Summary
Western Digital Corporation (WDC) announced on February 27, 2018, significant amendments to its Loan Agreement through Amendment No. 7. The primary focus of this amendment is to refinance existing debt and enhance financial flexibility. Key actions include the repayment of outstanding 2021 Term A loans and their replacement with new Term A-1 loans maturing in 2023, totaling over $4 billion. Additionally, the company has replaced its existing revolving credit facility with a new, larger, and longer-term facility, increasing its aggregate revolving credit capacity to $2.25 billion maturing in 2023.
Key Highlights
- 1Refinanced $4.02 billion in 2021 Term A loans with new Term A-1 loans due in 2023.
- 2Established a new 5-year, $1.5 billion revolving credit facility, which was subsequently increased by $750 million to $2.25 billion maturing in 2023.
- 3Used proceeds from new loans and convertible notes to fully redeem outstanding 7.375% senior secured notes due 2023.
- 4Secured more covenant flexibility and modifications to financial maintenance covenants, offering operational and strategic maneuverability.
- 5Introduced provisions for a "Collateral and Guarantee Suspension" under specific credit rating and debt repayment conditions, potentially leading to unsecured covenants and increased flexibility.
- 6Modified amortization schedules for new term loans, with initial quarterly payments of 0.625% and later 1.25%, followed by a balloon payment.
- 7The new Term A-1 loans and revolving facility are subject to interest rates tied to LIBOR or base rate plus applicable margins, with initial rates based on corporate family ratings.
Frequently Asked Questions
The primary purpose of Amendment No. 7 is to significantly restructure Western Digital's debt. It involves refinancing existing term loans, increasing and extending its revolving credit facility, and redeeming outstanding senior secured notes. This aims to improve the company's financial flexibility and extend its debt maturity profile.
The amendment replaces older term loans with new ones maturing in 2023 and extends the revolving credit facility to mature in 2023 as well. The company also used proceeds to fully redeem its 7.375% senior secured notes due 2023, effectively managing its debt obligations and extending maturities.
The Collateral and Guarantee Suspension is a provision that suspends the security and guarantees for the new loans if Western Digital achieves certain credit rating thresholds, repays all its term B loans, and meets specific debt-related conditions. Upon suspension, the company gains additional covenant flexibility and a larger capacity for incremental facilities, operating under an 'Unsecured Covenants Package'. This suspension can be reversed if ratings fall below a certain level.
Interest rates for both the Term A-1 loans and the 2023 Revolving Facility are based on either an adjusted LIBOR rate or a base rate, plus an applicable margin that varies based on Western Digital's corporate family ratings from S&P, Moody's, and Fitch. An initial interest rate of LIBOR plus 1.50% is specified. Additionally, there is an unused commitment fee on the revolving facility, also based on corporate family ratings.