What is the main purpose of the Amendment No. 1 to the Credit Agreement?

The primary purpose of the amendment is to obtain the consent of Cardinal Health's lenders for potential indebtedness incurred by CareFusion Corporation and its subsidiaries in connection with the planned spin-off of the clinical and medical products businesses. It also modifies the terms of Cardinal Health's existing credit facility to reflect the upcoming separation and maintain financial covenants.

How will the planned spin-off of CareFusion affect Cardinal Health's debt and covenants?

The amendment increases interest rates and facility fees on Cardinal Health's revolving credit facility. Crucially, it replaces a minimum net worth covenant with more specific financial ratio covenants: a consolidated interest coverage ratio of at least 4.00-to-1.00 and a consolidated leverage ratio of no more than 3.25-to-1.00. These new covenants are designed to ensure the company maintains financial health post-spin-off. Additionally, the thresholds for triggering default events under the credit agreement have been lowered.

Does this filing indicate any change in Cardinal Health's access to funding?

Yes, the filing indicates that Cardinal Health entered into a Commercial Paper Dealer Agreement with SunTrust Robinson Humphrey, Inc. This expands the company's ability to issue commercial paper, a form of short-term debt, up to an aggregate amount not exceeding $1.5 billion, suggesting continued access to short-term funding markets.

When will the changes in the credit agreement become effective?

Certain terms of the amendment, specifically those related to pricing and the consent to CareFusion's indebtedness, will not be effective until specific conditions are met. These include the delivery of certain financial information by Cardinal Health and ratings announcements from Standard & Poor's and Moody's following the spin-off. The remaining terms become effective upon the consummation of the Planned Spin-Off and the special distribution by CareFusion to Cardinal Health.

CAH 8-K: Material Agreements

Summary

Cardinal Health, Inc. (CAH) filed an 8-K on April 20, 2009, reporting a material definitive agreement. The key event detailed is the Amendment No. 1 to its Credit Agreement, dated April 16, 2009. This amendment is directly related to the company's previously announced plan to spin off its clinical and medical products businesses into a new entity, CareFusion Corporation. The amendment addresses the financial implications of this spin-off, including obtaining consent from lenders for certain indebtedness of CareFusion and its subsidiaries, as well as modifications to the company's existing credit facility. For investors, the primary takeaway is the proactive management of the company's debt structure in anticipation of the significant corporate separation. The amendment adjusts interest rates and facility fees, replaces a minimum net worth covenant with more stringent interest coverage and leverage ratio covenants, and lowers thresholds for default events. These changes aim to maintain financial flexibility and operational stability during and after the CareFusion spin-off. Additionally, the report indicates the expansion of the company's commercial paper program, signifying continued access to short-term funding.

Key Highlights

1Amendment No. 1 to the Credit Agreement entered into on April 16, 2009, with Bank of America, N.A., and other lenders.
2Amendment provides consent for indebtedness related to the planned spin-off of CareFusion Corporation.
3Increased interest rates and facility fees under the $1.5 billion revolving credit facility.
4Replaced minimum net worth covenant with a consolidated interest coverage ratio of at least 4.00-to-1.00 and a consolidated leverage ratio of no more than 3.25-to-1.00.
5Reduced dollar amount thresholds for certain events of default from $100 million to $50 million.
6Company may issue short-term unsecured notes under its commercial paper program, not to exceed $1.5 billion.
7Entry into a Commercial Paper Dealer Agreement with SunTrust Robinson Humphrey, Inc. to act as a dealer for commercial paper issuance.

CARDINAL HEALTH INC 8-K Report, Material Agreement (Apr 21, 2009)

Summary

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