Item 1.01 Entry into a Material Definitive Agreement
On October 19, 2020, PAE Incorporated (the “Company”), refinanced its existing credit agreements and entered into new senior secured credit facilities (the “New Credit Agreements”). The New Credit Agreements establish a $740 million term loan facility maturing in October 2027 priced at LIBOR plus a spread of 4.50%, a $150 million delayed draw term loan facility maturing in October 2027 priced at LIBOR plus a spread of 4.50%, and a $175 million senior secured revolving credit facility maturing in October 2025 priced at LIBOR plus a spread of 1.75% to 2.25%. Additional details regarding the New Credit Agreements is set forth below.
Term Loan Credit Facility
On October 19, 2020 (the “Initial Effective Date”), the Company and certain of its domestic subsidiaries (the “Term Loan Parties”) entered into the Amended and Restated First Lien Term Loan Credit Agreement (the “A&R Term Loan Facility”), which amends and restates the First Lien Term Loan Credit Agreement, dated as of October 20, 2016 (the “Existing Term Loan Facility”), among the Company, the Term Loan Parties, Bank of America, N.A., as Administrative Agent (the “Agent”), and the other lenders named therein (the “Term Loan Lenders”).
The A&R Term Loan Facility provides for a term loan in an amount equal to $740 million (the “Initial Term Loan”), a delayed draw term loan facility in an amount equal to $150 million (the “DDTL”) and an option, subject to certain conditions and limitations, to increase the aggregate amount of the term loans by $175 million. The A&R Term Loan Facility is a senior secured obligation that ranks equally with the Term Loan Parties’ other senior secured obligations.
The proceeds of the Initial Term Loan will be used, among other things, to repay in full the amounts outstanding under the Existing Term Loan Facility and the Second Lien Term Loan Credit Agreement, dated as of October 20, 2016, among certain of the Term Loan Parties, the Agent and the other lenders named therein. The proceeds of the DDTL may be used to fund certain permitted acquisitions consummated within six months of the Initial Effective Date.
Amounts borrowed under the A&R Term Loan Facility must be repaid at a rate equal to 1% per annum, with the remaining amount outstanding paid in full on the current maturity date of the A&R Term Loan Facility on October 19, 2027, which is seven years after the Initial Effective Date. Subject to certain exceptions as set forth in the A&R Term Loan Facility, the Term Loan Parties must repay amounts incurred under the A&R Term Loan Facility with the net proceeds of asset sales and debt issuances and a portion of excess cash flow. Voluntary prepayments under the A&R Term Loan Facility are permitted at any time upon proper notice and subject to minimum dollar amounts. Voluntary prepayments paid within six to twelve months after the Initial Effective Date must be accompanied by a prepayment premium equal to 1% of the amount prepaid.
Term loans under the A&R Term Loan Facility will bear interest at a floating rate, which will be a base rate or a LIBO rate equal to the London interbank offered rate for the relevant interest period, plus, in each case, an applicable margin, as determined in accordance with the provisions of the A&R Term Loan Facility. The base rate will be the highest of: the rate of interest announced publicly by Bank of America from time to time as its “prime rate”; the federal funds effective rate plus 1/2 of 1%; and the LIBO rate for a one-month period plus 1%. The Company is required to pay a facility fee on the average daily amount of each Term Loan Lender’s unused
DDTL commitment from the effective date for such Term Loan Lender until the termination date of such Term Loan Lender at a rate per annum equal to an applicable percentage in effect from time to time for the facility fee, as determined in accordance with the provisions of the A&R Term Loan Facility. The initial facility fee is 0% per annum through the 45th day after the Initial Effective Date, 50% of the then-applicable margin from the 46th day through the 90th day after the Initial Effective Date and 100% of the then-applicable margin from the 91st day after the Initial Effective Date until the expiration of the DDTL commitment. The applicable margin and the facility fee are subject to adjustment as provided in the A&R Term Loan Facility.
The A&R Term Loan Facility contains covenants and includes limitations on, among other things, liens, fundamental changes, changes in the nature of the Term Loan Parties’ business and compliance with certain anti-corruption laws, anti-money laundering laws and regulations or executive orders administered by the United States Department of the Treasury’s Office of Foreign Assets Control or other similar economic sanctions administered or enforced by the European Union, or the United Nations Security Council. The A&R Term Loan Facility also contains certain representations, warranties and events of default, in each case as set forth in the A&R Term Loan Facility.
The A&R Term Loan Facility requires payment to the Lenders of arrangement fees totaling 1% of the Initial Term Loan.
The foregoing description of the A&R Term Loan Facility does not purport to be complete and is subject to and qualified in its entirety by reference to the full text of the A&R Term Loan Facility, a copy of which will be filed with the Company’s Form 10-Q for the quarter ended September 27, 2020.
ABL Credit Facility
On October 19, 2020, the Company and certain of its domestic subsidiaries (the “ABL Loan Parties”) joined (the documents governing such joining are referred to herein as the “ABL Joinders”) the Revolving Credit Agreement, dated as of October 20, 2016 (as amended, the “ABL Credit Facility”), among PAE Holding Corporation, Bank of America, N.A., as Administrative Agent, and the other lenders named therein (the “ABL Lenders”).
Immediately after consummating the transactions governed by the ABL Joinders, the Company and the ABL Loan Parties entered into Amendment No. 3 (the “ABL Amendment”) to the ABL Credit Facility.
Pursuant to the ABL Amendment, among other things, the Company and the ABL Loan Parties entered into an amendment and restatement of the ABL Credit Facility (the “A&R ABL Credit Facility”), which provides for a $175 million revolving credit facility, $100 million of which is available for the issuance of letters of credit for the account of the ABL Loan Parties, with an option, subject to certain conditions and limitations, to increase the aggregate amount of the revolving credit commitments to $225 million. The A&R ABL Credit Facility is a senior secured obligation that ranks equally with the ABL Loan Parties’ other senior secured obligations. The issuance of letters of credit and the proceeds of revolving credit loans made pursuant to the A&R ABL Credit Facility are available and will be used for general corporate purposes of the ABL Loan Parties.
Amounts under the A&R ABL Credit Facility may be borrowed, repaid and re-borrowed from time to time until the current termination date of the A&R ABL Credit Facility on October 19,
2025, which is the date five years after the A&R ABL Credit Facility’s effective date of October 19, 2020. Voluntary prepayments and commitment reductions under the A&R ABL Credit Facility are permitted at any time without payment of any prepayment fee upon proper notice and subject to minimum dollar amounts.
Revolving loans under the A&R ABL Credit Facility will bear interest at a floating rate, which will be a base rate or a LIBO rate equal to the London interbank offered rate for the relevant interest period, plus, in each case, an applicable margin, as determined in accordance with the provisions of the A&R ABL Credit Facility. The base rate will be the highest of: the rate of interest announced publicly by Bank of America from time to time as its “prime rate”; the federal funds effective rate plus 1/2 of 1%; and the LIBO rate for a one-month period plus 1%. The Company is required to pay a facility fee on the average daily amount of each ABL Lender’s unused revolving credit commitment from the effective date for such ABL Lender until the termination date of such ABL Lender at a rate per annum equal to an applicable percentage in effect from time to time for the facility fee, as determined in accordance with the provisions of the A&R ABL Credit Facility. The initial facility fee is 0.50% per annum. The applicable margin and the facility fee are subject to adjustment as provided in the A&R ABL Credit Facility.
The A&R ABL Credit Facility contains financial and other covenants, including a minimum fixed charge coverage ratio, and includes limitations on, among other things, liens, fundamental changes, changes in the nature of the ABL Loan Parties’ business and compliance with certain anti-corruption laws, anti-money laundering laws and regulations or executive orders administered by the United States Department of the Treasury’s Office of Foreign Assets Control or other similar economic sanctions administered or enforced by the European Union, or the United Nations Security Council. The A&R ABL Credit Facility also contains certain representations, warranties and events of default, in each case as set forth in the A&R ABL Credit Facility.
The ABL Amendment requires payment to the ABL Lenders of commitment fees totaling 0.50% of the commitments under the A&R ABL Credit Facility.
Some of the ABL Lenders and their affiliates have various relationships with the Company involving the provision of financial services, including cash management and investment banking.
The foregoing description of the ABL Amendment does not purport to be complete and is subject to and qualified in its entirety by reference to the full text of the ABL Amendment, a copy of which will be filed with the Company’s Form 10-Q for the quarter ended September 27, 2020.