Post-Reorg: Pyxus Has Limited Flexibility Under Exit Facilities to Strengthen Liquidity; Company Can Incur Up to $10M of 1L Debt, $50M of 2L Debt 

Relevant Items:
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Covenant Tear Sheet, Debt Document Summaries
Pyxus International’s Debt Documents

Pyxus International Inc. and its subsidiaries filed for chapter 11 bankruptcy in Delaware on June 15, 2020. The debtors emerged on Aug. 24 with three pieces of exit debt, all incurred by Pyxus Holdings Inc.: a $75 million ABL facility (that can be increased to $90 million), about $213 million of term loans and about $281 million of 10% secured notes due 2024. Each piece of debt is guaranteed by Pyxus International Inc., Pyxus Parent Inc. and various subsidiaries (with certain foreign subsidiaries guaranteeing the term loan and notes but not the ABL). The debt is secured by substantially all real and personal property of the loan parties, including equity pledges. The ABL facility is secured on a first lien basis by the company’s current assets, including receivables and inventory, and on a junior lien basis by the collateral that is secured on a first lien basis by the term loan and notes. The term loan and notes are secured on a first lien basis by substantially all of the other assets of Pyxus and the guarantors and on a second lien basis by the ABL priority collateral. Continue reading for our Americas Covenants team's analysis of the Pyxus exit facilities and Request a Trial for access to the linked debt documents, tear sheets, and summaries as well as our coverage of thousands of other stressed/distressed debt situations.

The company’s capital structure as of Dec. 31, 2020, the end of its third financial quarter of its fiscal year 2021, is shown below:

 

 

• Minimum required ABL borrowing - The ABL requires the amount of outstanding loans and letters of credit to be at least the lesser of 25% of the revolving commitments and $18.75 million. If outstanding borrowings are less than this amount, the borrower must request additional loans.


• Springing financial covenant - The ABL contains a springing 1x fixed charge coverage ratio covenant that must be met during any “Dominion Period,” defined as a period when an event of default has occurred and is continuing or when excess availability is less than the greater of 10% of availability and $7.5 million (and ending when excess availability is over this threshold for a 30-consecutive-day period). As of Dec. 31, 2020, no Dominion Period has occurred, although the company is right on the threshold with outstanding borrowings of $67.5 million.


• Mandatory prepayments - The term loan does not contain any prepayment requirements. The ABL, however, requires that 100% of the net proceeds (over $500,000 individually or $2.5 million in the aggregate per fiscal year) from certain asset sales of any “ABL Priority Collateral” be used for mandatory repayment. The ABL also sweeps certain concentration accounts on a daily basis during a dominion period. Note that the credit agreement does not address how these provisions should interact with the minimum required borrowing provisions.


• Debt and lien capacity - The exit facilities and exit notes permit unlimited unsecured debt if the company is in compliance with a 2x fixed charge coverage ratio; $10 million of this debt can be secured on a first lien basis pursuant to a general liens basket. The company can also incur $50 million of junior lien debt.


• Restricted payments and investments - The company’s ability to make third-party cash distributions is limited to certain scheduled dividends and a general basket of $1 million (shared with general restricted debt payments). Investments, however, are permitted pursuant to a 50% consolidated net income builder basket, a $35 million general restricted payment basket, and a general investment basket equal to 12.5% of the company’s tangible net worth ($34 million, as of Dec. 31, which amount may not be used to transfer assets to unrestricted subsidiaries). The company can make $50 million of additional investments in nonguarantor restricted subsidiaries, plus any amount if the company can meet a 1x fixed charge coverage ratio test.


• Voluntary prepayments of exit debt - The ABL restricts the company’s ability to make any voluntary payments on the exit term loan or exit notes, except (i) pursuant to a $100 million basket or (ii) if the following “Payment Conditions” are met: There is no default or event of default; excess availability exceeds 65% of availability; and the company has at least $25 million of unrestricted cash and cash equivalents. In addition, the exit notes do not permit any nonscheduled term loan payments during a default or event of default.

--Alisha Turak