Item 1.01. Entry into a Material Definitive Agreement.
On April 27, 2021, Montrose Environmental Group, Inc. (the “Parent Borrower”), Montrose Environmental Group Ltd. (the “Canadian Borrower” and together with the Parent Borrower, each, a “Borrower” and collectively, the “Borrowers”), and the Guarantors (as defined below) entered into a credit agreement (the “Credit Agreement”) with the financial institution party thereto (collectively, the “Lenders” and individually each a “Lender”), Bank of the West (in its individual capacity, “Bank of the West”), as Administrative Agent, Swing Line Lender, L/C Issuer, Sole Bookrunner and Joint Lead Arranger and Capital One, National Association and BOFA Securities, Inc., each as Joint Lead Arranger, pursuant to which, among other things, the Lenders agreed to extend credit in the form of (a) term loans in an aggregate principal amount equal to US$175,000,000 and (b) a commitment to make revolving loans in an aggregate amount of up to US$125,000,000, of which up to US$10,000,000 of such revolving loan commitment may be used to make revolving loans in Canadian Dollars, Australian Dollars, Euros, Pounds Sterling and other alternative currencies to the Parent Borrower and up to US$10,000,000 of such revolving loan commitment may be used to make revolving loans in Canadian Dollars to the Canadian Borrower. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Credit Agreement.
The proceeds of the term loans and $42 million in revolving loans drawn at closing were used to refinance the Parent Borrower’s existing senior secured indebtedness and to finance the fees, costs and expenses associated with the refinancing of such existing senior secured indebtedness and the incurrence of the indebtedness under the Credit Agreement. Parent Borrower may draw down revolving loans after the closing for working capital, capital expenditures and other general corporate purposes.
The Parent Borrower may incur incremental indebtedness, in the form of incremental term loans or increases to the revolving commitments, under the Credit Agreement from one or more incremental lenders, which may include the Lenders, in an aggregate incremental principal amount not to exceed US$150,000,000, subject to certain conditions set forth in the Credit Agreement. Any incremental lender may establish incremental loan commitments in its own discretion and no Lender is obligated to provide any such incremental commitment.
The payment of all amounts owing by the Borrowers under the Credit Agreement is guaranteed by certain subsidiaries of the Parent Borrower acting as guarantors (the “Guarantors”; the Guarantors, together with the Borrowers, the “Company”) and is secured by a pledge of all equity interests of the Guarantors and certain other subsidiaries of the Parent Borrower, as well as a lien on substantially all of the assets of the Guarantors, subject to certain exceptions.
The loans outstanding under the Credit Agreement bear interest at rates based upon, at the Borrowers’ option, the Eurocurrency Rate or the Base Rate; provided, that revolving loans denominated in Canadian Dollars, Euros, Pounds Sterling, Australian Dollars or other alternative currency are only available as Eurocurrency Rate Loans. Eurocurrency Rate Loans will bear interest at a per annum rate equal to the Eurocurrency Rate (a variable rate which can be no less than zero percent) plus the Applicable Rate (which is initially 2.00% but shall adjust based on a leverage-based pricing grid ranging from 2.50% to 1.50%). Base Rate Loans will bear interest at a per annum rate equal to the Base Rate (a variable rate which can be no less than 1.00%) plus the Applicable Rate (which is initially 1.00% but shall adjust based on a leverage-based pricing grid ranging from 1.50% to .50%). A commitment fee initially equal to 0.20% per annum and ranging from 0.15% per annum to 0.25% per annum, based upon a leverage-based pricing grid, is payable quarterly in arrears with respect to the average daily unused portion of the revolving loan commitments.
Additionally, the Borrowers can receive an interest rate adjustment of up to 0.05% under the Credit Agreement based on their performance against certain defined sustainability and environmental, social and governance related objectives. The Credit Agreement establishes benchmarks in four key areas, the first of which pertains to diversity and inclusion objectives of the Borrowers and the remaining benchmarks are directly related to the Borrowers’ environmental focus serving customers, including liters of water treated for PFAS, volume of methane leaks detected, and the amount of low-carbon intensity energy (MMBtu biogas) generated from waste.
The initial term loans must be repaid in installments in the amounts set forth below on the last day of each fiscal quarter, commencing with the fiscal quarter ending December 31, 2021, with final payment of all amounts outstanding, plus accrued and unpaid interest, becoming due on the maturity date, as described below. On the last day of each fiscal quarter, (i) starting with the fiscal quarter ending December 31, 2021 and through and including the fiscal quarter ending September 30, 2023, the Parent Borrower must pay installments equal to 1.25% of the original principal balance of the initial term loan (as adjusted for any prepayments made thereunder), (ii) starting with the fiscal quarter ending December 31, 2023 and through and including the fiscal quarter ending September 30, 2025, the Parent Borrower must pay installments equal to 1.875% of the original principal balance of the initial term loan (as adjusted for any prepayments made thereunder), and (iii) starting with the fiscal quarter ending December 31, 2025 and continuing until the fiscal quarter ending March 31, 2026, the Parent Borrower must pay installments equal to 2.50% of the original principal balance of the initial term loan (as adjusted for any prepayments made thereunder). All revolving borrowings shall be due and payable on the maturity date, as described below. The Borrowers may make voluntary prepayments of the loans from time to time without penalty, subject to customary breakage costs.
