Thu 09/17/2020 13:14 PM
Covenants Tear Sheet, Debt Document Summaries
The HIllman Companies’ Debt Documents
The Hillman Cos. Inc. and its subsidiaries, including The Hillman Group Inc., provide hardware-related products and related merchandising services to retail markets in North America, according to its most recent 10-Q
Continue reading for the Covenants by Reorg team's covenant analysis of The Hillman Cos., and request a trial to access the above accompanying debt documents and hundreds of other covenants analyses.
The company is privately held by affiliates of CCMP Capital Advisors and Oak Hill Capital Partners, who purchased the company in 2014. As of June 27, affiliates of CCMP Capital Advisors owned 80.4% of HMAN Group Holdings Inc. (the parent of The Hillman Cos.) and affiliates of Oak Hill Capital Partners owned another 16.9%.
The Hillman Cos. has an ABL facility, term loan facility and one series of unsecured senior notes. The company also has 11.6% junior subordinated debentures due in 2027 that underlie certain trust preferred securities issued by the Hillman Group Capital Trust in 1997. These debentures are excluded from our analysis of the company’s debt documents.
The company’s capital structure as of the end of its second quarter is shown below for reference.
- Springing financial covenant - The ABL credit agreement contains a 1x fixed charge coverage ratio covenant that is only tested when availability is less than the greater of 10% of the line cap and $20 million. Although it is not currently tested, we estimate that the company would be in compliance.
- ABL covenant capacity - Because the payment conditions are currently met, the ABL does not restrict the company’s ability to incur secured debt (as long as such debt matures at least 91 days after the maturity of the ABL), make restricted payments or investments, or prepay any debt.
- Term loan covenant capacity - Under the term loans, the loan parties can incur an additional $290 million of first lien debt, plus unsecured debt until the interest coverage ratio does not exceed 2x. Non-loan parties can incur $90 million of secured debt and another $90 million of unsecured debt. For restricted payments, we estimate that the term loans permit $480 million of unrestricted subsidiary transfers, $190 million of which could alternatively be used for prepayments, and $120 million of which could alternatively be used for dividends, plus, in all cases, additional amounts based on 50% of consolidated net income from April 1, 2018.
- Senior notes covenant capacity - The senior notes likely permit loan parties to incur additional secured debt of $818.5 million and unlimited unsecured debt, as long as the fixed charge coverage ratio remains above 2x. Non-loan parties can incur up to $892 million of secured debt plus an additional $61 million of unsecured debt, as long as the fixed charge coverage ratio remains above 2x. For restricted payments, the senior notes permit $354.5 million of unrestricted sub transfers, $113.5 million of which could alternatively be used for dividends, plus, in both cases, additional amounts based on 50% of consolidated net income from April 1, 2014.
- J.Crew-style baskets - The ABL and term loan investment covenants contain J.Crew-style proceeds baskets, which permit non-loan party subsidiaries to make investments with the proceeds received by any such subsidiary from permitted investments made in such subsidiary.
This basket, effectively, converts a basket that could only be used for investments in non-guarantor restricted subsidiaries into a general-purpose investments basket that can be used to make additional investments in unrestricted subsidiaries.
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2020 Reorg Research, Inc. All rights reserved.