8-KMaterial Agreements

FEDEX CORP 8-K Report, Material Agreement (May 29, 2020)

Filed May 29, 2020For Securities:FDX

Summary

FedEx Corporation (FDX) announced amendments to its existing $2.0 billion five-year and $1.5 billion 364-day credit agreements, effective May 27, 2020. These amendments are designed to further enhance FedEx's liquidity and financial flexibility amidst the evolving COVID-19 pandemic. Key changes include modifications to the definition of Consolidated EBITDA to exclude non-cash pension service costs and an upward adjustment of the maximum allowed leverage ratio for specific periods through May 2021. While these changes provide increased financial flexibility, investors should note the temporary restrictions imposed. During the period from May 27, 2020, to May 31, 2021, FedEx is restricted from repurchasing its common stock and from increasing its quarterly dividend per share beyond $0.65. Additionally, commitment fees on undrawn amounts under the credit agreements have increased. These adjustments signal a cautious approach by management to preserve capital and maintain financial stability during an uncertain economic climate.

Key Highlights

  • 1FedEx amended its $2.0 billion and $1.5 billion credit agreements to bolster liquidity and financial flexibility during the COVID-19 pandemic.
  • 2The definition of 'Consolidated EBITDA' was modified to exclude non-cash pension service costs.
  • 3Leverage ratio covenants were temporarily increased for various periods through May 31, 2021, offering more operating flexibility.
  • 4Share repurchases are prohibited from May 27, 2020, to May 31, 2021.
  • 5The quarterly dividend per share is capped at $0.65 during the period from May 27, 2020, to May 31, 2021.
  • 6Commitment fees on the undrawn portions of the credit facilities were increased.

Frequently Asked Questions

FedEx amended its credit agreements to enhance its liquidity and financial flexibility in response to the economic uncertainties and operational impacts of the ongoing COVID-19 pandemic.

The temporary increase in leverage ratios provides FedEx with more room to operate under its debt covenants. This means the company can potentially take on more debt or experience a larger decline in its earnings (EBITDA) before potentially breaching its loan agreements during the specified periods.

During the period from May 27, 2020, to May 31, 2021, FedEx is restricted from repurchasing its common stock and from increasing its quarterly dividend above $0.65 per share. This is a measure to conserve cash and maintain financial stability during the pandemic.

The exclusion of non-cash pension service costs from the 'Consolidated EBITDA' calculation primarily affects the company's compliance with its debt covenants, not its overall reported earnings. Investors should still refer to the standard GAAP financial statements for comprehensive earnings information.