Mon 12/07/2020 15:26 PM
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Relevant Items:
US Foods’ Debt Documents
US Foods’ Covenants Tear Sheet, Debt Document Summaries

US Foods Inc. is one of the largest food-service distributors in the United States. The company supplies food products such as meats, appetizers, prepared meals and frozen foods to approximately 300,000 customer locations nationwide, including restaurants, hospitals, nursing homes, hotels, country clubs, government and military organizations, colleges and universities and retail locations. Continue reading for our Americas Covenants team's US Foods covenant analysis and Request a Trial for access to the linked documents, tear sheets, and summaries as well as our coverage of thousands of other stressed/distressed debt situations.

The company is the borrower under a $1.99 billion ABL facility and a $4.4 billion term loan facility, which are each guaranteed by the company’s wholly owned material domestic subsidiaries and secured by typical crossing liens on term loan priority collateral (including capital stock of US Foods Inc. and its subsidiaries and substantially all non-real estate assets of the credit parties) and ABL priority collateral (including eligible inventory, receivables and transportation equipment). In addition, the company has $986 million of senior secured notes, which are guaranteed and secured on the same basis as the term loan, and $596 million of senior unsecured notes, which are similarly guaranteed.

In its 10-Q for the period ended Sept. 26, US Foods stated that “due to the negative impact that the COVID-19 pandemic had on [its] Adjusted EBITDA in the current period and is expected to have on ... future quarterly periods, [US Foods] anticipate[s] that [its] future ability to incur additional indebtedness under the incurrence “baskets” of [its] debt agreements that are based on a leverage ratio or coverage ratio calculation will be constrained.”

The company’s capital structure and historical debt and leverage metrics as of Sept. 26 are shown below.

US Foods covenant analysis - capital structure


US foods historical debt and leverage metrics

 
Covenant Conclusions

 

  • Liquidity and financial covenants - The ABL contains a springing 1.00x FCCR covenant, which is triggered if excess borrowing base availability is (x) less than 10.0% of the line cap (defined as the lesser of the borrowing base and the aggregate ABL commitments) for five consecutive business days or (y) less than 7.5% of the line cap at any given time. Because the ABL was undrawn as of Sept. 26, the FCCR covenant did not apply.As of Sept. 26, the company had approximately $2.7 billion of accessible liquidity, comprising $1 billion of unrestricted cash and $1.7 billion million of ABL availability.


 

  • Debt and liens - As of Sept. 26, the company’s debt documents provided at least $486 million of pari secured debt capacity, including $374 million of general debt secured as credit facilities debt (must be junior on “Cash Flow Facilities Priority Collateral” as defined in the ABL intercreditor) and $112 million of general liens. The company may also incur at least $655 million of structurally senior debt, including $374 million of general debt, $281 million of foreign subsidiary debt and additional amounts available under a 2.00x fixed charge coverage ratio debt basket.Because the company’s secured net leverage ratio has increased to 5.1x as of Sept. 26, the company is currently unable to access the leverage-based prong of the credit facilities baskets under its term loan or its secured and unsecured notes, which are subject to an incurrence test at 4.75x secured net leverage. However, because the calculation of the secured net leverage ratio (as defined in each of the company’s debt documents) permits unlimited cash netting and excludes ABL outstandings from the numerator, the company can technically reduce its secured net leverage ratio (and thereby restore access to the leverage-based credit facilities basket) by drawing down the ABL and holding the proceeds on its balance sheet.


 

  • Dividends and investments - As of Sept. 26, the company’s debt documents provided at least $835 million of general restricted payment capacity (plus additional amounts available under its builder basket based on 50% CNI commencing April 3, 2016) and at least $674 million of investment capacity (all of which may be invested in unrestricted subsidiaries). In addition, because the term loan is drafted like a high-yield bond, the company can make unlimited investments within the restricted group, including in nonguarantor restricted subsidiaries.Although nonguarantor restricted subsidiaries are subject to the negative covenants under the company’s debt documents, to the extent collateral assets are transferred to nonguarantor restricted subsidiaries, the liens on those assets will be automatically released.Because the ABL was undrawn as of Sept. 26, it did not restrict the company from making dividends or investments.


 

  • Prepayments, note repurchases - The company is not restricted from prepaying or making open market purchases of any debt other than payment subordinated debt. Because the unsecured notes are the most restrictive instrument in US Foods’ capital structure, the company could free up additional secured debt capacity by repurchasing the unsecured notes on the open market.


--Julian Bulaon
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