IFR 03.21.2020

International Financing Review March 21 2020 67

LOANS NORTH AMERICA

Pricing for the revolver is based on a ratings

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Baa3 it is 105bp over and 25bp; and for below

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Pricing for the term loan is also on a

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The term loan pays a ticking fee of 10% on

unused commitments starting 45 days after

the closing of the facility.

Simon Property owns shopping, dining,

and entertainment real estate properties

across North America, Europe, and Asia.

The company is rated A by S&P and A by

Fitch.

MICRON TECH DRAWS DOWN

Memory chip manufacturer MICRON

TECHNOLOGY drew down on its entire

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as a precautionary measure due to

uncertainty resulting from the coronavirus

outbreak.

The drawdown proceeds will be held on

the company’s balance sheet and may be

used for general corporate purposes, Micron

said.

The RCF matures on July 3 2023. JP

Morgan is the administrative agent on the

deal, and lead arranger and bookrunner

with Wells Fargo and HSBC.

Pricing on the revolver is based on debt

ratings and a leverage ratio. Based on the

company’s current ratings and leverage

ratio, pricing for the revolver opens at

125bp over Libor.

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ratio of 0.5 times or lower the margin is

125bp over Libor with a 20bp commitment

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and more than 2.0 it is 200bp and 35bp.

Micron is rated BBB– by S&P and Fitch.

HESS PUMPS UP

Global oil and gas exploration and production

company HESS has agreed a US$1bn three-year

term loan as it works to strengthen its cash

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decline in oil prices caused by the price war

between Saudi Arabia and Russia.

The term loan is initially being provided

by JP Morgan. Under the terms of the loan,

Hess is required to reduce JP Morgan’s initial

funded amount, which the company intends

to do by syndicating the loan to other banks.

The loan pays a margin based on Hess’s

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is 272.5bp over.

The company has also announced a

revised US$2.2bn capital and exploratory

budget for 2020, an US$800m reduction

from the previous budget.

Reductions to the capital budget will be

primarily achieved by shifting from a six-rig

programme to one rig in the Bakken, North

Dakota, which is expected to be completed

by the end of May.

Most discretionary exploration and

offshore drilling activities, excluding

Guyana, will also be deferred.

Hess has more than US$1.5bn in cash and

cash equivalents on its balance sheet and

also has access to a US$3.5bn undrawn

revolving credit facility and no material debt

maturities until 2027.

SOUTHWEST AIRLINES TAPS, DRAWS

DOWN

Carrier SOUTHWEST AIRLINES has signed a

US$1bn 364-day term loan and has fully

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credit facility as airlines across the globe

struggle with collapsing demand for travel

because of the coronavirus outbreak.

Southwest has also fully drawn the term

loan, on which JP Morgan, Bank of America and

Borrowers study Ebitda

definitions in credit agreements

„ US Majority of leveraged loans lack a full set of covenants

As the fast-spreading coronavirus shuts down

operations across the globe, companies are

examining their loan agreements seeking any

potential relief to stave off a default as they

prepare for what could be a steep drop in

earnings.

Companies, including sporting equipment

manufacturer CALLAWAY GOLF and toy maker

HASBRO have warned investors that the virus

could hurt their earnings.

Some borrowers are now looking to see if they

would be permitted under their credit agreement

to make adjustments to their Ebitda based on

virus-related losses.

To prevent a wider contagion, businesses

around the world, including Apple, Under

Armour and Nike, have announced plans to shut

retail stores.

As a result of supply chain disruptions, which

have impacted manufacturing and reduced

consumer demand, a significant number of

businesses will probably experience lower

earnings, at least in the near term, Shearman &

Sterling lawyers wrote in a March 11 report. Amid

declining revenues, borrowers could face difficulties

complying with financial covenants in their debt

documents and in possibly servicing their debt.

With little clarity for when businesses

might reopen and facing downgrades due to

interruptions in operations, companies are

looking to see if there is a way within their loan

documents to offset losses to increase Ebitda,

which could help avoid a potential default.

There has been a focus on credit agreement

language on Ebitda addbacks – with borrowers

asking for a coronavirus cost addback in new

deal documents, according to Jake Mincemoyer,

head of law firm White & Case’s Americas

banking unit.

There have also been discussions about

whether cost implications arising from the

coronavirus fit within the definition of an existing

addback such as the “extraordinary, unusual, or

non-recurring charges” clause, he said.

The majority of US leveraged loans lack a

full set of covenants. If companies are forced to

draw on their revolving credit lines for liquidity,

they could trigger springing maintenance tests

that rely on a measure of Ebitda, which could be

impacted by the coronavirus.

Research firm Covenant Review said in a

March 6 report that borrowers might be able

to make an argument that charges related to a

outbreak can be characterised as “extraordinary,

unusual or non-recurring”. Thus, virus-related

charges could be added back to Ebitda.

But decreased earnings and access to liquidity

are not just issues that will affect business in the

first three months of 2020; companies need to

be prepared to address the problems over an

extended period.

Depending on how long this virus lasts,

there are leverage ratio tests for maintenance

covenants or incurrence covenants based on

Ebitda, according to Michael Chernick, a partner

in the finance group at law firm Shearman &

Sterling.

“This is something that borrowers are going

to have to think about for the next year in terms

of navigating through their credit agreements,”

he said.

Kristen Haunss

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