| Item 1.01. | Entry into a Material Definitive Agreement. |
On March 10, 2023 (the “Closing Date”), Leidos Holdings, Inc. (“Leidos”), Leidos, Inc., a Delaware corporation and a wholly-owned subsidiary of Leidos, as borrower (the “Borrower”), and certain other wholly-owned domestic subsidiaries of Leidos, as guarantors (collectively, the “Subsidiary Guarantors” and, together with Leidos and the Borrower, collectively, the “Loan Parties”), entered into a Credit Agreement (the “Credit Agreement”), with the lenders party thereto and Citibank, N.A., as administrative agent. The Credit Agreement provides for (i) a senior unsecured term loan facility in an aggregate principal amount of $1,000,000,000 (the “Term Loan Facility”) and (ii) a senior unsecured revolving facility in an aggregate committed amount of $1,000,000,000 (the “Revolving Facility” and, together with the Term Loan Facility, the “Credit Facilities”). The Credit Facilities will mature five years from the Closing Date, subject, in the case of the Revolving Facility, to up to two additional one-year extensions pursuant to the terms of the Credit Agreement.
Leidos and the Borrower used the proceeds of the Term Loan Facility and cash on hand on the Closing Date to (i) repay in full all indebtedness, and terminate all commitments, under, and discharge and release all guarantees in connection with, (x) that certain Credit Agreement, dated as of January 17, 2020, among Leidos, the Borrower, Citibank, N.A., as administrative agent, and the lenders, other agents and other parties party thereto from time to time (as amended, amended and restated, supplemented or otherwise modified prior to the Closing Date, the “Terminated Credit Agreement”) and (ii) pay certain fees, costs and expenses related to the refinancing of the Terminated Credit Agreement. The Borrower did not borrow any loans under the Revolving Facility on the Closing Date. Leidos and the Subsidiary Guarantors guarantee the obligations under the Credit Agreement.
Borrowings under the Credit Agreement bear interest at a rate determined, at our option, based on either (i) an alternate base rate or (ii) a Term SOFR rate with a 0.10% per annum Term SOFR adjustment, plus, in each case, an applicable margin that varies depending on the credit rating of the Borrower. The Borrower will pay to the lenders under the Revolving Facility a commitment fee equal to a certain percentage of the aggregate daily amount of unused commitments under the Revolving Facility. The applicable margin and commitment fee rate will be determined as shown in the following table:
| | | | | | | | | | | | | | |
| | | Ratings (S&P/Moody’s/Fitch) | | Term SOFR Margin
(% per annum) | | | ABR Margin
(% per annum) | | | Commitment Fee
Rate
(% per annum) | |
| Level 1 | | A-/A3/A- or above | | | 1.000 | % | | | 0.000 | % | | | 0.090 | % |
| Level 2 | | BBB+/Baa1/BBB+ | | | 1.125 | % | | | 0.125 | % | | | 0.100 | % |
| Level 3 | | BBB/Baa2/BBB | | | 1.250 | % | | | 0.250 | % | | | 0.125 | % |
| Level 4 | | BBB-/Baa3/BBB- | | | 1.375 | % | | | 0.375 | % | | | 0.175 | % |
| Level 5 | | BB+/Ba1/BB+ or below | | | 1.500 | % | | | 0.500 | % | | | 0.250 | % |
Based on our current ratings, the applicable margin for Term SOFR-denominated borrowings and commitment fee rate are 1.250% and 0.125%, respectively.
The Credit Agreement contains certain customary representations and warranties, as well as certain customary affirmative and negative covenants. The Credit Agreement’s negative covenants restrict the activities of the Loan Parties and Leidos’ other subsidiaries, including, among other things, such Loan Party’s or subsidiary’s ability to (i) create certain liens on its assets, (ii) dispose of substantially all of its assets, (iii) merge, liquidate, dissolve, change its business or consolidate with other entities, (iv) effect sale-and leaseback transactions, and (v) enter into affiliate transactions, in each case subject to certain exceptions. The Credit Agreement also restricts the ability of Leidos’ subsidiaries that are not Loan Parties to incur debt and issue preferred stock, in each case subject to certain exceptions.
The financial covenants in the Credit Agreement require that the Borrower maintains, as of the last day of each fiscal quarter (beginning with the first fiscal quarter of 2023), (1) a ratio of adjusted consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) of not more than 3.75 to 1.00, subject to two increases to 4.50 to 1.00 following a material acquisition, and (2) a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00.
The Credit Agreement also contains certain customary events of default, including, among others, defaults based on certain bankruptcy and insolvency events, nonpayment, cross-defaults to other material debt, breach of specified covenants, material ERISA events, material monetary judgments, change of control events, inability to pay debts as they become due, actual or asserted invalidity of guarantees and material inaccuracy of our representations and warranties.
The foregoing description does not purport to be complete and is subject to and is qualified in its entirety by reference to all of the provisions of the Credit Agreement, which is attached hereto as Exhibit 10.1 and incorporated herein by reference.
