What is the main purpose of the amendment to Howmet's credit agreement?

The main purpose of the amendment is to provide Howmet Aerospace with temporary relief on its financial covenants, specifically the ratio of Consolidated Net Debt to Consolidated EBITDA, until December 31, 2021. This is intended to offer greater financial flexibility during a period of economic uncertainty.

How does the debt covenant relief affect Howmet's financial leverage?

The amendment significantly increases the maximum allowable ratio of Consolidated Net Debt to Consolidated EBITDA. For instance, it goes up to 5.00:1.00 by the end of 2020 and up to 5.25:1.00 by March 31, 2021, before gradually decreasing. This allows the company to incur more debt relative to its earnings during the specified period without breaching its covenants.

Are there any permanent changes to the credit facility?

Yes, there is a permanent reduction in the Total Commitment under the revolving credit facility. The facility's size is reduced from $1.5 billion to $1.0 billion.

What restrictions are being temporarily imposed?

During the covenant relief period, the amendment temporarily restricts certain activities, including making restricted payments, incurring new liens, issuing subsidiary indebtedness, and establishing accounts receivable facilities.

HWM 8-K: Material Agreements & Financial Events

Summary

Howmet Aerospace Inc. (HWM) filed an 8-K on June 29, 2020, to report on a material amendment to its Five-Year Revolving Credit Agreement. The primary focus of this amendment is to provide temporary relief on financial covenants through December 31, 2021, in response to prevailing economic conditions. This relief includes significantly increased allowable ratios for Consolidated Net Debt to Consolidated EBITDA, which vary by quarter during the relief period. Additionally, the amendment imposes certain temporary restrictions on restricted payments, liens, subsidiary indebtedness, and accounts receivables facilities. It also includes a temporary increase in the Applicable Margin on the credit facility. A notable permanent change is the reduction of the Total Commitment under the revolving credit facility from $1.5 billion to $1.0 billion. Investors should note these changes as they impact the company's financial flexibility and borrowing capacity during this period.

Key Highlights

1Amendment to the Five-Year Revolving Credit Agreement executed on June 26, 2020.
2Extended financial covenant relief for Consolidated Net Debt to Consolidated EBITDA ratio until December 31, 2021.
3Increased maximum Debt/EBITDA ratios, ranging from 4.00:1.00 to 5.25:1.00, depending on the fiscal quarter.
4Temporary amendments include restrictions on restricted payments, liens, subsidiary debt, and A/R facilities.
5Applicable Margin on the credit facility temporarily increased by 0.50% until June 30, 2021, and 0.25% until December 31, 2021.
6Permanent reduction in the Total Commitment of the revolving credit facility from $1.5 billion to $1.0 billion.

Howmet Aerospace Inc. 8-K Report, Material Agreement (Jun 29, 2020)

Summary

Key Highlights

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