Item 1.01 Entry into a Material Definitive Agreement.
Acquisition of Remaining Joint Venture Interest in LPC
Pursuant to a Purchase and Sale Agreement dated as of July 16, 2024 (the “Effective Date”) among Kronos Worldwide, Inc. (“Kronos”), Kronos Louisiana, Inc. (“KLA”), Venator Materials PLC and Venator Investments Ltd. (the “Purchase and Sale Agreement”), Kronos’ wholly-owned subsidiary KLA acquired the 50% joint venture interest in Louisiana Pigment Company, L.P. (“LPC”) held by Venator Investments, Ltd., effective as of the Effective Date. Prior to the acquisition, KLA held a 50% joint venture interest in LPC. Following the acquisition, LPC is an indirect, wholly-owned subsidiary of Kronos. Kronos acquired the 50% joint venture interest that it did not already own for an upfront cash payment of $185 million (subject to working capital adjustments) and a potential earn-out payment of up to $15 million based on aggregate consolidated net income before interest expense, income taxes and depreciation expense, or EBITDA, of Kronos during a two-year period comprising calendar years 2025 and 2026. The aggregate EBITDA tiers for the two-year earn-out period are $650 million and $730 million, with $5 million of the earnout payable if Kronos achieves $650 million in aggregate consolidated EBITDA, and a maximum of $15 million payable if aggregate EBITDA is $730 million or greater for the period. If Kronos achieves aggregate consolidated EBITDA between $650 million and $730 million, the payment of the additional $10 million is pro-rated between the two targets. The earn-out is payable at the earliest in April 2027.
The acquisition was financed through a borrowing of approximately $132 million under Kronos’ global revolving credit facility with the remainder paid with cash on hand. Kronos will report LPC as a wholly-owned subsidiary beginning with its third quarter Form 10-Q filing.
A copy of the Purchase and Sale Agreement is attached as Exhibit 10.1 to this Current Report and is incorporated herein by reference. The foregoing description of the Purchase and Sale Agreement does not purport to be complete and is qualified in its entirety by reference to the Purchase and Sale Agreement.
Amendment to Credit Agreement
On July 17, 2024, Kronos together with its direct or indirect operating subsidiaries KLA, Kronos (US), Inc., Kronos Canada, Inc., Kronos Europe NV, and Kronos Titan GmbH, entered into an amendment (the “Second Amendment”) to its Credit Agreement dated as of April 20, 2021 (the “Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and the lenders a party thereto.
Among other things, the Second Amendment (a) increases the maximum borrowings under the Credit Agreement’s asset-based revolving credit facility (the “Global Revolver”) from $225 million to $300 million, (b) extends the maturity date of the Global Revolver to July 2029, and (c) expands the agreement to include LPC (as defined below) and LPC’s receivables and certain of its inventories in the borrowing base. Giving effect to the Second Amendment, the Credit Agreement:
●provides for revolving borrowings by Kronos and the borrower subsidiaries under the Global Revolver in amounts up to $300 million through July 2029 (with revolving borrowings by Kronos Canada, Inc., Kronos Europe NV, and Kronos Titan GmbH limited to US $35 million, €30 million and €60 million, respectively), with available borrowings based on formula-determined amounts of eligible trade receivables and inventories of the borrowers and LPC (less any outstanding letters of credit issued under the Global Revolver);
●bears interest, at Kronos’ option, at the applicable non-base rate (Adjusted SOFR, Adjusted CORRA, or EURIBOR, depending upon the currency of the borrowing) plus a margin ranging from 1.5% to 2.0%, or at the applicable base rate plus a margin ranging from 0.5% to 2.0%. U.S. Dollar or Canadian Dollar non-base rate loans, as well as Euro non-base rate and Euro base rate loans are subject to a 0.25% floor, plus the applicable margin. The applicable margin in respect of borrowings under the Global Revolver is determined based upon, initially the passage of time, and thereafter upon average availability under the facility;
●requires a periodic payment of an unused fee to the lender of either 0.25% or 0.375%, determined initially by the passage of time, and thereafter upon average facility usage. In addition, the Global Revolver requires the payment of customary agency and administrative fees;
●is collateralized by, among other things, a first priority lien on the trade receivables and inventories of Kronos and its domestic subsidiaries, its Canadian subsidiaries, its Belgian subsidiary and KRONOS TITAN GmbH;
●contains a number of covenants and restrictions which, among other things, limit the ability of Kronos and its restricted subsidiaries under certain circumstances to incur additional debt, incur liens, pay additional dividends, or merge or consolidate with, sell or transfer all or substantially all of Kronos’ or such subsidiaries’ assets to another entity, and under certain conditions requires the maintenance of a specified financial covenant (fixed charge coverage ratio, as defined in the Global Revolver) to be at least 1.0 to 1.0; and
●contains customary default provisions, including a cross-default with any other indebtedness of Kronos and its subsidiaries in excess of $20 million.
