Item 1.01 Entry into a Material Definitive Agreement
Entry into A&R Credit Agreement
On May 14, 2020, Babcock & Wilcox Enterprises, Inc. (“we”, “our” or the “Company”) entered into an agreement with its lenders amending and restating its existing credit agreement, dated as of May 11, 2015 (as amended from time to time, the “Amended Credit Agreement”), among the Company, Bank of America, N.A., as administrative agent (the “Administrative Agent”) and lender, and the other lenders party thereto. The credit agreement, as amended and restated (the “A&R Credit Agreement”), refinances and extends the maturity of the Company’s revolving credit facility and last out term loans.
Under the A&R Credit Agreement, B. Riley Financial, Inc. (together with its affiliates, “B. Riley”) has committed to provide the Company with up to $70.0 million of additional last out term loans on the same terms as the term loans extended under the Amended Credit Agreement. An aggregate $30.0 million of this new commitment was funded upon execution of the A&R Credit Agreement. Of the remaining commitments, at least $35.0 million will be funded in installments, subject to reduction for the gross proceeds from certain equity offerings conducted by the Company, and $5.0 million will be funded upon request by the Company. The proceeds from the $30 million of new term loans will be used to pay transaction fees and expenses and repay outstanding borrowings under the revolving credit facility governed by the A&R Credit Agreement (the "revolving credit facility"). Proceeds from the additional $40 million of term loans will be used to repay outstanding borrowings under the revolving credit facility, with any remaining amounts used for working capital, capital expenditures, permitted acquisitions and general corporate purposes.
The A&R Credit Agreement also provides that (i) the revolving credit facility continues to be available for issuances of existing and new letters of credit, subject to the L/C Sublimit (as defined below), (ii) the $205.0 million sublimit on borrowings under the revolving credit facility is maintained, and (iii) interest payments on the unpaid principal amount of revolving credit loans incurred during the period from May 14, 2020 through and including August 31, 2020 are deferred and will be paid in six equal installments on the last business day of each calendar month beginning on January 29, 2021 and through June 30, 2021. No swing line borrowings are permitted under the A&R Credit Agreement.
The A&R Credit Agreement also amends the following terms, among others, as compared with the Amended Credit Agreement:
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(i)
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the maturity date of the revolving credit facility will be extended to June 30, 2022, and the maturity date of all last out term loans under the A&R Credit Agreement will be extended to December 30, 2022 (six months after the maturity date of the revolving credit facility);
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(ii)
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the interest rate for loans under the revolving credit facility will be reduced to LIBOR plus 7.0% or base rate (as defined in the A&R Credit Agreement) plus 6.0%. These margins will be reduced by 2.0% if commitments under the revolving credit facility are reduced to less than $200.0 million. The fee for letters of credit will be set at 4.0%;
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(iii)
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the interest rate for all last out term loans will be set at 12.0%;
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(iv)
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the commitments under the revolving credit facility will automatically and permanently decrease in the following amounts on the following dates, which match the funding dates and amounts for the committed term loans: (x) $10.0 million on November 30, 2020; and (y) $5.0 million on each of March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and March 31, 2022, respectively;
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(v)
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the amount of revolving loans and letters of credit available in currencies other than U.S. dollars will be capped at $125.0 million through April 30, 2021 and step down to $110.0 million on May 1, 2021; and
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(vi)
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the amount of financial letters of credit will be capped at $75.0 million, and the amount of all letters of credit will be capped at $190.0 million through April 30, 2021 and step down to $175.0 million on May 1, 2021 (the “L/C Sublimit”).
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Affirmative and negative covenants under the A&R Credit Agreement are substantially consistent with the Amended Credit Agreement, except that, among other changes: (i) the indebtedness covenant has been modified to permit the
incurrence of any governmental assistance in the form of indebtedness in connection with COVID-19 relief in an aggregate principal amount not to exceed $10.0 million; (ii) a third-party letter of credit basket of up to $50.0 million has been added; (iii) certain liens and restricted payments are modified to permit liens and repayments of indebtedness incurred in connection with governmental assistance in connection with COVID-19 relief; and (iv) covenants related to the European Vølund EPC loss projects have been removed. The minimum required liquidity condition of $30.0 million remains constant, but has been modified to exclude cash of non-loan parties in an amount in excess of $25.0 million. Certain financial covenant testing has been suspended through September 30, 2020, with the Company and the Administrative Agent having agreed to renegotiate such covenant levels and related definitions prior to October 31, 2020.
Events of default under the A&R Credit Agreement are substantially consistent with the Amended Credit Agreement, except that: (i) B. Riley’s failure to fund any of its additional last out term loans committed under the A&R Credit Agreement will constitute an event of default; and (ii) the failure to renegotiate and set certain financial covenant testing levels and related definitions prior to October 31, 2020 will constitute an event of default.
In connection with the A&R Credit Agreement, the Company will incur certain customary amendment and commitment fees, a portion of which will be deferred pursuant to the terms of the A&R Credit Agreement along with certain previously deferred fees incurred under the Amended Credit Agreement.
The foregoing description of the A&R Credit Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the A&R Credit Agreement, which is filed as Exhibit 10.1 hereto, and is incorporated herein by reference.
B. Riley Limited Guaranty
In connection with the Company’s entry into the A&R Credit Agreement, B. Riley has agreed to enter into a limited guaranty for the benefit of the Administrative Agent and the lenders under the revolving credit facility (the “B. Riley Guaranty”). The B. Riley Guaranty provides for the guarantee of all of the Company’s obligations with respect to the revolving credit facility (other than with respect to letters of credit and contingent obligations), including the obligation to repay outstanding revolving credit loans and pay earned interest and fees. The B. Riley Guaranty is enforceable in certain circumstances, including, among others: (i) B. Riley’s failure to timely fund in full any of its additional last out term loans committed under the A&R Credit Agreement; (ii) certain events of default relating to bankruptcy or insolvency occurring with respect to B. Riley; (iii) the acceleration of the Company’s borrowings under the revolving credit facility; (iv) the Company’s failure to pay any amount due to the Administrative Agent or any lender under the revolving credit facility; or (v) any assertion that the B. Riley Guaranty or any portion thereof is not valid, binding or enforceable.
In connection with the B. Riley Guaranty, the Company entered into a fee letter with B. Riley pursuant to which the Company agreed to pay B. Riley a fee of $3.9 million (the “B. Riley Guaranty Fee”).
The foregoing description of the Guaranty Agreement and fee letter is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Guaranty Agreement and fee letter, which are filed as Exhibits 99.1 and 10.2 hereto, respectively, and are incorporated herein by reference.
Fee and Interest Equitization Agreement
In connection with the B. Riley Guaranty, the Company entered into a Fee and Interest Equitization Agreement (the “Equitization Agreement”) with B. Riley and, solely for certain limited purposes under the Equitization Agreement, B. Riley FBR, Inc.
The Equitization Agreement provides that, in lieu of receiving (a) $12.343 million of interest payments with respect to last out term loans under the A&R Credit Agreement between May 14, 2020 and December 31, 2020 (the “Equitized Interest Payments”) and (b) the B. Riley Guaranty Fee (the “Equitized Fee Payment” and, together with the Equitized Interest Payments, the “Equitized Fees and Interest Payments”), B. Riley will receive shares of the Company’s common stock, par value $0.01 per share (“common stock”).
Under the Equitization Agreement, B. Riley will receive a number of shares of common stock equal to (i) the aggregate dollar value of the Equitized Fees and Interest Payments divided by (ii) the Conversion Price. For purposes of the Equitization Agreement, the “Conversion Price” means the average volume weighted average price of the common stock over 15 consecutive trading days beginning on and including May 15, 2020 (the “Measurement Period”), subject to customary adjustments. For purposes of the listing requirements of the New York Stock Exchange (the "NYSE"), the Equitization Agreement sets a minimum for the Conversion Price of $1.55 per share of common stock, unless and until approval is obtained from the Company’s stockholders under the rules of the NYSE.
The Company is required under the Equitization Agreement to use its reasonable best efforts to take all actions to obtain any necessary stockholder approval under the rules of the NYSE for the issuance of the Shares. B. Riley has agreed to cause all shares of common stock beneficially owned by B. Riley to be voted in favor of any proposal presented to the Company’s stockholders seeking approval of the issuance of shares pursuant to the Equitization Agreement.
The issuance of shares pursuant to the Equitization Agreement is subject to customary closing conditions including approval for listing of the shares on the NYSE. Subject to the satisfaction or waiver of such conditions, shares will be issued to B. Riley, in the case of the Equitized Fee Payment, on the first business day following the Measurement Period, and in the case of Equitized Interest Payments, on the scheduled interest payment dates as provided by the A&R Credit Agreement without giving effect to any waiver or deferral contemplated thereby.
To the extent that the Company is unable to issue any shares to B. Riley pursuant to the Equitization Agreement due to the failure to have obtained the required stockholder approval as a result of the Conversion Price not being at least $1.55, the unpaid portion of the Equitized Fees and Interest Payments will be paid in cash at the last out term loan maturity date under the A&R Credit Agreement.
The foregoing description of the Equitization Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Equitization Agreement, which is filed as Exhibit 10.3 hereto, and is incorporated herein by reference.
Termination of Backstop Commitment Letter
As part of the entry into the A&R Credit Agreement and the related transactions, the Company, B. Riley and the Administrative Agent agreed to terminate the backstop commitment letter provided by B. Riley on January 31, 2020 in connection with Amendment No. 20 to the Amended Credit Agreement. A copy of the agreement terminating the backstop commitment letter is filed as Exhibit 10.4 hereto, and is incorporated herein by reference.
As of March 31, 2020, affiliates of B. Riley control approximately 17.8% of the voting power represented by the Company’s common stock and has the right to nominate three members of the Company’s board of directors pursuant to the investor rights agreement we entered into with affiliates of B. Riley on April 30, 2019. The investor rights agreement also provides pre-emptive rights to B. Riley with respect to certain future issuances of the Company’s equity securities. The services of the Company’s Chief Executive Officer are provided by B. Riley pursuant to a consulting agreement, and B. Riley currently holds all of the Company’s outstanding last out term loans issued under its A&R Credit Agreement. As a result of these arrangements, B. Riley has significant influence over management and policies and over all matters requiring shareholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. Further, if B. Riley and other significant shareholders of the Company, such as Vintage Capital Management, were to act together on any matter presented for shareholder approval, they would have the ability to control the outcome of that matter. B. Riley can take actions that have the effect of delaying or preventing a change of control of the Company or discouraging others from making tender offers for the Company’s shares, which could prevent shareholders from receiving a premium for their shares. These actions may be taken even if other shareholders oppose them.
Certain of the lenders, including B. Riley, as well as certain of their respective affiliates, have performed and may in the future perform for the Company and its subsidiaries, various commercial banking, investment banking, lending,
underwriting, trust services, financial advisory and other financial services, for which they have received and may in the future receive customary fees and expenses.