8-KOther Events

CURTISS WRIGHT CORP 8-K Report, Corporate Update (Dec 21, 2022)

Filed December 21, 2022For Securities:CW

Summary

Curtiss-Wright Corporation (CW) has filed an 8-K detailing amendments to several of its existing Note Purchase Agreements. These amendments, entered into on October 27, 2022, and December 16, 2022, primarily involve changes to financial covenants related to its senior notes. The company has secured flexibility in its debt structure by amending agreements dated December 8, 2011, February 26, 2013, and August 13, 2020. The key changes include the release of certain former subsidiaries from guarantee obligations under the 2011 and 2013 Note Purchase Agreements. More significantly, the amendments provide the company with the ability to temporarily increase its maximum Consolidated Debt to Consolidated Total Capitalization ratio to 0.65 to 1.00 for up to three occasions following a significant acquisition (at least $100 million in consideration). The requirement for Minimum Consolidated Net Worth has also been removed, replaced by a new financial covenant requiring a Consolidated Interest Coverage Ratio of at least 3.00 to 1.00.

Key Highlights

  • 1Amendments made to three separate Note Purchase Agreements (2011, 2013, and 2020).
  • 2Former subsidiaries released from guarantee obligations under the 2011 and 2013 Note Purchase Agreements.
  • 3Increased flexibility for future acquisitions by allowing the Consolidated Debt to Consolidated Total Capitalization ratio to temporarily reach 0.65:1.00.
  • 4This higher debt ratio limit can be utilized on no more than three separate occasions following a qualifying acquisition (consideration >= $100 million).
  • 5The covenant requiring Minimum Consolidated Net Worth has been removed.
  • 6A new financial covenant has been introduced: Consolidated Interest Coverage Ratio must be no less than 3.00:1.00.

Frequently Asked Questions

The amendments provide Curtiss-Wright with increased financial flexibility. Specifically, they allow for a higher debt-to-capitalization ratio after a significant acquisition and remove a minimum net worth requirement. This suggests the company may be planning or open to strategic acquisitions and is adjusting its debt covenants to accommodate such growth.

The new covenant requires the company's Consolidated EBITDA to be at least three times its Consolidated Interest Charges. This is a standard measure of a company's ability to service its debt. A ratio of 3.00:1.00 indicates a reasonable buffer, suggesting that the company should be able to comfortably meet its interest obligations from its operating earnings.

Removing the Minimum Consolidated Net Worth requirement could be a strategic move to allow for greater capital return to shareholders through dividends or share buybacks, or to facilitate acquisitions without being constrained by a specific net worth floor. It shifts the focus to the company's ability to generate earnings to cover its interest payments, as reflected in the new interest coverage ratio.

The primary risk for investors would be if the company utilizes its increased debt capacity too aggressively, leading to higher financial leverage without a corresponding increase in earnings. However, the introduction of the interest coverage ratio provides a key metric for investors to monitor the company's ability to service its debt, mitigating some of this risk.