Financing Agreements |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financing Agreements | Financing Agreements The following table summarizes Hillenbrand’s current and long-term debt as of:
(1) Includes unamortized debt issuance costs of $1.3 at September 30, 2020.
(2) Includes unamortized debt issuance costs of $5.2 at September 30, 2020.
(3) Includes unamortized debt issuance costs of $3.7 and $4.3 at September 30, 2020 and 2019, respectively.
(4) Includes unamortized debt issuance costs of $0.3 at September 30, 2020.
(5) Includes unamortized debt issuance costs of $0.2 at September 30, 2019.
(6) Includes unamortized debt issuance costs of $0.3 and $0.3 at September 30, 2020 and 2019, respectively.
The following table summarizes the scheduled maturities of long-term debt for 2021 through 2025:
$400.0 senior unsecured notes
On June 16, 2020, the Company issued $400.0 of senior unsecured notes due June 2025 (the “2020 Notes”). The 2020 Notes were issued at par value and bear interest at a fixed rate of 5.75% per year, payable semi-annually in arrears beginning December 2020. Unamortized deferred financing costs associated with the 2020 Notes of $5.2 are being amortized to interest expense on a straight-line basis over the remaining term of the 2020 Notes. The 2020 Notes are unsubordinated obligations of the Company and rank equally in right of payment with all other existing and future unsubordinated obligations.
Subject to certain limitations, in the event of a change of control repurchase event, the Company will be required to make an offer to purchase the 2020 Notes at a price equal to 101% of the principal amount of the 2020 Notes, plus any accrued and unpaid interest to, but excluding, the date of repurchase. In addition, the 2020 Notes are redeemable with prior notice at a price equal to par plus accrued interest and a make-whole amount.
Financing for Milacron Acquisition
Senior Unsecured Bridge Facility
The Company entered into a commitment letter on July 12, 2019, pursuant to which JPMorgan Chase Bank, N.A. committed to fully provide a 364-day senior unsecured bridge facility (the “Bridge Facility”) in an aggregate principal amount of $1.1 billion. The commitments under the Bridge Facility commitment letter were reduced to zero upon the issuance of the 2019 Notes (as defined below) and with the commitments for the term loans under the Term Loan Facilities (as defined below), and the Bridge Facility commitment letter was terminated. Deferred financing costs related to the Bridge Facility were $5.6, which were fully amortized to interest expense during the year ended September 30, 2019.
Third Amended and Restated Credit Agreement
Upon completing the acquisition of Milacron on November 21, 2019, Hillenbrand incurred borrowings under its two term loans in aggregate principal amounts of $500.0 and $225.0 (the “Term Loan Facilities”), which are provided for under the Company’s Third Amended and Restated Credit Agreement dated August 28, 2019, as amended (the “Credit Agreement”). The $500.0 term loan matures on the fifth anniversary of the date on which it was borrowed, subject to quarterly amortization payments (equal to 5% of the original principal amount of the term loan in each of years 1 and 2, 7.5% in each of years 3 and 4, and 10% in year 5) and the $225.0 term loan matures on the third anniversary of the date on which it was borrowed, subject to quarterly amortization payments (equal to 5% of the original principal amount of the term loan in each of years 1 and 2, and 7.5% in year 3). The $500.0 term loan accrues interest, at the Company’s option, at the LIBO Rate or the Alternate Base Rate (each as defined in the Credit Agreement) plus a margin based on the Company’s leverage ratio, ranging from 1.00% to 2.375% for term loans bearing interest at the LIBO Rate and 0.0% to 1.375% for term loans bearing interest at the Alternate Base Rate. The $225.0 term loan accrues interest, at the Company’s option, at the LIBO Rate or the Alternate Base Rate plus a margin based on the Company’s leverage ratio, ranging from 0.875% to 2.25% for term loans bearing interest at the LIBO Rate and 0.0% to 1.25% for term loans bearing interest at the Alternate Base Rate. For the year ended September 30, 2020, the weighted average interest rate was 2.99% for the $500.0 term loan and 2.86% for the $225.0 term loan. Unamortized deferred financing costs of $1.6 are being amortized to interest expense over the remaining respective terms of the Term Loan Facilities.
In addition to the Term Loan Facilities, Hillenbrand incurred $650.0 of additional borrowings from its revolving credit facility under the Credit Agreement (the “Revolver”) at the closing of the Milacron acquisition. The additional borrowings under the Term Loan Facilities and the Revolver, in addition to the $375.0 of senior unsecured notes (described below) issued during the quarter ended September 30, 2019, were used to pay a portion of the cash consideration in connection with the acquisition of Milacron, fees and expenses related to the acquisition, and to repay certain indebtedness of Milacron and its subsidiaries upon closing the acquisition. Unamortized deferred financing costs of $4.5 are being amortized to interest expense over the remaining term of the Revolver.
With respect to the Revolver, the Company has made net repayments since the closing date of the acquisition of Milacron, resulting in no outstanding balance as of September 30, 2020. As of September 30, 2020, we had $8.1 in outstanding letters of credit issued and $891.9 of maximum borrowing capacity, $882.7 of which was immediately available based on our most restrictive covenant at September 30, 2020. The weighted-average interest rates on borrowings under the Revolver were 2.76%, 2.54%, and 1.83% for 2020, 2019, and 2018, respectively. The weighted average facility fee was 0.26%, 0.12%, and 0.15% for 2020, 2019, and 2018, respectively.
$375.0 Senior Unsecured Notes
On September 25, 2019, the Company issued $375.0 of senior unsecured notes due September 2026 (“2019 Notes”). The 2019 Notes initially had a fixed coupon rate of 4.5% per year, payable semi-annually in arrears beginning March 2020. The coupon rate on the 2019 Notes is impacted by public bond ratings from Moody’s and S&P Global, as downgrades from either rating agency increases the coupon rate by 0.25% per downgrade level below investment grade. During the third quarter of 2020, Moody’s and S&P Global each downgraded the Company’s senior unsecured credit rating by one level. As such, the original coupon rate of 4.5% on the 2019 Notes increased to 5.0%, effective September 15, 2020.
The 2019 Notes were issued at a discount of $0.6, resulting in an initial carrying value of $374.4. The Company is amortizing the discount to interest expense over the term of the 2019 Notes using the effective interest rate method, resulting in an annual interest rate of 4.53%. Unamortized deferred financing costs associated with the 2019 Notes of $3.7 are being amortized to interest expense on a straight-line basis over the remaining term of the 2019 Notes. The 2019 Notes are unsubordinated obligations of Hillenbrand and rank equally in right of payment with all of the Company’s other existing and future unsubordinated obligations. In conjunction with the issuance of the 2019 Notes, the Company terminated its interest rate swaps associated with the forecasted debt issuance. See Note 2 for further information on the termination of interest rate swaps.
Subject to certain limitations, in the event of a change of control, the Company will be required to make an offer to purchase the 2019 Notes at a price equal to 101% of the principal amount of the 2019 Notes, plus accrued and unpaid interest, if any, to but excluding the date of repurchase. In addition, the 2019 Notes are redeemable with prior notice at a price equal to par plus accrued interest and a make-whole amount.
Second Amended and Restated Credit Agreement
On December 8, 2017, the Company entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”), which was amended and restated in its entirety on August 28, 2019 by the Credit Agreement. The Second Amended and Restated Credit Agreement extended the Company’s former credit agreement, which provided for a revolving credit facility of up to $700.0 in aggregate principal amount and a term loan in an original principal amount of $180.0. Additionally, the Second Amended and Restated Credit Agreement increased the maximum principal amount available for borrowing under the Revolver from $700.0 to $900.0. In connection with the Second Amended and Restated Credit Agreement, the Company repaid the prior $180.0 term loan in full with borrowings under the Revolver. The weighted-average interest rate on the prior $180.0 term loan was 2.60% for 2018.
$150.0 Senior Unsecured Notes
In July 2010, the Company issued $150.0 of senior unsecured notes (the “2010 Notes”) due July 2020. Upon maturity in July 2020, the Company refinanced the notes on a long-term basis, as they were repaid with available borrowing capacity from the Revolver. The 2010 Notes bore interest at a fixed rate of 5.5% per year, payable semi-annually in arrears beginning January 2011. The 2010 Notes were issued at a discount of $1.6, resulting in an initial carrying value of $148.4. The Company amortized the discount to interest expense over the term of the 2010 Notes using the effective interest rate method, resulting in an annual interest rate of 5.65%.
Series A Notes
On December 15, 2014, the Company issued $100.0 in 4.60% Series A unsecured notes (“Series A Notes”) pursuant to the Private Shelf Agreement, dated as of December 6, 2012 (as amended, the “Shelf Agreement”), among the Company, Prudential Investment Management, Inc. (“Prudential”) and each Prudential Affiliate (as defined therein) that became a purchaser thereunder. The Series A Notes are unsecured, mature on December 15, 2024, and bear interest at 4.60% payable semi-annually in arrears. The Company may at any time upon providing notice, prepay all or part of the Series A Notes at 100% of the principal amount prepaid plus a make-whole amount (as defined in the Shelf Agreement). Unamortized deferred financing costs of $0.3 related to the Series A Notes are being amortized to interest expense over the remaining term of the Series A Notes.
On December 19, 2014, March 24, 2016, December 8, 2017, and September 4, 2019, the Company and certain of the Company’s domestic subsidiaries entered into amendments to the Shelf Agreement. The latest amendment conformed certain terms of the Shelf Agreement with those contained in the Credit Agreement. The Shelf Agreement governs the Series A Notes, but the Company’s ability to issue new notes under the Shelf Agreement expired in March 2019.
L/G Facility Agreement
On March 8, 2018, the Company entered into the Syndicated Letter of Guarantee Facility Agreement by and among the Company and certain of its affiliates, the lenders party thereto, and Commerzbank Finance & Covered Bond S.A., acting as agent (the “L/G Facility Agreement”). On January 10, 2020, the L/G Facility Agreement was amended to expand the size of the existing €150.0 facility by an additional €25.0. The L/G Facility Agreement permits the Company and certain of its subsidiaries to request that one or more of the participating lenders issue up to an aggregate of €175.0 in unsecured letters of credit, bank guarantees or other surety bonds (collectively, the “Guarantees”).
The Guarantees carry an annual fee that varies based on the Company’s leverage ratio. The L/G Facility Agreement also provides for a leverage-based commitment fee assessed on the undrawn portion of the facility. The L/G Facility Agreement matures in December 2022 but can be extended or terminated earlier under certain conditions. Unamortized deferred financing costs of $1.1 are being amortized to interest expense over the remaining term of the L/G Facility Agreement.
In the normal course of business, Advanced Process Solutions provides to certain customers bank guarantees and other credit arrangements in support of performance, warranty, advance payment, and other contractual obligations. This form of trade finance is customary in the industry and, as a result, the Company maintains adequate capacity to provide the guarantees. As of September 30, 2020, the Company had credit arrangements totaling $417.2, under which $261.4 was utilized for this purpose. These arrangements included the facilities under the L/G Facility Agreement and other ancillary credit facilities.
2020 amendments to current financing agreements
On January 10, 2020, the Company amended the Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement to, among other things, (i) increase the maximum permitted leverage ratio and (ii) add additional pricing levels to compensate for the increase in permitted leverage ratios.
On May 19, 2020, the Company further amended the Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement to, among other things, (i) increase the maximum permitted leverage ratio to (A) 4.75 to 1.00 for the quarters ending June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021, (B) 4.25 to 1.00 for the quarter ending June 30, 2021, (C) 4.00 to 1.00 for the quarter ending September 30, 2021, (D) 3.75 to 1.00 for the quarter ending December 31, 2021, and (E) 3.50 to 1.00 for the quarter ending March 31, 2022 and each quarter ending thereafter; (ii) increase the margin paid on various rates defined in the Credit Agreement at certain pricing levels; (iii) add additional pricing levels to compensate for the increase in permitted leverage ratios; (iv) increase the interest rate floor for various rates defined in the Credit Agreement; (v) add as a condition to each borrowing under the Revolver that the amount of cash or cash equivalents on the Consolidated Balance Sheets not exceed $350.0, subject to certain exceptions; and (vi) impose certain restrictions on the Company’s ability to make restricted payments, including limitations on share repurchases and the rate at which the Company increases its annual dividend, and grant liens on the Company’s assets until January 1, 2022.
With respect to these amendments, the Company incurred deferred financing costs of $3.6 during the year ended September 30, 2020, which are being amortized to interest expense over the applicable terms of the various amendments.
Covenants related to current Hillenbrand financing agreements
The Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement contain the following financial covenants for the current quarter: a maximum leverage ratio (as described above and defined in the agreements) of 4.75 to 1.00 and minimum ratio of EBITDA (as defined in the agreements) to interest expense of 3.00 to 1.00.
As of September 30, 2020, Hillenbrand was in compliance with all covenants under these agreements. Additionally, the Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement provide the Company with the ability to sell assets and to incur debt at its international subsidiaries under certain conditions.
All obligations of the Company arising under the Credit Agreement, the 2020 Notes, the 2019 Notes, the Shelf Agreement, the Series A Notes, and the L/G Facility Agreement are fully and unconditionally, jointly and severally, guaranteed by certain of the Company’s domestic subsidiaries.
The Credit Agreement, the Shelf Agreement and the L/G Facility Agreement each contains certain other customary covenants, representations and warranties and events of default. The indentures governing the 2020 Notes and 2019 Notes do not limit our ability to incur additional indebtedness. They do, however, contain certain covenants that restrict our ability to incur secured
debt and to engage in certain sale and leaseback transactions. The indentures also contain customary events of default. The indentures provide holders of the notes with remedies if the Company fails to perform specific obligations. As of September 30, 2020, the Company was in compliance with all covenants and there were no events of default.
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