Item 1.01 Entry into a Material Definitive Agreement
New Term Loan Facility
On November 7, 2016, Erie Indemnity Company (the “Company”) entered into a Credit Agreement (the “Credit Agreement”) with PNC Bank, National Association (“PNC”). The Credit Agreement provides for a $100 million senior secured delayed draw term loan credit facility (the “Credit Facility”) for the acquisition of real property in Erie, Pennsylvania and construction of an office building that will serve as part of the Company’s principal headquarters.
The Company may request four draws of $25 million each under the Credit Facility on each of December 1, 2016, June 1, 2017, December 1, 2017 and June 1, 2018 (the “Draw Period”). During the Draw Period, the Company will make monthly interest-only payments under the Credit Facility and thereafter the Credit Facility converts to a fully-amortized term loan with monthly payments of principal and interest over a period of 28 years.
Borrowings under the Credit Facility will bear interest at a fixed rate of 4.35%. In addition, the Company is required to pay a commitment fee of 0.08% on the unused portion of the Credit Facility during the Draw Period. The Company’s obligations under the Credit Agreement are secured pursuant to the terms of a Pledge Agreement also dated November 7, 2016 between the Company and PNC (the “Pledge Agreement”). Under the Pledge Agreement, the Company has pledged certain investment accounts of the Company with a value not less than 105% of the Credit Facility, which may be increased to 115% based on the Company’s debt service coverage ratio and cash ratio.
Financial covenants under the Credit Agreement require the Company to maintain its ratio of indebtedness to net worth at less than 35% and maintain a minimum net worth. The Credit Agreement also includes covenants and restrictions that are substantially consistent with those included in the Company’s Amended and Restated Credit Agreement dated October 25, 2013 among the Company, the lenders party thereto and JPMorgan Chase Bank, National Association, as administrative agent, as amended (the “Revolving Facility”). These covenants limit the Company’s ability to incur additional indebtedness, create or assume liens on its property or assets, guarantee obligations, make investments, pay dividends, merge, consolidate or sell all or substantially all of its assets and enter into transactions with an affiliate of the Company. These covenants, which are described more fully in the Credit Agreement, to which reference is made for a complete statement of the covenants, are subject to certain exceptions.
The Credit Agreement also includes customary events of default that are substantially consistent with those included in the Revolving Facility, including failure to pay principal, interest or fees when due, if any representation or warranty made by the Company is false or misleading in any material respect, failure to comply with covenants, default under certain other indebtedness, the occurrence of certain material judgments, the invalidity of the loan documents, certain insolvency or receivership events affecting the Company and its subsidiaries, the occurrence of certain ERISA events or a change in control of the Company. Repayment of amounts outstanding under the Credit Facility may be accelerated upon certain events of default.
The above description does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement and the Pledge Agreement, which are filed as Exhibits 10.1 and 10.2 to this Current Report on Form 8-K.
Amendment of Revolving Facility
On November 7, 2016 the Company entered into a Second Amendment to Amended and Restated Credit Agreement among the Company, the lenders party thereto and JPMorgan Chase Bank, National Association, as administrative agent (the “Amendment”). The Amendment amends the Revolving Facility to permit liens on marketable securities securing indebtedness in connection with the acquisition of real property and/or construction of improvements thereon.
The above description does not purport to be complete and is qualified in its entirety by reference to the Amendment, which is filed as Exhibit 10.3 to this Current Report on Form 8-K.