| Item 1.01. |
Entry into a Material Definitive Agreement. |
On March 16, 2023 (the “Closing Date”), Watsco, Inc., a Florida corporation (the “Company”), Watsco Canada, Inc., a corporation organized under the laws of New Brunswick, Canada and a wholly owned subsidiary of the Company (“Watsco Canada”), Carrier Enterprise Mexico, S. de R.L. de C.V., a corporation organized under the laws of Mexico and an 80% owned subsidiary of the Company (“Watsco Mexico”) and certain of their respective subsidiaries (such subsidiaries, together with the Company, Watsco Canada and Watsco Mexico, the “Borrowers”), entered into an unsecured, five-year $600,000,000 syndicated multicurrency credit agreement (the “New Credit Facility”) with a syndicate of lenders (the “Lenders”), Bank of America, N.A. as Administrative Agent (in such capacity, the “Administrative Agent”), Swing Line Lender and L/C Issuer, JPMorgan Chase Bank, N.A. as Syndication Agent, and U.S. Bank National Association and Wells Fargo Bank, National Association as Co-Documentation Agents. The New Credit Facility has a seasonal period from October 1 to March 31, during which the Company may elect in its discretion to reduce borrowing capacity from $600,000,000 to $500,000,000.
The New Credit Facility replaces in its entirety the Company’s unsecured $560,000,000 revolving credit facility, entered into as of December 5, 2018 (the “Prior Credit Facility”). On the Closing Date, the Borrowers borrowed approximately $235,500,000 under the New Credit Facility, the proceeds of which were used to repay outstanding borrowings under the Prior Credit Facility. Any additional borrowings under the New Credit Facility may be used for, among other things, funding seasonal working capital needs and other general corporate purposes, including acquisitions, dividends, capital expenditures, stock repurchases, and issuances of letters of credit.
The terms of the New Credit Facility also provide for a $125,000,000 swingline loan sublimit, a $10,000,000 letter of credit sublimit, a $75,000,000 alternative currency borrowing sublimit, and a $10,000,000 Mexican borrowing subfacility. As of the Closing Date, approximately $194,600,000 of borrowings were outstanding under the New Credit Facility.
Borrowings under the New Credit Facility accrue interest at different rates depending on the types of advances or loans the Borrowers select. At the Borrower’s election, borrowings under the New Credit Facility bear interest either at Term SOFR or Daily Simple SOFR-based rates plus 0.10% plus a spread which ranges from 100.0 to 137.5 basis-points (Term SOFR and Daily Simple SOFR plus 100.0 basis-points as of the Closing Date), depending upon the Company’s ratio of total debt to EBITDA, or on rates based on the highest of the Federal Funds Effective Rate plus 0.5%, the Prime Rate announced by the Administrative Agent or Term SOFR plus 1.0%, in each case plus a spread which ranges from 0 to 50 basis-points (0 basis-points as of the Closing Date), depending upon the Company’s ratio of total debt to EBITDA. The Company pays a variable commitment fee on the unused portion of the commitment, ranging from 12.5 to 27.5 basis-points (12.5 basis-points as of the Closing Date).
The outstanding balance under the New Credit Facility may be prepaid at any time without premium or penalty. The New Credit Facility contains customary affirmative and negative covenants, including two financial covenants with respect to the Company’s consolidated leverage and interest coverage ratios, and other customary restrictions. Additionally, the New Credit Facility contains customary events of default and remedies upon an event of default, including termination of the commitments of the Lenders and the acceleration of repayment of outstanding amounts under the New Credit Facility.