Summary
Entegris, Inc. (ENTG) filed an 8-K on March 4, 2009, to report a material definitive agreement regarding the amendment and restatement of its Credit Agreement with Wells Fargo Bank, N.A. This agreement fundamentally alters the company's debt structure by reducing its revolving credit facility from $230 million to $150 million, with a portion of this facility subject to lender consent. The new facility matures on November 1, 2011. This filing signals a shift in the company's financial flexibility and its approach to managing leverage in potentially challenging economic conditions.
Key Highlights
- 1Entegris amended and restated its Credit Agreement with Wells Fargo Bank, N.A., effective March 2, 2009.
- 2The revolving credit facility was reduced from $230 million to $150 million, with a $11 million portion requiring majority lender consent for borrowing.
- 3The new credit facility matures on November 1, 2011.
- 4Borrowing capacity is tied to a 'borrowing base' of accounts receivable, inventory, and fixed assets, which can be adjusted downward if these asset levels decline.
- 5Interest rates can increase by 2.25% if year-to-date EBITDA falls below specified negative thresholds.
- 6The agreement introduces new financial covenants, including minimum year-to-date EBITDA targets that start negative and aim to become positive by early 2010.
- 7The restatement includes standard negative covenants restricting activities such as asset sales, capital expenditures, mergers, dividends, and incurring additional debt.
Frequently Asked Questions
The primary purpose of this 8-K filing is to report the amendment and restatement of Entegris's Credit Agreement with Wells Fargo Bank, N.A., which is considered a material definitive agreement. This effectively updates the terms under which the company can borrow funds.
The revolving credit facility has been reduced from $230 million under the prior agreement to $150 million under the new restated agreement. Additionally, $11 million of this facility requires majority lender consent to be borrowed. The maturity date has also been moved up from February 15, 2013, to November 1, 2011.
The restated agreement introduces new financial covenants, primarily focused on maintaining minimum year-to-date EBITDA levels. These targets are initially set at negative values for most of 2009, with the goal of achieving positive EBITDA by early 2010. Beyond that, there are requirements for cash flow leverage and fixed charge coverage ratios starting in the second fiscal quarter of 2010. There are also minimum cash and cash equivalents requirements.
The borrowing base mechanism means the company's ability to borrow is directly linked to the value of its eligible accounts receivable, inventory, and fixed assets. If these asset values decline, the amount the company can borrow under the facility will also decrease. Furthermore, if the company's year-to-date EBITDA falls below certain negative thresholds, the interest rate on its borrowings can increase by 2.25%, making debt more expensive.