Covenants Weekly
Zayo Group’s Modified Notes Provide Additional 1L Debt Capacity; Global Eagle’s Ability to Fund Possible 2022 Par Put on Converts; Whiting’s Ability to Refinance Unsecured Notes With Secured Debt
Fri 02/21/2020 16:08 PM
Editor's Note: Below is Reorg Covenants’ review of coverage for the week ended Friday, Feb. 21. We provide a summary of event-driven secondary analysis and new high-yield issuances and trends. We also list the top 10 most popular covenants analysis pieces downloaded from the Reorg site.
This week in the primary market, we reviewed Zayo Group’s issuance in connection with its acquisition by affiliates of Digital Colony Partners and EQT Infrastructure, including discussing its ability to layer existing debt and pay out dividends and other key drivers of credit protection with Reorg’s Flexibility Scale. While the notes initially provided the company with significant flexibility to incur secured debt, certain modification made prior to pricing provided it with increased capacity.
In the secondary market, we focused on developments with Global Eagle and Whiting Petroleum. Following certain amendments made to its first lien credit facility and second lien notes, Global Eagle may face difficulty should its convertible noteholders exercise a put under the notes that will require the company to purchase the notes at 100. Absent an amendment to its RBL facility, Whiting Petroleum will need to refinance its 2021 senior unsecured notes by December in order to prevent triggering a springing maturity under the RBL, including by potentially paying a make whole to redeem the notes.
Here are the most downloaded covenants tear sheets and debt document summaries for the week ended Friday, Feb. 21:
Global Eagle Entertainment
In July 2019, Global Eagle said it entered into amendments to its credit agreement and second lien notes that “strengthens our liquidity and positions us to deliver significant long-term shareholder value.”
The amendments added restrictions on the company’s ability to prepay its outstanding convertible notes but allow it to refinance them with junior lien debt and - if the convertible noteholders exercise a put under the notes that will require the company to purchase the notes at 100 - by using $10 million of revolver borrowings as well as converting such put notes into its common stock.
The convertible notes, which are trading around 40, according to sources, were issued on Feb. 18, 2015, at an initial conversion price of approximately $18.55 and mature on Feb. 15, 2035. The company’s stock price is currently about 39 cents a share.
For a summary of the terms and provisions under Global Eagle’s debt documents, click here. For Global Eagle’s covenants tear sheet, click here.
Whiting Petroleum
Whiting Petroleum has a $1.75 billion RBL facility and $2.5 billion of senior unsecured notes, including $262 million of convertible notes that mature on April 1. The RBL agreement also contains a springing maturity provision that would be triggered if the unsecured notes due March 15, 2021, are not repaid by Dec. 14, 2020.
The company disclosed in its 10-Q for the period ended Sept. 30, 2019, that it intends to pay any converting holders of the convertible notes with cash and that at maturity it must settle any remaining holders with cash. As of Sept. 30 the company had zero dollars of balance sheet cash, but its RBL does not restrict using RBL draws to pay the convertibles at their maturity. The longer-dated notes have traded down after rumors that the company has engaged restructuring advisors to evaluate refinancing the unsecured notes with secured debt.
Assuming no meaningful growth in balance sheet cash, the company will likely either need to refinance the convertible notes with RBL borrowings or else seek an amendment from lenders to permit a refinancing of those notes with non-RBL debt. Additionally, absent an amendment, the notes due 2021 will need to be refinanced by December 2020 to prevent triggering the RBL’s springing maturity. Absent a tender, those notes are redeemable at a make whole premium. Moreover, various other restrictions in the RBL agreement could require the company to seek consents. The company’s indentures are unlikely to restrict any refinancing.
Thursday, Zayo Group announced final pricing for its 2027 secured notes and 2028 unsecured notes being issued in connection with its acquisition by affiliates of Digital Colony Partners and EQT Infrastructure.
The company had originally contemplated funding the acquisition by issuing $1 billion of secured notes and $2.08 billion of unsecured notes and also entering into a $5.06 billion term loan facility. However, as illustrated below, the secured notes were upsized by $500 million, the unsecured notes were downsized by $1 billion and the term loan facility was increased by $515 million.
As a result of these changes, as illustrated below, Zayo Group is permitted to incur almost $12 billion - or 818% of its LTM Annualized Further Adjusted EBITDA of $1.466 billion - of additional first lien debt under the 2027 secured debt.
Week Ended Feb. 21
This week in the primary market, we reviewed Zayo Group’s issuance in connection with its acquisition by affiliates of Digital Colony Partners and EQT Infrastructure, including discussing its ability to layer existing debt and pay out dividends and other key drivers of credit protection with Reorg’s Flexibility Scale. While the notes initially provided the company with significant flexibility to incur secured debt, certain modification made prior to pricing provided it with increased capacity.
In the secondary market, we focused on developments with Global Eagle and Whiting Petroleum. Following certain amendments made to its first lien credit facility and second lien notes, Global Eagle may face difficulty should its convertible noteholders exercise a put under the notes that will require the company to purchase the notes at 100. Absent an amendment to its RBL facility, Whiting Petroleum will need to refinance its 2021 senior unsecured notes by December in order to prevent triggering a springing maturity under the RBL, including by potentially paying a make whole to redeem the notes.
Most Popular Reorg Covenants Analysis
Here are the most downloaded covenants tear sheets and debt document summaries for the week ended Friday, Feb. 21:
- Pyxus’ Covenants Tear Sheet
- Intelsat’s Covenants Tear Sheet
- L Brands’ Covenants Tear Sheet
- Mallinckrodt’s Covenants Tear Sheet
- Community Health’s Covenants Tear Sheet
- Pier 1’s Covenants Tear Sheet
- Plantronics’ Covenants Tear Sheet
- Revlon’s 2016 & 2019 Term Loan Summary
- Akorn’s Covenants Tear Sheet
- GameStop’s Covenants Tear Sheet
Event-Driven Secondary Analysis
Global Eagle Entertainment
In July 2019, Global Eagle said it entered into amendments to its credit agreement and second lien notes that “strengthens our liquidity and positions us to deliver significant long-term shareholder value.”
The amendments added restrictions on the company’s ability to prepay its outstanding convertible notes but allow it to refinance them with junior lien debt and - if the convertible noteholders exercise a put under the notes that will require the company to purchase the notes at 100 - by using $10 million of revolver borrowings as well as converting such put notes into its common stock.
The convertible notes, which are trading around 40, according to sources, were issued on Feb. 18, 2015, at an initial conversion price of approximately $18.55 and mature on Feb. 15, 2035. The company’s stock price is currently about 39 cents a share.
For a summary of the terms and provisions under Global Eagle’s debt documents, click here. For Global Eagle’s covenants tear sheet, click here.
Whiting Petroleum
Whiting Petroleum has a $1.75 billion RBL facility and $2.5 billion of senior unsecured notes, including $262 million of convertible notes that mature on April 1. The RBL agreement also contains a springing maturity provision that would be triggered if the unsecured notes due March 15, 2021, are not repaid by Dec. 14, 2020.
The company disclosed in its 10-Q for the period ended Sept. 30, 2019, that it intends to pay any converting holders of the convertible notes with cash and that at maturity it must settle any remaining holders with cash. As of Sept. 30 the company had zero dollars of balance sheet cash, but its RBL does not restrict using RBL draws to pay the convertibles at their maturity. The longer-dated notes have traded down after rumors that the company has engaged restructuring advisors to evaluate refinancing the unsecured notes with secured debt.
Assuming no meaningful growth in balance sheet cash, the company will likely either need to refinance the convertible notes with RBL borrowings or else seek an amendment from lenders to permit a refinancing of those notes with non-RBL debt. Additionally, absent an amendment, the notes due 2021 will need to be refinanced by December 2020 to prevent triggering the RBL’s springing maturity. Absent a tender, those notes are redeemable at a make whole premium. Moreover, various other restrictions in the RBL agreement could require the company to seek consents. The company’s indentures are unlikely to restrict any refinancing.
Primary Review
Thursday, Zayo Group announced final pricing for its 2027 secured notes and 2028 unsecured notes being issued in connection with its acquisition by affiliates of Digital Colony Partners and EQT Infrastructure.
The company had originally contemplated funding the acquisition by issuing $1 billion of secured notes and $2.08 billion of unsecured notes and also entering into a $5.06 billion term loan facility. However, as illustrated below, the secured notes were upsized by $500 million, the unsecured notes were downsized by $1 billion and the term loan facility was increased by $515 million.
Certain terms under the secured notes’ debt and liens covenants were also modified as illustrated below; similar changes were also made to the unsecured notes.
As a result of these changes, as illustrated below, Zayo Group is permitted to incur almost $12 billion - or 818% of its LTM Annualized Further Adjusted EBITDA of $1.466 billion - of additional first lien debt under the 2027 secured debt.
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