Summary
Cummins Inc. (CMI) has entered into a new 364-day, $2 billion revolving credit facility with JPMorgan Chase Bank, N.A. as the administrative agent, effective May 1, 2020, and expiring on April 30, 2021. This facility provides a significant source of liquidity, which is particularly relevant in the uncertain economic environment of early May 2020. The credit facility is unsecured, and borrowings by subsidiaries will be guaranteed by the parent company, though no subsidiaries were borrowers at the time of the filing. The terms include flexible interest rate options, referencing prime rate, federal funds rate, overnight bank funding rate, and Adjusted LIBO Rate, with margins dependent on the Company's credit rating. CMI's current senior unsecured long-term debt ratings of A2 (Moody's) and A+ (S&P) would imply an Adjusted LIBO Rate plus 1.25% spread. The agreement also contains customary covenants, including a financial covenant that limits the ratio of consolidated net debt to consolidated total capital to 0.65:1, ensuring a degree of financial discipline.
Key Highlights
- 1Entered into a new $2 billion unsecured revolving credit facility maturing in 364 days on April 30, 2021.
- 2The facility is intended to provide financial flexibility and liquidity.
- 3Interest rates are variable, based on benchmark rates (Prime, Fed Funds, LIBO) plus a spread.
- 4The spread for Adjusted LIBO Rate borrowings is currently 1.25% based on CMI's credit ratings (A2/A+).
- 5A financial covenant requires the ratio of consolidated net debt to consolidated total capital not to exceed 0.65:1.
- 6No liens on assets secure the borrowings under this new credit agreement.
- 7Cummins Inc. guarantees borrowings by any subsidiary borrowers under the facility.