Item 1.01. Entry into a Material Definitive Agreement.
On July 23, 2020, Farmer Bros. Co., a Delaware corporation (the “Company”), amended both its Amended and Restated Credit Agreement dated as of November 6, 2018 (as amended to date, including pursuant to Amendment No. 3, the “Credit Agreement”) and its related Amended and Restated Pledge and Security Agreement dated as of November 6, 2018, by entering into Amendment No. 3 to the Amended and Restated Credit Agreement (“Amendment No. 3”) with JPMorgan Chase Bank, N.A. (“Chase”), as Administrative Agent and lender, and the other lenders party thereto.
The following summary description of Amendment No. 3 does not purport to be complete and is subject to, and qualified in its entirety by reference to Amendment No. 3, a copy of which is filed herewith as Exhibit 10.1 and Exhibit 10.2, collectively, and incorporated herein by reference.
Amendment No. 3, among other things:
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(1)
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retained the revolving commitments under the Credit Agreement of $125 million and the sublimit on letters of credit and swingline loans of $15 million each;
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(2)
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added a $5.0 million quarterly commitment reduction beginning September 30, 2021;
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(3)
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adjusted from cash flow-based to an asset-based lending structure with a borrowing base of 85% of eligible accounts receivable plus 50% of eligible inventory with certain permitted maximum over advance amounts;
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(4)
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removed all previous financial covenants of net leverage ratio, interest coverage ratio and minimum EBITDA;
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(5)
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added a covenant relief period (fiscal month ending September 30, 2021), during which the Company must comply with the following:
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(i) a minimum cumulative EBITDA covenant, tested on a monthly basis until the last day of June 2021;
(ii) a standalone minimum monthly EBITDA covenant tested on the last day of July 2021 and August 2021; and
(iii) a restriction on capital expenditures in excess of $25.0 million in aggregate.
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(6)
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added a minimum liquidity covenant, tested on a weekly basis;
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(7)
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added an anti-cash hoarding provision;
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(8)
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added a minimum fixed charge coverage ratio of 1.05:1.00 commencing with fiscal quarter ending September 30, 2021, and tested on a quarterly basis thereafter;
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(9)
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modified the applicable margin for base rate loans to range from PRIME + 3.50% to PRIME + 4.50% per annum and the applicable margin for Eurodollar loans to range from Adjusted LIBO Rate + 4.50% to Adjusted LIBO Rate + 5.50% per annum;
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(10)
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provided for the revolving commitments to be reduced upon the occurrence of certain asset dispositions and incurrence non-permitted indebtedness and imposed additional restrictions on the Company’s ability to utilize certain other negative covenant baskets; and
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(11)
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added a requirement to provide additional mortgages and related mortgage instruments with respect to certain specified real property owned by the Company.
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Amendment No. 3 provides the Company increased flexibility to proactively manage its liquidity and working capital, while maintaining compliance with its debt financial covenants, and preserving financial liquidity to mitigate the impact of the uncertain business environment resulting from the COVID-19 pandemic and continue to execute on key strategic initiatives.
Chase and its affiliates have performed, and may in the future perform, for the Company and its subsidiaries, various commercial banking services, for which they have received, and will receive, customary fees and expenses.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information required by this Item 2.03 is set forth in Item 1.01—Entry into a Material Definitive Agreement above and incorporated herein by reference.