8-KMaterial AgreementsFinancial EventsRegulation FD+1

WESTERN DIGITAL CORP 8-K Report, Material Agreement (Aug 18, 2016)

Filed August 18, 2016For Securities:WDC

Summary

Western Digital Corporation (WDC) has filed an 8-K report detailing a significant amendment to its Loan Agreement, effective August 17, 2016. The primary focus of this amendment is the refinancing of its U.S. dollar-denominated term B loans. This transaction involves replacing outstanding loans with new ones totaling $3,000 million, importantly, at a reduced interest rate margin. Specifically, the margin for LIBOR borrowings has been lowered from 5.50% to 3.75% (with a 0.75% LIBOR floor remaining unchanged), and for base rate borrowings, it has been reduced from 4.50% to 2.75%. This refinancing indicates a strategic move by WDC to improve its cost of debt and potentially enhance its financial flexibility. Prior to this amendment, Western Digital had already voluntarily prepaid $750 million of its existing term B loans, signaling a proactive approach to managing its debt structure. The newly refinanced loans will amortize quarterly at 0.25% of the original principal amount, with the full balance due seven years from the original loan agreement date. These loans are guaranteed by WDC's guarantors and secured by the same collateral as existing loans. Investors should view this as a positive development, reflecting management's efforts to optimize the company's capital structure and reduce borrowing costs, which could positively impact future profitability.

Key Highlights

  • 1Western Digital amended its Loan Agreement on August 17, 2016.
  • 2The amendment involved refinancing $3,000 million in U.S. dollar-denominated term B loans.
  • 3Interest rate margins on the refinanced loans were significantly reduced: from 5.50% to 3.75% for LIBOR borrowings and from 4.50% to 2.75% for base rate borrowings.
  • 4A prepayment of $750 million of existing term B loans was made prior to the refinancing.
  • 5The refinanced loans have a maturity of seven years from the original loan agreement date and amortize quarterly.
  • 6The new loans are guaranteed by existing guarantors and secured by the same collateral.
  • 7The filing also includes a press release dated August 18, 2016, furnished under Regulation FD.

Frequently Asked Questions

The main purpose of the amendment is to refinance Western Digital's outstanding U.S. dollar-denominated term B loans. This involves replacing existing loans with new ones that carry a lower interest rate margin, thereby reducing the company's cost of borrowing.

The interest rate margin for LIBOR borrowings has been reduced from 5.50% to 3.75%, with the LIBOR floor remaining unchanged at 0.75%. For base rate borrowings, the margin has been lowered from 4.50% to 2.75%. The specific applicable rates will depend on the prevailing LIBOR or base rate, plus these new margins.

Yes, Western Digital voluntarily prepaid $750 million of its existing U.S. dollar-denominated term B loans immediately prior to entering into this amendment and refinancing transaction.

The refinanced U.S. dollar-denominated term B loans amortize in equal quarterly installments of 0.25% of the original principal amount, with the remaining balance payable on the date that is seven years after the original Loan Agreement date (April 29, 2016).