Diebold Nixdorf, Inc.
New Coverage: Diebold Engages Jones Day, Evercore, Seeks Covenant Amendment Amid Liquidity Pressure Tied to Operations, Minority Shareholder Put
Fri 08/10/2018 14:18 PM
Diebold Nixdorf Inc., a financial services company specializing in connected commerce and ATMs, has retained Jones Day as legal advisor and Evercore as financial advisor, according to sources. The advisor mandates come as the company pursues covenant relief from its lenders, faces a cash outlay of at least $160 million to certain minority shareholders and has lowered fiscal year 2018 guidance.
Diebold reported second-quarter earnings on Aug. 1, and along with its results, it lowered full-year 2018 revenue and EBITDA guidance in an updated outlook for the fiscal year. The company’s full-year revenue guidance was revised to about $4.5 billion, from a range of between $4.5 billion and $4.7 billion; adjusted EBITDA guidance meanwhile was revised to a range of $280 million to $320 million, from $380 million to $410 million. Further, according to the company’s disclosures, Diebold expects about $100 million of free cash flow burn in fiscal 2018. Net leverage as of the end of the second quarter was 4.5x, the company disclosed, a quarter-turn below its 4.75x covenant requirement.
Several days after announcing results, on Monday, Aug. 6, Diebold published its second-quarter 10-Q and disclosed that the company will be required to redeem 2.4 million Diebold Nixdorf AG shares for an estimated $160 million under a minority shareholder put right, which was exercised in “early August.” According to the 10-Q, Diebold expects to fund the redemption obligation with cash on hand and revolver borrowings. Although the company reported $882.2 million of liquidity as of June 30 - which includes $299 million of cash - and has sufficient restricted payments capacity to make such redemptions, an analysis by Reorg Covenants shows that the required outlay of cash and revolver borrowings would increase net leverage by approximately 0.5x on the basis of $348 million of June 30 LTM EBITDA and net debt calculated in accordance with the credit agreement.
Adding uncertainty, Diebold could face additional requirements to redeem shares under minority shareholder put rights. The shareholder put right stems from the company’s 2016 acquisition of 22.9 million or 76.9% of ordinary shares of Wincor Nixdorf Aktiengesellschaft (now known as Diebold Nixdorf AG) and a related agreement between the company and its wholly owned subsidiary Diebold Holding Germany Inc. & Co. KGaA, called the Domination and Profit and Loss Transfer Agreement. As stated in the 10-Q, “The DPLTA offers the Diebold Nixdorf AG minority shareholders, at their election, (i) the ability to put their Diebold Nixdorf AG ordinary shares to Diebold KGaA in exchange for cash compensation of €55.02 per Diebold Nixdorf AG ordinary share or (ii) to remain Diebold Nixdorf AG minority shareholders and receive a recurring compensation in cash of €2.82 per Diebold Nixdorf AG ordinary share for each full fiscal year of Diebold Nixdorf AG.”
The 2.4 million Diebold Nixdorf AG shares put to the company in August represent just part of the estimated 6.9 million ordinary shares not acquired by Diebold in the 2016 deal. The put right is available to all minority shareholders, the DPLTA shows, and at recent trading levels, it is now in the money. Diebold Nixdorf AG shares are currently trading at €51.60, according to the Boerse Frankfurt.
The expected increase in net leverage tied to the “early August” shareholder put follows disclosures made Aug. 1, in connection with Diebold’s second-quarter earnings release, that it anticipated a likely covenant breach in the near term. Citing operating performance “below expectations,” Diebold disclosed in its second-quarter 10-Q that, absent an improvement in financial performance, the company anticipates violating its net leverage covenant and accordingly is “in process of seeking an amendment to that covenant or obtaining a waiver thereof from our lenders.”
Speaking to the company’s potential need for covenant relief on the company’s Aug. 1 call, CFO Christopher Chapman additionally cited the revised outlook, which he said “indicates that there is a potential that in future periods the company may not meet its net debt to trailing 12-month EBITDA covenant as defined by our credit facility agreement.” Chapman added, “We have engaged our principal lenders and are in constructive dialogue regarding an amendment to address this concern. We anticipate a resolution in the coming weeks, and we will update you accordingly.”
While declining to go into specifics about the amendment, Chapman said on the call that the company has a “very supportive lender group” and that he did not “foresee” having to issue new equity. Lenders have already eased the net leverage covenant once this year, entering into an amendment on April 17 that modified calculations of total net debt and increased the maximum net leverage covenant under the credit agreement governing the term loan A and revolver to 4.75x for the June 30 LTM period, 4.5x for the Dec. 31 LTM period, and 4.25x for the Dec. 31, 2019 LTM period. The amendment also modified the net interest coverage ratio to a minimum of 3.0x. According to Diebold’s second-quarter earnings presentation, net leverage as of the June 30 end of the second quarter was 4.5x.
After trading in the mid-90s in July, Diebold’s bonds slid to the low 80s after the Aug. 1 earnings report and most recently traded this afternoon at 54.75, according to MarketAxess data.
Diebold reported second-quarter earnings on Aug. 1, and along with its results, it lowered full-year 2018 revenue and EBITDA guidance in an updated outlook for the fiscal year. The company’s full-year revenue guidance was revised to about $4.5 billion, from a range of between $4.5 billion and $4.7 billion; adjusted EBITDA guidance meanwhile was revised to a range of $280 million to $320 million, from $380 million to $410 million. Further, according to the company’s disclosures, Diebold expects about $100 million of free cash flow burn in fiscal 2018. Net leverage as of the end of the second quarter was 4.5x, the company disclosed, a quarter-turn below its 4.75x covenant requirement.
Several days after announcing results, on Monday, Aug. 6, Diebold published its second-quarter 10-Q and disclosed that the company will be required to redeem 2.4 million Diebold Nixdorf AG shares for an estimated $160 million under a minority shareholder put right, which was exercised in “early August.” According to the 10-Q, Diebold expects to fund the redemption obligation with cash on hand and revolver borrowings. Although the company reported $882.2 million of liquidity as of June 30 - which includes $299 million of cash - and has sufficient restricted payments capacity to make such redemptions, an analysis by Reorg Covenants shows that the required outlay of cash and revolver borrowings would increase net leverage by approximately 0.5x on the basis of $348 million of June 30 LTM EBITDA and net debt calculated in accordance with the credit agreement.
Adding uncertainty, Diebold could face additional requirements to redeem shares under minority shareholder put rights. The shareholder put right stems from the company’s 2016 acquisition of 22.9 million or 76.9% of ordinary shares of Wincor Nixdorf Aktiengesellschaft (now known as Diebold Nixdorf AG) and a related agreement between the company and its wholly owned subsidiary Diebold Holding Germany Inc. & Co. KGaA, called the Domination and Profit and Loss Transfer Agreement. As stated in the 10-Q, “The DPLTA offers the Diebold Nixdorf AG minority shareholders, at their election, (i) the ability to put their Diebold Nixdorf AG ordinary shares to Diebold KGaA in exchange for cash compensation of €55.02 per Diebold Nixdorf AG ordinary share or (ii) to remain Diebold Nixdorf AG minority shareholders and receive a recurring compensation in cash of €2.82 per Diebold Nixdorf AG ordinary share for each full fiscal year of Diebold Nixdorf AG.”
The 2.4 million Diebold Nixdorf AG shares put to the company in August represent just part of the estimated 6.9 million ordinary shares not acquired by Diebold in the 2016 deal. The put right is available to all minority shareholders, the DPLTA shows, and at recent trading levels, it is now in the money. Diebold Nixdorf AG shares are currently trading at €51.60, according to the Boerse Frankfurt.
The expected increase in net leverage tied to the “early August” shareholder put follows disclosures made Aug. 1, in connection with Diebold’s second-quarter earnings release, that it anticipated a likely covenant breach in the near term. Citing operating performance “below expectations,” Diebold disclosed in its second-quarter 10-Q that, absent an improvement in financial performance, the company anticipates violating its net leverage covenant and accordingly is “in process of seeking an amendment to that covenant or obtaining a waiver thereof from our lenders.”
Speaking to the company’s potential need for covenant relief on the company’s Aug. 1 call, CFO Christopher Chapman additionally cited the revised outlook, which he said “indicates that there is a potential that in future periods the company may not meet its net debt to trailing 12-month EBITDA covenant as defined by our credit facility agreement.” Chapman added, “We have engaged our principal lenders and are in constructive dialogue regarding an amendment to address this concern. We anticipate a resolution in the coming weeks, and we will update you accordingly.”
While declining to go into specifics about the amendment, Chapman said on the call that the company has a “very supportive lender group” and that he did not “foresee” having to issue new equity. Lenders have already eased the net leverage covenant once this year, entering into an amendment on April 17 that modified calculations of total net debt and increased the maximum net leverage covenant under the credit agreement governing the term loan A and revolver to 4.75x for the June 30 LTM period, 4.5x for the Dec. 31 LTM period, and 4.25x for the Dec. 31, 2019 LTM period. The amendment also modified the net interest coverage ratio to a minimum of 3.0x. According to Diebold’s second-quarter earnings presentation, net leverage as of the June 30 end of the second quarter was 4.5x.
After trading in the mid-90s in July, Diebold’s bonds slid to the low 80s after the Aug. 1 earnings report and most recently traded this afternoon at 54.75, according to MarketAxess data.
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