Separation from Kimberly-Clark and Long-Term Debt | 9 Months Ended |
Sep. 30, 2014 |
Business Combinations [Abstract] | ' |
Separation from Kimberly-Clark and Long-Term Debt | ' |
Separation from Kimberly-Clark and Long-Term Debt |
Separation from Kimberly-Clark |
Prior to the Spin-off, Halyard Health, Inc. had no operations other than those related to the preparation to receive the health care business of Kimberly-Clark. Following the Spin-off, we became a separate public company, and Kimberly-Clark has no continuing stock ownership in us. |
Prior to the Spin-off, we entered into a distribution agreement and various other agreements with Kimberly-Clark to effect the separation of our business from Kimberly-Clark's other businesses and set forth our contractual relationships with Kimberly-Clark after the Spin-off. These agreements provide for the allocation, between us and Kimberly-Clark, of Kimberly-Clark's assets, employees, liabilities and obligations (including Kimberly-Clark’s investments, property and employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the Spin-off. The various other agreements include a transition services agreement, a tax matters agreement, an employee matters agreement, intellectual property agreements and manufacturing and supply agreements. |
Using $250 of proceeds from 6.25% senior unsecured notes and $390 from a senior secured term loan (see “Senior Unsecured Notes, Term Loan and Revolving Credit Facilities” below) and cash on hand we made a cash distribution to Kimberly-Clark equal to the estimated amount of all of our available cash on the Spin-off date in excess of a defined minimum amount that we were to retain, or $680. |
Stand-Alone Public Company Costs |
Upon the Spin-off, we assumed responsibility for all of our stand-alone public company costs, including the costs of corporate services provided by Kimberly-Clark prior to the Spin-off. The corporate services provided to us include executive management, supply chain, information technology, legal, finance and accounting, investor relations, human resources, risk management, tax, treasury and other services. We estimate that our aggregate annual expense for these costs will be $146, including incremental expenses of $40 per year of cash expense and $11 per year of additional depreciation and amortization expense. In addition, as a result of the separation and Spin-off we expect to incur additional ongoing net expenses that we estimate will be approximately $29 on an annual basis related primarily to: (1) a decline in purchasing scale; (2) stranded facility costs as a result of excess manufacturing capacity in certain facilities, underutilization of certain of our distribution facilities and inefficiencies in shipping costs; and (3) a reduction in related party sales. |
In addition, as a result of the separation and Spin-off, we expect to incur $60 to $75 of transitional costs after the Spin-off through 2016 to establish our own capabilities as a stand-alone entity. These costs are related primarily to the transition services we expect to receive from Kimberly-Clark, as well as our branding and other supply chain transition costs. |
Senior Unsecured Notes, Term Loan and Revolving Credit Facilities |
Prior to the Spin-off, we issued $250 aggregate principal amount of 6.25% senior unsecured notes due October 15, 2022 (the “Notes”). The Notes will mature on October 15, 2022 and interest will accrue at a rate of 6.25% per annum from October 17, 2014 and will be payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2015. |
The agreement governing the Notes contains covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to: |
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• | incur additional indebtedness, guarantee indebtedness or issue disqualified stock or, in the case of our restricted subsidiaries, preferred stock; |
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• | pay dividends on, repurchase or make distributions in respect of our capital stock; |
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• | make certain investments or acquisitions; |
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• | sell, transfer or otherwise convey certain assets; |
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• | create liens; |
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• | enter into agreements restricting certain subsidiaries’ ability to pay dividends or make other intercompany transfers; |
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• | consolidate, merge, sell or otherwise dispose of all or substantially all of our and our subsidiaries’ assets; |
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• | enter into transactions with affiliates; and |
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• | prepay certain kinds of indebtedness. |
Upon the Spin-off, we entered into a credit agreement establishing credit facilities in aggregate principal amount of $640, including a five-year senior secured revolving credit facility allowing borrowings of up to $250, with a letter of credit sub-facility in an amount of $75 and a swingline sub-facility in an amount of $25 (the “Revolving Credit Facility”), and a seven-year senior secured term loan of $390 (the “Term Loan Facility”). The Term Loan Facility is secured by substantially all of our assets located in the United States and the credit agreement contains covenants similar to those described above. |
Borrowings under the Term Loan Facility will bear interest, at Halyard’s option, at either (i) a reserve-adjusted LIBOR rate plus 3.25%, or (ii) a base rate (calculated as the greatest of (1) the prime rate, (2) the U.S. federal funds effective rate plus 0.50% and (3) the one month LIBOR Rate plus 1.00%) plus 2.25%. The Term Loan Facility requires quarterly amortization payments equal to 0.25% of the aggregate principal amount of the term loans outstanding on the closing date. |
Borrowings under the Revolving Credit Facility will bear interest, at Halyard’s option, at either (i) a reserve-adjusted LIBOR rate, plus a margin initially equal to 2.25% and then, following Halyard’s delivery under the credit agreement of Halyard’s financial statements for Halyard’s fiscal quarter ending March 31, 2015, ranging between 1.75% to 2.50% per annum, depending on Halyard’s consolidated total leverage ratio, or (ii) the base rate plus a margin initially equal to 1.25% and then, following Halyard’s delivery of those financial statements, ranging between 0.75% to 1.50% per annum, depending on Halyard’s consolidated total leverage ratio. The unused portion of Halyard’s Revolving Credit Facility will be subject to a commitment fee equal to (i) 0.25% per annum, when Halyard’s consolidated total leverage ratio is less than 2.25 to 1.00 and (ii) 0.40% per annum, otherwise. |