Credit Agreement Flex Scale and Summary
Informatica Debt Documents
Informatica Inc. recently completed
its IPO, returning to the public markets for the first time since Permira Funds and the Canada Pension Plan Investment Board took it private in 2015. Informatica used
the $796 million of net proceeds from the IPO, together with cash on hand and the proceeds of a new $1.875 billion term loan, to refinance $2.8 billion of prior debt.
The company’s new credit agreement also provides for a $250 million revolving facility. The IPO proceeds do not provide any additional flexibility under the credit agreement to make debt or restricted payments, although the company does have access to a post-IPO restricted payments basket equal to the sum of 7% of Informatica Inc.’s market capitalization plus 7% of the net proceeds received by or contributed to Informatica from the IPO.
The company’s capital structure as of June 30, 2021, pro forma for the IPO and the new credit agreement, is shown below:
Key Credit Agreement Terms
The credit agreement contains numerous aggressive terms, as summarized in the table below:
- IPO proceeds provide limited additional flexibility - Because the company entered into the credit agreement concurrently with the consummation of its IPO, the $796 million of net proceeds it received from the offering will not provide it with additional capacity to incur debt under a contribution debt basket (equal to 200% of cash contributions and proceeds from equity issuances received after closing) or to pay dividends, make investments or prepay payment subordinated debt under a 50% of CNI/retained ECF-based builder basket (which also provides capacity based on cash contributions and proceeds from equity issuances received after closing and is accessible without having to meet a pro forma leverage or interest coverage test).
However, the credit agreement does include a post-IPO basket that provides capacity equal to 7% of proceeds received from the company’s IPO, plus 7% of market capitalization. While most sponsored credit agreements include post-IPO dividend baskets that permit annual dividends equal to a percentage of proceeds received, a percentage of market capitalization or both, the credit agreement’s post-IPO basket permits capacity to be used for any restricted payment.
Because the definition of “Restricted Payments” includes Restricted Investments, capacity under the post-IPO restricted payments basket can provide the company with additional annual investments capacity (including capacity to transfer assets to unrestricted subsidiaries).
- Circumventing the asset sale sweep through repayment of structurally senior debt - In addition to being permitted to reinvest asset sale proceeds within 27 months of receipt (which is exceedingly long), the credit agreement permits the Borrower to deem previous capex and any repayments of debt of non-guarantor restricted subsidiaries funded within 12 months of receipt of asset sale proceeds to have satisfied the reinvestment requirements.
This could allow the company to completely circumvent having to apply asset sale proceeds for prepayments of the term loans or future reinvestments by repaying debt of non-guarantor restricted subsidiaries; this is an incredibly novel and aggressive mechanic that is not even appearing in the largest sponsored financings.
- Anti-PetSmart guarantor protection - The credit agreement includes anti-PetSmart guarantor protections pursuant to which a non-wholly-owned subsidiary will only become an “Excluded Subsidiary” if it is either (a) no longer a subsidiary of Holdings or (b) (x) Holdings has adequate investment capacity to have made an investment in such entity equal to the FMV at such time of the investment that Holdings and its restricted subsidiaries hold in such entity, (y) the disposition or other transaction resulting in such entity becoming an Excluded Subsidiary was otherwise permitted under the Credit Agreement, and (z) such disposition or transaction was made for a bona fide business purpose and not to evade the guarantee requirements.
- Financial covenant - The revolving lenders benefit from a springing 6.25x first lien net leverage ratio covenant that is only tested if on the last day of any quarter, the aggregate principal amount of all outstanding revolving loans, swingline loans and letters of credit (other than cash collateralized letters of credit and undrawn letter of credit obligations up to $15 million) exceeds 35% of the revolving loan commitments at such time. Equity cures are permitted.
- Illusory MFN protection - Because the 100bps of MFN protection (subject to a 6 month sunset) only applies to pari incremental term loans incurred under a free and clear basket not to exceed the greater of $476 million and 100% of EBITDA, and because the MFN protection only applies to such pari incremental term loans in excess of the greater of $476 million and 100% of EBITDA, unless the company incurred debt that it is not permitted to incur, it will never have to provide initial lenders with any MFN protection.
- Earlier maturing debt - Debt up to the greater of $237.5 million and 50% of EBITDA incurred under the incremental loans/incremental equivalent debt basket is permitted to mature prior to the term loans. Although this debt would be secured on a pari basis with the term loans, it could have more favorable repayment terms given its earlier maturity.
- Additional first lien incremental debt capacity based on voluntary prepayments of junior lien, unsecured debt - The company will have additional pari incremental debt capacity equal to all voluntary prepayments of pari debt (prepayments of revolving borrowings must be accompanied by a permanent reduction of revolving commitments), junior lien debt and unsecured debt, unless funded with the proceeds of long-term debt (other than revolving borrowings).
- Contribution debt - The credit agreement permits the company to incur debt In an amount equal to 200% of the net cash proceeds received by Informatica Inc. since after the closing date from the issuance or sale of its equity or from capital contributions, and such debt can be secured. The IPO proceeds do not increase this amount.
- Leverage-based investments, RPs - The company can make unlimited investments if its total net leverage ratio is not greater than 3.1x. Unlimited restricted payments are permitted if the total net leverage ratio is not greater than 2.6x and there is no event of default.
- Restricted group investments - The credit agreement does not limit the amount of investments that can be made from guarantor restricted subsidiaries to nonguarantor restricted subsidiaries. To the extent collateral assets are sold to nonguarantor restricted subsidiaries, the liens on those assets will be automatically terminated.
- Limitation on calling defaults - The lenders and administrative agent have two years following the notice of any default or event of default to commence remedial actions.
- Pro rata sharing, lien subordination amendments - While amendments to the pro rata sharing provisions require the consent of all adversely affected lenders, amendments that result in lenders’ liens being subordinated likely require only consent from a majority of lenders. Because the company is permitted to purchase the term loans in the open market, it would likely be able to participate in a superpriority uptier exchange similar to those previously consummated by Serta Simmons, Boardriders and TriMark.
Flexibility Under the Credit Agreement
Informatica’s flexibility under the new credit facility, which governs its ability to incur additional first lien debt, make investments - including transfers to unrestricted subsidiaries - and pay dividends, is shown below: