Item 1.01 Entry into a Material Definitive Agreement.
Credit Agreement Amendment
On April 13, 2020, Spirit AeroSystems Holdings, Inc. (the “Company”), Spirit AeroSystems, Inc., the Company’s direct wholly-owned subsidiary (“Spirit”), and Spirit AeroSystems North Carolina, Inc., a wholly-owned subsidiary of the Company, entered into an amendment (the “April 2020 Amendment”) to its Second Amended and Restated Credit Agreement, among Spirit, the Company, as parent guarantor, the lenders party thereto, Bank of America, N.A., as administrative agent (the “Credit Agreement Collateral Agent”), and the other agents named therein (the “2018 Credit Agreement”), consisting of a $800 million revolving credit facility (the “Revolver”), a $206 million term loan A facility (the “Term Loan”) and a $250 million delayed draw term loan facility (the “Delayed Draw Term Loan”). The effectiveness of the April 2020 Amendment is expressly conditioned upon Spirit successfully raising at least $500 million in proceeds from additional indebtedness on or before May 12, 2020. Accordingly, the April 2020 Amendment will not become effective unless and until Spirit receives at least such amount in proceeds from the offering referred to below (the “Offering”) or other indebtedness by that date.
The primary purpose for entering into the April 2020 Amendment was to permit Spirit to raise up to $1.2 billion in second priority secured indebtedness and provide covenant flexibility for future capital raises and to take into account market conditions. The April 2020 Amendment waived or modified the testing of the ratios set forth in the 2018 Credit Agreement and the First Amendment to Second Amended and Restated Credit Agreement, dated as of February 24, 2020, and put the following financial ratios and tests in place:
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First Lien Leverage Ratio: Commencing with the first fiscal quarter of 2020, the ratio of first lien senior secured debt to consolidated EBITDA over the last twelve months shall not, as of the end of the applicable fiscal quarter, be greater than: (i) 3.00:1.00, with respect to the first fiscal quarter of 2020; (ii) 4.50:1.00, with respect to the second fiscal quarter of 2020; (iii) 6.50:1.00, with respect to the third fiscal quarter of 2020; (iv) 6.75:1.00, with respect to the fourth fiscal quarter of 2020; (v) 5.00:1.00, with respect to the first fiscal quarter of 2021; (vi) 4.50:1.00, with respect to the second fiscal quarter of 2021; (vii) 3.50:1.00, with respect to the third fiscal quarter of 2021; and (viii) 3.00:1.00 thereafter through the fourth fiscal quarter of 2022.
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Interest Coverage Ratio: Commencing with the first fiscal quarter of 2020, the interest coverage ratio shall not, as of the end of the applicable fiscal quarter, be less than: (i) 4.00:1.00, with respect to the first fiscal quarter of 2020; (ii) 2.25:1.00, with respect to the second fiscal quarter of 2020; (iii) 1.25:1.00, with respect to the third fiscal quarter of 2020; (iv) 1.25:1.00, with respect to the fourth fiscal quarter of 2020; (v) 1.75:1.00, with respect to the first fiscal quarter of 2021; (vi) 2.25:1.00, with respect to the second fiscal quarter of 2021; (vii) 2.50:1.00, with respect to the third fiscal quarter of 2021; (viii) 2.75:1.00, with respect to the fourth fiscal quarter of 2021; (ix) 3.00:1.00, with respect to the first fiscal quarter of 2022; (x) 3.25:1.00, with respect to the second fiscal quarter of 2022; (xi) 3.75:1.00 with respect to the third fiscal quarter of 2022; (xii) 3.75:1.00 with respect to the fourth fiscal quarter of 2022; and (xiii) 4.00:1.00 thereafter.
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Total Leverage Ratio: Testing of the total leverage ratio will be suspended until the first fiscal quarter of 2022. Commencing with the first fiscal quarter of 2022, the ratio of indebtedness to consolidated EBIDTA over the last twelve months, shall not, as of the end of the applicable fiscal quarter, be greater than (i) 5.50:1.00, with respect to the first fiscal quarter of 2022; (ii) 5.00:1:00, with respect to the second fiscal quarter of 2022; (iii) 4.75:1.00, with respect to the third fiscal quarter of 2022; (iv) 4.50:1.00, with respect to the fourth fiscal quarter of 2022; and (v) 3.50:1.00 thereafter.
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Minimum Liquidity: As of the end of each fiscal month, commencing with the first fiscal month until the end of the fourth fiscal quarter of 2021, Holdings shall have minimum liquidity of not less than $1,000 million.
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Following the fourth fiscal quarter of 2022, the ratios will revert back to the ratios in the 2018 Credit Agreement prior to giving effect to any amendments. The minimum liquidity covenant will no longer be applicable following the fourth fiscal quarter of 2021. The first lien leverage ratio will no longer be applicable following the fourth fiscal quarter of 2022.
Additionally, the April 2020 Amendment also requires Spirit to demonstrate pro-forma compliance with the financial covenants set forth in the 2018 Credit Agreement for future borrowings under the Revolver.
All revolver draws and other credit extensions under the 2018 Credit Agreement are subject to the Company making a representation that no material adverse effect has occurred on the Company’s operations, business, assets, properties, liabilities, or financial condition (among other items) since a specified date. The April 2020 Amendment added a provision that the
impacts of the COVID-19 pandemic on the business, operations and/or financial condition of the Company occurring prior to December 31, 2020 that were publicly disclosed or disclosed to the Administrative Agent prior to the effectiveness of the April 2020 Amendment will be disregarded when considering whether a material adverse effect has occurred when this representation is made. The prior amendment entered into in February 2020 also added a provision that no events or circumstances relating to the Boeing 737 MAX program shall be deemed to constitute a material adverse effect when this representation is made.
Each of the Revolver, the Term Loan and the Delayed Draw Term Loan continues to mature on July 12, 2023, and, following the effectiveness of the April 2020 Amendment, will bear interest at a rate, at Spirit’s option, ranging between LIBOR plus 3.125% and LIBOR plus 4.125% (or between base rate plus 2.125% and base rate plus 3.125%, as applicable) based on Spirit’s senior unsecured ratings provided by S&P and/or Moody’s.
Certain of the lenders under the Credit Agreement and their affiliates have provided certain commercial banking, financial advisory and investment banking services to the Company and its affiliates in the past and may do so in the future. In addition, The Bank of New York Mellon, one of the lenders under the Credit Agreement, and its affiliates act as the trustee, paying agent and registrar for Spirit’s senior notes and the investment manager for the Company’s U.S. defined benefit pension plan. Such parties received, and expect to receive, customary fees and commissions for these services.
The description of the April 2020 Amendment in this Current Report on Form 8-K does not purport to be complete and is qualified in its entirety by reference to the full text of the April 2020 Amendment, which will be filed at a later date and incorporated herein by reference.