New Coverage/Issuer Covenant Card: Booz Allen Hamilton

Relevant Items:
Covenant Tear Sheet, Debt Document Summaries
Booz Allen’s Debt Documents

Booz Allen Hamilton Holding Corp., along with its subsidiaries, is a “leading provider of management and technology consulting, analytics, engineering, digital solutions, mission operations, and cyber services to U.S. and international governments, major corporations, and not-for-profit organizations,” according to its latest 10-Q. For its 2020 fiscal year ended March 31, 2020, the company had adjusted EBITDA of $754 million. The second quarter of the 2021 fiscal year ended Sept. 30, 2020, saw an 11% year-over-year increase in revenue. The company reports that Covid-19 “has not had a significant impact on our liquidity, cash flows or capital resources.”

Subsidiary Booz Allen Hamilton Inc. is the borrower under a credit agreement that provides for a term loan A, term loan B and $500 million revolving facility; it is also the issuer of $700 million of unsecured senior notes due 2028.

The company’s capital structure as of Sept. 30, 2020, is shown below for reference:

 

 

• Financial covenants - The credit agreement contains two financial maintenance covenants: a 3x interest coverage ratio covenant and a 4x net total leverage ratio covenant (with cash netting permitted up to $350 million) for the benefit of all lenders. The company is in compliance with both ratios.


• Debt and lien capacity - As of Sept. 30, the credit agreement permits over $2.25 billion of additional secured incremental or incremental equivalent debt, $225 million of general secured debt and $129 million of debt incurred under a general conditional basket and secured by a general liens basket, totaling over $2.6 billion of additional secured capacity.
  
  Although the term loan had included 50 bps of MFN protection to the extent the company incurred any additional pari term loan debt that had higher pricing than the initial term loans, that protection expired on July 13, 2018. Initial lenders will no longer receive the benefit of higher pricing from newly incurred pari term loans.
  
  The general conditional debt basket permits debt as long as the company is in pro forma compliance with the financial covenants, there is no default or event of default, and the debt does not have a maturity date earlier than the latest maturity date or a weighted average life to maturity shorter than that of the latest maturing term loan B. Per the loans covenant, this broad basket can be secured, but only by liens existing when “the relevant person becomes a restricted subsidiary.” This suggests that one purpose of the basket is to assume debt in connection with acquisitions, although the basket itself contains no language to that effect. Still, this conditional basket can be combined with the general liens basket for a limited amount of secured debt and also provides about $1 billion of unsecured capacity.
  
  The senior notes permit more than $6 billion of additional secured debt through a combination of a credit facilities basket, general secured debt basket and general liens basket that can be paired with the 2x fixed charge coverage ratio basket. Unsecured debt is permitted until the fixed charge ratio is less than 2x.


• Restricted payment and investment capacity - Both the credit agreement and the indenture governing the senior notes contain leverage-based baskets that permit unlimited restricted payments and investments if the company’s net total leverage ratio is 3.75x or lower. The credit agreement only permits $350 million of cash to be netted and the indenture permits all cash to be netted, but in both cases the ratio is met, giving the company unlimited restricted payment and investment capacity.


• Notes purchases - Because the credit agreement does not contain a prepayment covenant, the company is free to purchase its senior notes on the open market.

--Alisha Turak