Thu 12/09/2021 15:31 PM
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Relevant Items:
Tupperware’s Debt Documents
Tupperware’s Debt Document Overview, Flexibility Scale

Tupperware Brands on Nov. 3 released its third-quarter financial results, reporting adjusted EBITDA fell to $68.9 million from $99.5 million a year earlier, and net sales slipped 11% to $376.9 million.

Tupperware’s third-quarter net sales included (a) $112.9 million from its Asia segment (down 13% year over year), (b) $103.1 million from its North America segment (down 11%), (c) $91.3 million from its Europe segment (down 19%), and (d) $69.6 million from its South America segment (up 6%).
Deleveraging Efforts; Status of Turnaround Plan

In its third-quarter earnings release, Tupperware reported “Debt Covenant EBITDA” of about $301 million for the four quarters ended Sept. 25. The company also reported that its ratio of debt to EBITDA (as EBITDA was defined under its then-outstanding debt documents) as of Sept. 25 was 2.28x, down from 3.72x a year earlier.

The year-over-year decrease in leverage follows a series of term loan prepayments totaling about $101 million made by the company in the first half of 2021, including at least $34 million funded with the proceeds of “noncore” asset sales.

On Oct. 18, Tupperware announced that it had entered into an agreement to sell its House of Fuller beauty business in Mexico for an undisclosed amount. On Nov. 29, the company announced that it had closed on the sale of its remaining undeveloped land in Orlando, Fla., to O’Conner Management for $37.3 million (inclusive of $329,408 of impact fee credits). According to the accompanying releases, both transactions are consistent with the company’s turnaround plan strategy.

With respect to the status of the turnaround plan, Tupperware CEO Miguel Angel Fernandez made the following comments on the company’s third-quarter earnings call:
“Now that we are six quarters into our third year turnaround plan, this midway point feels like an appropriate time to summarize the progress we've made over the last 18 months. In short, the company was in a very different place in April of 2020. Quite frankly, the business wasn't doing well, and we needed to make major changes to keep this iconic brand afloat. The solution was to execute a full turnaround of the entire business. We did this by right-sizing our cost structure, delivering $182 million savings in 2020. We've created a global business services group to generate operational efficiencies, centralizing and optimizing many of our back office functions with a mandate to improve service and reduce costs, refinancing our debt and improving liquidity. In fact, our leverage ratio is a third of previous levels.”

On Nov. 23, Tupperware Brands Corp. and certain of its subsidiaries entered into a new secured term loan and revolving credit agreement agented by Wells Fargo, which replaced the company’s then-existing credit facilities with JPMorgan and Angelo Gordon, which were described in our February 2021 report.

Commenting on the November refinancing transactions, Tupperware CFO and COO Sandra Harris stated:
“This transaction is another tangible example of the foundational improvements we’ve made to the business over the past eighteen months, and represents another significant milestone in Tupperware’s ongoing Turnaround Plan. Our new credit facility enhances our financial flexibility and is consistent with our strategy to optimize the capital structure of the Company while supporting future growth.”

In this report, we discuss notable features of Tupperware’s new credit facility, including transaction flexibility under the credit agreement’s negative covenants.
Overview of New Credit Facility; Pro Forma Capital Structure

Tupperware’s new term loan facility consists of a $200 million USD-denominated term loan incurred by Tupperware Brands Corp. (the “Parent Borrower”) and a €176 million euro-denominated term loan incurred by Swiss subsidiary Tupperware Products AG.

The new revolving facility consists of a $450 million global tranche, a $15 million Mexican tranche, available to the Parent Borrower and Mexican subsidiary Adminstradora Dart S de RL de CV, and a $15 million Singaporean tranche, available to the Parent Borrower and Singaporean subsidiary Tupperware Brands Asia Pacific Pte. Ltd.

The company’s capital structure as of Sept. 25, pro forma for the Nov. 23 refinancing (and assuming $285 million drawn under the new revolver as of the closing date), is set forth below:


Notable Terms of Tupperware’s New Credit Agreement

Customary term loan A provisions - The credit agreement generally includes customary terms for a term loan A financing. Initial lenders will not have the benefit of call protection, will not have the benefit of an excess cash flow sweep and will not have the benefit of MFN protection should the borrower incur any higher priced pari term loan debt in the future.

Lenders will, however, have the benefit of required quarterly principal repayments equal to 2.5% per year of the initial outstanding amounts of term loans (stepping up to 5.0% in March 2023, 7.5% in March 2025, and 10.0% in March 2026). In addition, both the revolving lenders and the term loan A lenders have the benefit of two financial maintenance covenants: (i) a 3.75x total net leverage ratio (which steps up to 4.0x for three quarters following the consummation of certain acquisitions) and (ii) a 3x interest coverage ratio.

Foreign tranches guaranteed by U.S. loan parties - According to disclosures, the obligations of the foreign subsidiary borrowers under the credit facilities are guaranteed by, and secured by substantially all nonreal property assets of, the Parent Borrower and the U.S. loan parties, but the foreign subsidiary borrowers do not guarantee or secure the obligations of each other, the Parent Borrower, or the other U.S. loan parties.

Collateral excludes real property - The term loan and revolver are secured by “Collateral,” including the “Material Marks,” as defined in separate, undisclosed security documents, including the “Master Collateral Agreement,” the “Master IP Security Agreement,” the “Dart Security Agreement” and the “Dart IP Security Agreement.” Real property and certain other specified assets are excluded from collateral.

Collateral released upon achievement of investment-grade rating - Collateral securing the credit facilities - other than the collateral described in the Dart security documents - may be released upon the occurrence of a "Collateral Release Event," which is triggered upon achievement of an investment-grade rating from both Moody's and S&P Global Ratings, provided that immediately after giving effect to such release, such collateral does not secure any other debt for borrowed money. Released liens will be reinstated if the company ceases to be rated investment grade by either rating agency.

No cap on nonguarantor usage of unsecured ratio debt basket - The credit agreement contains a debt basket that permits the Parent Borrower and its subsidiaries - including nonguarantor subsidiaries - to incur unsecured ratio debt subject to pro forma compliance with a 3.25x total net leverage ratio. Because this basket does not limit usage by nonguarantor subsidiaries, it may be used to incur a potentially significant amount of structurally senior debt.

Restrictions on dispositions of Dart property - The Parent Borrower is prohibited from disposing of or pledging equity interests in Dart. In addition, Dart is prohibited from transferring or disposing of (a) any “Collateral” (as defined in the Dart security agreement) except in connection with permitted IP licensing and (b) any “Material Marks” (as defined in the Dart security agreement) except as permitted under the Dart security agreement. As discussed in our February report, Tupperware was subject to similar transfer restrictions under its prior credit facilities.

Lien subordination permitted with majority consent if opportunity to fund priming debt offered to all lenders - Amendments that result in liens on substantially all Collateral (as defined in the Master Collateral Agreement and Dart Security Agreement) being subordinated require the consent of each lender, except that such consent is not required from each adversely affected lender that is offered a “reasonable bona fide opportunity to fund … its pro rata share … of the priming indebtedness on the same terms (other than bona fide backstop fees) … as offered to all other providers … of the priming indebtedness.”

Under this provision, lenders who are offered a “bona fide opportunity” to participate ratably in a priming lien facility will effectively lose their individual “sacred rights” to veto a priming lien amendment that is supported by holders of at least a majority of the facility.

Protections against priming lien amendments are not particularly common in syndicated loan agreements, but when they do appear, they typically require all lenders to consent to the priming lien amendment regardless of whether those lenders have been offered the opportunity to participate in the priming facility. The priming lien protection under Tupperware’s new credit agreement, therefore, is less protective of lenders than the more typical formulation.

Uncapped investments in nonguarantors - The credit agreement permits uncapped intercompany investments, including by loan parties in nonguarantor subsidiaries.

No “unrestricted subsidiaries” concept - The concept of “unrestricted subsidiaries” is absent from the credit agreement, so all subsidiaries are subject to the negative covenants.

As summarized in the below table of material terms, Tupperware’s new credit agreement is generally protective of lenders and - except for the expansive capacity for nonguarantor investments - does not contain many notably aggressive or borrower-friendly terms:

 
Flexibility Under Tupperware’s New Credit Agreement

As summarized in the flexibility scale below, Tupperware’s new credit agreement provides the company with meaningful flexibility to incur new pari secured and structurally senior debt, though this flexibility is limited somewhat by the credit agreement’s 3.75x total net leverage covenant, which caps maximum debt capacity at $543 million. In addition, assuming Tupperware’s net leverage ratio as of Sept. 25 did not increase as a result of the Nov. 23 refinancing, the company can likely access its leverage-based investment and restricted payment baskets, which are tested at 3.75x and 3.25x total net leverage, respectively.

--Julian Bulaon
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