Quarterly report pursuant to Section 13 or 15(d)

Financing Agreements

v3.20.2
Financing Agreements
9 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Financing Agreements Financing Agreements
The following table summarizes Hillenbrand’s current and long-term debt as of the dates reported in the Consolidated Balance Sheets:
June 30,
2020
September 30,
2019
$500.0 term loan (1)
$ 479.9    $ —   
$400.0 senior unsecured notes (2)
394.5    —   
$375.0 senior unsecured notes, net of discount (3)
370.6    370.1   
$225.0 term loan (4)
216.2    —   
$150.0 senior unsecured notes, net of discount (5)
150.0    149.7   
$100.0 Series A Notes (6)
99.7    99.7   
$900.0 revolving credit facility (excluding outstanding letters of credit) —    —   
Other 0.2    —   
Total debt 1,711.1    619.5   
Less: current portion 36.3    —   
Total long-term debt $ 1,674.8    $ 619.5   
(1)Includes unamortized debt issuance costs of $1.4 at June 30, 2020.
(2)Includes unamortized debt issuance costs of $5.5 at June 30, 2020.
(3)Includes unamortized debt issuance costs of $3.9 and $4.3 at June 30, 2020 and September 30, 2019, respectively.
(4)Includes unamortized debt issuance costs of $0.4 at June 30, 2020.
(5)Includes unamortized debt issuance costs of $0.2 at September 30, 2019.
(6)Includes unamortized debt issuance costs of $0.3 at both June 30, 2020 and September 30, 2019.
The following table summarizes the scheduled maturities of long-term debt for 2020 through 2024:
Amount
2020 (remaining three months) (1)
$ 159.1   
2021 36.3   
2022 54.4   
2023 223.1   
2024 50.0   
(1)Includes the $150.0 senior unsecured notes which matured in July 2020. Upon maturity, the Company refinanced the notes on a long-term basis, as they were repaid with available borrowing capacity from the Revolver.  There were no outstanding borrowings under the Revolver as of June 30, 2020, primarily due to repayments made with proceeds from the $400.0 senior unsecured notes issued in June 2020. As such, these obligations were classified as long-term debt within the Consolidated Balance Sheet as of June 30, 2020.

$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. Deferred financing costs associated with the 2020 Notes of $5.5 are being amortized to interest expense on a straight-line basis over the 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

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 three and nine months ended June 30, 2020, the weighted average interest rates were 2.59% and 3.07%, respectively, for the $500.0 term loan and 2.46% and 2.94%, respectively, for the $225.0 term loan. Deferred financing costs of $2.0 are being amortized to interest expense over the 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 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.

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 June 30, 2020. As of June 30, 2020, the Company had $8.1 in outstanding letters of credit issued and $891.9 of maximum borrowing capacity under the Revolver. $642.4 of this borrowing capacity was immediately available based on the Company’s most restrictive covenant at June 30, 2020. The weighted-average interest rates
on borrowings under the Revolver were 2.59% and 2.78% for the three and nine months ended June 30, 2020, respectively, and 2.89% and 2.66% for the same periods in the prior year, respectively. The weighted average facility fee was 0.30% and 0.24% for the three and nine months ended June 30, 2020, respectively, and 0.13% and 0.12% for the same periods in the prior year, respectively.
 
Other credit arrangements

In the normal course of business, operating companies within the Process Equipment Group and Milacron reportable segments provide 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 June 30, 2020, the Company had credit arrangements totaling $383.7, under which $267.4 was used for guarantees. These arrangements include the Company’s Syndicated Letter of Guarantee Facility (as amended, the “L/G Facility Agreement”) and other ancillary credit facilities. 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.

Credit ratings update

The coupon rate on the Company’s $375.0 senior unsecured notes is impacted by public bond ratings from Moody’s and S&P Global. Downgrades from either rating agency will increase the coupon rate by 0.25% per downgrade level if the ratings are below investment grade. During the three months ended June 30, 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 $375.0 senior unsecured notes will increase to 5.0%, effective September 15, 2020.

Amendments to current financing agreements

On January 10, 2020, the Company amended the Credit Agreement, the L/G Facility Agreement, and the Private Shelf Agreement governing the Series A Notes, dated as of December 6, 2012 (as amended, 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 Sheet 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 payment of dividends, 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 nine months ended June 30, 2020, which are being amortized to interest expense over the applicable terms of the various amendments.

Covenants related to current 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 a minimum ratio of EBITDA (as defined in the agreements) to interest expense of 3.00 to 1.00.

As of June 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 $400.0, $375.0, and $150.0 senior unsecured notes, the Series A Notes, and the L/G Facility Agreement are fully and unconditionally, and jointly and severally, guaranteed by certain of the Company’s domestic subsidiaries.
The Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement each contain certain other customary covenants, representations and warranties and events of default. The indentures governing the $400.0, $375.0 and $150.0 senior unsecured notes do not limit the Company’s ability to incur additional indebtedness. They do, however, contain certain covenants that restrict the Company’s 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 senior unsecured notes with remedies if the Company fails to perform specific obligations. As of June 30, 2020, Hillenbrand was in compliance with all covenants and there were no events of default.