Each outstanding award of Company deferred stock units that was outstanding as of immediately prior to the Effective Time (a “Domtar DSU”) was cancelled and converted into the right to receive a cash payment from the Surviving Company equal to the product of (i) the total number of shares of Common Stock underlying such Domtar DSU multiplied by (ii) the Merger Consideration, without any interest and subject to all applicable withholding.
The foregoing description of the Merger and the Merger Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, which is filed as Exhibit 2.1 hereto, and which is incorporated herein by reference.
Indenture Governing 6.750% Senior Secured Notes due 2028
On October 18, 2021 (the “Issue Date”), Merger Sub completed the sale of $775 million in aggregate principal amount of its 6.750% Senior Secured Notes due 2028 (the “Notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act. The Notes were issued pursuant to the Indenture, dated as of the Issue Date (the “Indenture”), by and among Merger Sub and The Bank of New York Mellon, as trustee and collateral agent. Upon the consummation of the Merger, the Company, Pearl Excellence Holdco L.P., a Delaware limited partnership (“Holdings”), and certain wholly-owned domestic subsidiaries of the Company (collectively, the “Subsidiary Guarantors” and, together with Holdings, the “Guarantors”) entered into the First Supplemental Indenture to the Indenture, whereby the Company will assume the obligations of Merger Sub as the issuer of the Notes and the Guarantors will provide an unconditional guarantee of the obligations of the Company under the Notes and the Indenture. The Notes will mature on October 1, 2028 and bear interest at a fixed rate per annum of 6.750%.
In certain circumstances described in the Indenture, Domtar will be required to redeem on the third business day following the expiration time of the change of control offers for Domtar’s existing senior notes, up to $250 million aggregate principal amount of the Notes at a redemption price equal to 100% of the initial issue price of the Notes, plus accrued and unpaid interest to, but not including, the date of such redemption. On or after October 1, 2024, Domtar may redeem some or all of the Notes at the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Prior to October 1, 2024, Domtar may redeem the Notes, in whole or in part, at a price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a ‘‘make-whole’’ premium. Prior to October 1, 2024, Domtar may also redeem during each calendar year commencing with 2021 up to 10% of the original aggregate principal amount of the Notes, at its option, from time to time at a redemption price equal to 103% of the aggregate principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. Prior to October 1, 2024, Domtar may also redeem up to 40% of the original aggregate principal amount or then outstanding amount of the Notes with the net proceeds of certain equity offerings at a redemption price equal to 106.750% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, Domtar will be required to offer to repurchase the Notes at a purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase. If Domtar sells certain assets, Domtar may be required to use the net proceeds of such asset sales to offer to repurchase the Notes at a purchase price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
The Indenture contains customary negative covenants, including, but not limited to, restrictions on the incurrence of additional indebtedness or the guarantee of indebtedness; the payment of dividends or making other distributions in respect of, or repurchase or redemption of, our capital stock; the prepayment, redemption or repurchase of certain indebtedness; the issuance of certain preferred stock or similar equity securities; the making of loans and investments; the sale or other disposal of assets; the incurrence of liens; entrance into transactions with affiliates; entrance into agreements restricting subsidiaries’ ability to pay dividends; and the consolidation, merger or sale of all or substantially all of the Company’s assets.
The Indenture provides that, upon the occurrence of certain events of default, our obligations thereunder may be accelerated. Such events of default will include payment defaults to the holders of the Notes, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments and other customary events of default.
Term Loan Credit Agreement and ABL Revolving Credit Agreement
On November 30, 2021, Merger Sub, as initial borrower thereunder, entered into (i) a First Lien Credit Agreement (the “Term Loan Credit Agreement”) by and among Merger Sub as initial borrower thereunder, the Company as successor borrower thereunder, Holdings, the lenders party thereto (the “First Lien Lenders”), and Barclays Bank PLC as administrative agent and collateral agent pursuant to which the First Lien Lenders agreed to extend an initial term loan facility to the Borrower (as defined in the Term Loan Credit Agreement) in an aggregate principal amount of up to $525.0 million and a delayed draw term loan facility to the borrower in an aggregate principal amount of up to $250.0 million, and (ii) an ABL Revolving Credit Agreement, by and among Merger Sub as initial borrower thereunder, the Company as successor borrower thereunder, Domtar Inc. as a co-borrower, Holdings, the lenders and issuing banks party thereto (the “ABL Lenders”), and Barclays Bank PLC as administrative agent and collateral agent, pursuant to which the ABL Lenders agreed to extend revolving commitments to the Borrower (as defined in the Term Loan Credit Agreement) in an aggregate principal amount of up to $400.0 million. Upon the consummation of the Merger, the Company succeeded Merger Sub as Borrower under the Term Loan Credit Agreement and the Guarantors will provide an unconditional guarantee of the obligations of the Company under the Term Loan Credit Agreement. Upon the consummation of the Merger, the Company succeeded Merger Sub as Borrower under the ABL Credit Agreement, Domtar Inc. will assume obligations of a co-borrower under the ABL Credit Agreement, and the Guarantors and Domtar Inc. will provide an unconditional guarantee of the obligations of the Company under the ABL Credit Agreement.
The Term Loan Credit Agreement will mature on November 30, 2028. It will bear interest at a floating rate per annum of, at the Company’s option, LIBOR plus 5.50% or a base rate plus 4.50%. The LIBOR rate is subject to an interest rate floor of 0.75% and the base rate is subject to an interest rate floor of 1.75%. Borrowings under our Term Loan Credit Agreement will amortize in equal quarterly installments in an amount equal to 1.00% per annum of the principal amount.
The ABL Credit Agreement will mature on November 30, 2026. It will bear interest at a floating rate per annum of, at the Company’s option, LIBOR plus an applicable margin of 1.50% to 2.00% or a base rate plus 0.50% to 1.00%, in each case, depending on excess availability. The LIBOR rate is subject to an interest rate floor of 0.00% and the base rate is subject to an interest rate floor of 1.00%. Borrowings under our ABL Credit Agreement will be limited by borrowing base calculations based on the sum of specified percentages of eligible accounts receivable, plus specified percentages of eligible inventory, plus specified percentages of qualified cash, minus the amount of any applicable reserves. We may borrow only up to the level of our then-current borrowing base. The ABL Credit Agreement is subject to an unused line fee of 0.25% to 0.375%, depending on utilization.
We may voluntarily prepay loans or reduce commitments under our Term Loan Credit Agreement, in whole or in part, subject to minimum amounts, with prior notice but without premium or penalty (other than a 1.00% premium on any prepayment in connection with a repricing transaction prior to the date that is twelve months after the date we enter into the Term Loan Credit Agreement).
We will be required to prepay the loans under the Term Loan Credit Agreement with 100% of the net cash proceeds of certain asset sales (such percentage subject to reduction based on the achievement of specific first lien net leverage ratios) subject to certain reinvestment rights, 100% of the net cash proceeds of certain debt issuances and 50% of excess cash flow (such percentage subject to reduction based on the achievement of specific first lien net leverage ratios), in each case, subject to certain exceptions. We will be required to make prepayments under our ABL Credit Agreement at any time when, and to the extent that, the aggregate amount of the outstanding loans and letters of credit under our ABL Credit Facility exceeds the lesser of the aggregate amount of commitments in respect of our ABL Credit Agreement and the borrowing base.
Our Term Loan Credit Agreement and our ABL Credit Agreement contains customary negative covenants, including, but not limited to, restrictions on our ability and that of our restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make investments, pay dividends or make other restricted payments, sell or otherwise transfer assets or enter into transactions with affiliates. Our ABL Credit Facility will require the maintenance of a fixed charge coverage ratio of 1.00 to 1.00 when specified excess availability is less than the greater of $35 million and 10% of the lesser of the borrowing base and maximum borrowing capacity.
Our Term Loan Credit Agreement and our ABL Credit Agreement provides that, upon the occurrence of certain events of default, our obligations thereunder may be accelerated. Such events of default will include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments, change of control and other customary events of default.
| Item 1.01 | Entry into a Material Definitive Agreement |
The information set forth in the section above titled “Introduction” of this Current Report on Form 8-K is incorporated herein by reference.
| Item 1.02 | Termination of a Material Definitive Agreement |
The information set forth in the section above titled “Introduction” of this Current Report on Form 8-K is incorporated herein by reference.
In connection with the consummation of the Merger, the Company repaid in full all outstanding amounts under its Third Amended and Restated Credit Agreement, dated as of August 22, 2018, by and among the Company, Domtar Inc., Domtar Pulp and Paper General Partnership, the additional borrowers parties thereto, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and the other agents named therein (the “Existing Credit Agreement”), terminated the Existing Credit Agreement and all commitments by the lenders thereunder to extend further credit thereunder in accordance with its terms and any guarantees in connection therewith were terminated and released.
