Tue 05/11/2021 10:59 AM
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Relevant Items:
Covenants Tear Sheet, Debt Document Summaries
Debt Documents

On Jan. 7, Surgery Partners entered into a fifth amendment to its credit agreement pursuant to which it incurred $50 million of incremental revolving commitments and extended the maturity date of its revolving credit facility to Feb. 1, 2026. However, the revolver is subject to a springing maturity date of Aug. 31, 2024, if on that date there are outstanding term loans that have not been repaid or refinanced with debt maturing after Feb. 1, 2026. Continue reading for our Americas Covenants team's analysis into the Surgery Partners term loan and revolver 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.

When the company entered into the fifth amendment, its $1.4 billion first lien term loan facility was scheduled to mature on Aug. 31, 2024.

On May 3, the company entered into a sixth amendment to its credit agreement pursuant to which it refinanced the existing term loan facility. The new $1.55 billion term loan facility matures on Aug. 31, 2026. However, the new term loan facility is also subject to a springing maturity date of April 1, 2025, if on that date at least $185 million of the company’s 6.75% senior unsecured notes due 2025 are outstanding and have not been refinanced with debt that matures on or prior to 91 days after Aug. 31, 2026.

In other words, (a) the maturity date of the revolver depends on the maturity date of the new term loan and (b) the maturity date of the new term loan depends on whether at least $185 million of the 2025 notes is still outstanding on April 1, 2025.
Surgery Partners Term Loan and Revolver

Under almost all credit agreements, revolving credit facilities mature either together with or prior to the borrower’s term loan facility. Often when borrowers extend the maturity of their revolving facilities, the extended maturity date will be subject to a springing maturity mechanism to ensure that the revolver matures ahead of the company’s other outstanding debt.

At other times, however, when term loan facilities are extended, springing maturity mechanisms will also be added to the term loan facilities to ensure that they are the second piece of a company’s debt to mature.

In this article, we briefly discuss how multiple springing maturity mechanisms could result in revolving credit facilities maturing after term loan facilities and, theoretically, in a borrower’s credit facilities becoming due ahead of the intended maturity dates.
Determining the Maturity Date

As illustrated below, the revolving and term loan facilities’ maturity dates are specific dates, with each accelerating to an earlier date if “on or prior” to that earlier date, a specific action has not been taken.
Surgery Partners Term Loan and Revolver text

 
Term loan maturity date, surgery partners

Under the revolver, that action is the repayment or refinancing of the term loan facility such that “on or prior” to that earlier date, the term loan facility does not mature prior to the revolving facility (emphasis added).

Similarly, under the term loan, that action is the repayment or refinancing of a specific amount of outstanding 2025 unsecured notes such that “on or prior to” that earlier date, less than $185 million of 2025 unsecured notes mature prior to the term loan facility (emphasis added).

There are two ways that these springing maturity mechanisms can be interpreted, with one interpretation adversely affecting revolving lenders and the other adversely affecting the borrower.
Later-Dated Springing Maturity Adversely Affecting Revolving Lenders

Surgery Partners’ term loan facility matures on Aug. 31, 2026, but is subject to the April 1, 2025, springing maturity if at least $185 million of 2025 unsecured notes has not been repaid or refinanced with later-maturing debt by April 1, 2025.

The revolving facility matures on Feb. 1, 2026, but is subject to the Aug. 31, 2024, springing maturity if the term loan facility has not been fully repaid or refinanced with later-maturing debt by Aug. 31, 2024.

If the term loan’s maturity will always be Aug. 31, 2026, until at least April 1, 2025, which is when the maturity can be accelerated, the revolver’s maturity will not be accelerated since on Aug. 31, 2024 (which is when the revolver would accelerate), the term loans mature on Aug. 31, 2026, which is after the revolver matures on Feb. 1, 2026.

However, the term loan could still mature ahead of the revolver given that the springing maturity could still occur on April 1, 2025, well after the revolver’s springing maturity mechanism would be tested.
Springing Maturity Date Until It’s Not

As highlighted above, the maturity of the revolver and the term loan will accelerate if “on or before” a specified date, a specific action has not been taken. The revolver’s maturity will spring if the term loans are not repaid or extended and the term loan’s maturity will spring if the 2025 unsecured notes are not repaid or extended.

While it may seem insignificant, the fact that the acceleration is contingent on the action not having occurred “on or prior” to a specified date, instead of “on” that date, has important consequences.

Had the maturity acceleration been contingent on the action not taking place on (and only on) Aug. 31, 2024, under the revolver or on (and only on) April 1, 2025, under the term loan, then the springing maturity “test” could only be conducted on Aug. 31, 2024, or April 1, 2025.

However, because the inaction must occur “on or prior” to Aug. 31, 2024, or April 1, 2025, the springing test appears to be an ongoing test that is in effect unless and until satisfied no later than Aug. 31, 2024, or April 1, 2025.

In other words, because the term loan’s springing maturity will be triggered by inaction “on or prior to” April 1, 2025, arguably, the term loan’s maturity will be April 1, 2025, until it takes the action to avoid the springing maturity.

Under this interpretation, the term loan’s maturity date is April 1, 2025, until it becomes Aug. 31, 2026. Importantly, to the extent Surgery Partners has not repaid or refinanced the sufficient amount of 2025 unsecured notes by Aug. 31, 2024, which is the revolver’s springing maturity date, on Aug. 31, 2024, the term loan’s maturity would be earlier than the revolver’s maturity and, as a result, the revolver would immediately come due.

Taken together, under this interpretation, Surgery Partners would need to ensure that less than $185 million of 2025 unsecured notes have not been repaid or refinanced with later-maturing debt by Aug. 31, 2024, and not by April 1, 2025.
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