| Item 1.01 | Entry into a Material Definitive Agreement. |
On June 9, 2021, Discovery Communications, LLC (“DCL”) entered into a multicurrency revolving Credit Agreement (the “Credit Agreement”) among DCL, certain wholly-owned subsidiaries of DCL (each a “Designated Borrower” and, together with DCL, the “Borrowers”), Discovery, Inc. (“Discovery”), as Facility Guarantor, Scripps Networks Interactive, Inc. (“Scripps”), as subsidiary guarantor, the lenders from time to time party thereto (the “Lenders”) and Bank of America, N.A., as administrative agent, swing line lender and L/C issuer. The Credit Agreement replaced the existing $2.5 billion credit agreement, dated February 4, 2016 as amended, among DCL, Discovery, certain lenders from time to time party thereto, and Bank of America, N.A., as administrative agent.
The Credit Agreement provides for a senior revolving credit facility with initial commitments of $2.5 billion. Upon the closing of Discovery’s proposed combination transactions with AT&T’s media business, known as WarnerMedia, the available commitments under the facility may, subject to certain conditions, be increased by $3.5 billion, to an aggregate amount not to exceed $6.0 billion. The Credit Agreement includes a $150 million sublimit for the issuance of standby letters of credit. Under the Credit Agreement, DCL may also request an additional increase of the commitments from time to time up to an aggregate additional $1 billion from the lenders, who may elect to make such increase available, upon the satisfaction of certain conditions.
The obligations of the Borrowers under the Credit Agreement are unsecured and are guaranteed by Discovery and Scripps. Following the closing of the proposed combination transactions, the obligations of the Borrowers will also be guaranteed by the holding company of the WarnerMedia business. Proceeds from the Credit Agreement may be used to repay all obligations under the existing $2.5 billion credit agreement and for other general corporate purposes. The senior credit facility permits the Borrowers to borrow under two separate tranches in U.S. dollars, certain specified foreign currencies and each other currency that may be approved in accordance with the Credit Agreement.
Loans under the Credit Agreement will bear interest based on a floating rate (which may be LIBOR, the Base Rate, EURIBOR, TIBOR or SONIA based on the applicable currency of borrowing) plus a margin. The margin for dollar-based LIBOR loans will range from 77.5 basis points to 135.0 basis points based on Discovery’s debt ratings from time to time. In addition, DCL has agreed to pay to the Lenders a facility fee, quarterly in arrears, on the aggregate commitments that ranges from 10.0 basis points to 27.5 basis points based on Discovery’s debt ratings from time to time.
The senior credit facility will be available on a revolving basis until June 9, 2026, with an option to extend maturity by an additional 364 days (which option may be exercised twice) subject to lender consent and certain other customary conditions. The Borrowers may optionally prepay the loans or irrevocably reduce or terminate the unutilized portion of the commitments under the senior revolving credit facility, in whole or in part, without premium or penalty at any time.
The Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. Negative covenants include, among others, with respect to DCL, Scripps and their subsidiaries, and following the closing of the proposed combination transactions, the holding company of the WarnerMedia business and its subsidiaries, limitations on liens, investments, indebtedness, dispositions, transactions with affiliates, dividends and restricted payments and certain burdensome agreements. Such entities as well as Discovery are also subject to a limitation on mergers and disposition of all or substantially all of their respective assets. The Credit Agreement contains customary events of default, including, among others, the occurrence of a Change in Control (as defined in the Credit Agreement).
The Credit Agreement also requires DCL to maintain a consolidated interest coverage ratio (as defined in the Credit Agreement) of no less than 3:00 to 1:00 and a consolidated leverage ratio (as defined in the Credit Agreement) of no more than (i) from and after the last day of the first full fiscal quarter following the Effective Date (as defined in the Credit Agreement) to the Measurement Period (as defined in the Credit Agreement) ending on the last day of the first full fiscal quarter following the Closing Date (as defined in the Credit Agreement), 4.50 to 1:00, (ii) from and after the Measurement Period ending on the last day of the first full fiscal quarter following the Closing Date to the Measurement Period ending on the last day of the first full fiscal quarter after the first anniversary of the Closing Date, no more than 5.75:1.00, (iii) from and after the Measurement Period ending on the last day of the full fiscal quarter after the first anniversary of the Closing Date to the Measurement Period ending on the last day of the first full quarter after the second anniversary of the Closing Date, 5.00:1.00, and (iv) thereafter, 4.50:1.00.
