What is the purpose of the new $1 billion Credit Agreement?

The $1 billion Credit Agreement was entered into by Cummins Inc.'s subsidiaries in anticipation of the separation of the company's filtration business. It is intended to provide financing for the filtration business as it prepares for separation.

When will the funds from the Credit Agreement be available?

Borrowings under the Credit Agreement will only become available after a public sale of shares in the Cummins subsidiary that holds the filtration business occurs. The agreement itself will terminate on March 30, 2023, if this public sale does not happen by that date.

What are the key financial obligations for the borrowing subsidiary?

The borrowing subsidiary must maintain a net leverage ratio not exceeding 4.00 to 1.00 (or 4.50 to 1.00 under specific conditions) and an interest coverage ratio of at least 3.00 to 1.00, as determined at the end of each fiscal quarter.

Will Cummins Inc. remain liable for the debt under the Credit Agreement?

Cummins Inc. has provided an initial guarantee for all borrowings. However, this guarantee is designed to automatically terminate once certain collateral and subsidiary guarantee requirements are met as the filtration business is separated from Cummins. The company can elect to maintain the guarantee if it chooses.

CMI 8-K: Material Agreements & Financial Events

Summary

Cummins Inc. (CMI) has filed an 8-K report on October 5, 2022, detailing the entry into a $1 billion Credit Agreement by its subsidiaries. This agreement includes a $400 million revolving credit facility and a $600 million term loan facility, specifically arranged in anticipation of the separation of Cummins' filtration business. The availability of these funds is contingent upon a public sale of shares in the subsidiary that holds the filtration business, with a termination date for the agreement set for March 30, 2023, if such a sale does not occur. The Credit Agreement introduces financial covenants for the borrowing subsidiary, including a maximum net leverage ratio of 4.00 to 1.00 (extendable to 4.50 to 1.00 under certain conditions) and a minimum interest coverage ratio of 3.00 to 1.00. Initially, Cummins Inc. will guarantee the borrowings, but this guarantee is expected to terminate upon the satisfaction of collateral and subsidiary guarantee requirements as the filtration business is separated. This filing primarily provides transparency on the financing structure supporting the planned spin-off of the filtration segment.

Key Highlights

1Cummins Inc. subsidiaries entered into a $1 billion Credit Agreement, comprising a $400 million revolving credit facility and a $600 million term loan facility.
2The credit facility is specifically in preparation for the separation of Cummins' filtration business.
3Borrowings are conditional on a public sale of shares in the filtration business subsidiary, with a deadline of March 30, 2023, for the agreement to remain effective.
4The Credit Agreement includes financial covenants such as a maximum net leverage ratio of 4.00:1.00 and a minimum interest coverage ratio of 3.00:1.00 for the borrowing entity.
5Cummins Inc. initially provides a guarantee for the borrowings, with provisions for its termination upon fulfillment of certain conditions related to collateral and subsidiary guarantees.
6Interest rates for borrowings will vary based on loan type, benchmark rates (Prime, SOFR, EURIBOR, SONIA), and the borrower's net leverage ratio.

CUMMINS INC 8-K Report, Material Agreement (Oct 5, 2022)

Summary

Key Highlights

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