of the Company and any domestic subsidiary guarantors. The proceeds of the term loan and the revolving credit facility will be used to finance ongoing working capital needs of the Company.
The Company used initial borrowings under the 2018 Credit Facility (i) to repay in full at par the $63.0 million outstanding under the then current term loan. Immediately after the closing, the Company had outstanding $310.0 million of revolving loans, all of which initially bear interest at LIBOR plus 1.75%. The $100 million term loan also initially bears interest at LIBOR plus 1.75%. The interest rate spreads above LIBOR or the base rate are subject to adjustments based on the Company’s total leverage ratio, ranging from 1.50% to 2.25% in the case of loans bearing interest at LIBOR, and from 0.50% to 1.25% in the case of loans bearing interest at the base rate. In addition, a non-use fee is payable quarterly on the average unused credit line under the revolver ranging from 0.20% to 0.30% per annum, based on the Company’s total leverage ratio. The interest rate spreads above LIBOR or the base rate and the non-use fee percentage on the average unused credit line remain unchanged from those contained in the 2015 Credit Agreement.
The term loan will be repaid in consecutive quarterly installments on the last business day of each of March, June, September and December in the following amounts: (i) beginning June 30, 2018, through and including March 31, 2019, $1,250,000, (ii) beginning June 30, 2019, through and including March 31, 2021, $2,500,000, and (iii) beginning June 30, 2021, and each quarter thereafter, $3,750,000, with the remaining balance due at maturity. The 2018 Credit Agreement contains customary limits and restrictions concerning investments, sales of assets, liens on assets, dividends and other payments. The two financial covenants included in the 2018 Credit Agreement are a maximum total leverage ratio of 3.00:1.00 and a minimum fixed charge coverage ratio of 1.50:1.00.
The events of default under the 2018 Credit Agreement include, but are not limited to, the following: failure to pay outstanding principal or interest, failure of applicable representations or warranties to be correct in any material respects, failure to perform any other term, covenant or agreement and such failure is not remedied after notice of such failure within the applicable grace period with respect thereto, if any, a cross-default with other debt in certain circumstances, certain defaults upon obligations under the Employee Retirement Income Security Act or bankruptcy. Such events of default would require the repayment of any outstanding borrowings and the termination of the right to borrow additional funds under the 2018 Credit Facility.
A copy of the 2018 Credit Agreement is attached hereto as Exhibit 10.1 and incorporated herein by reference. The 2018 Credit Agreement is secured by a pledge of substantially all of the assets of the Company pursuant to an Amended and Restated Security Agreement, dated June 5, 2018, between the Company and Wells Fargo, as agent (the “2018 Security Agreement”). A copy of the 2018 Security Agreement is attached hereto as Exhibit 10.2 and incorporated herein by reference.
The foregoing descriptions of the 2018 Credit Agreement and the 2018 Security Agreement are qualified in their entirety by the actual agreements, which are attached to this Form 8-K as Exhibits 10.1 and 10.2 and incorporated herein.