| Item 1.01 | Entry into a Material Definitive Agreement. |
On August 9, 2022 (the “Effective Date”), Constellation Brands, Inc. (the “Company” or “Constellation”), Bank of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders (the “Credit Agreement Lenders”), entered into a Term Loan Credit Agreement (the “Credit Agreement” and loans made thereunder the “Term Loans”).
The Credit Agreement provides for a delayed single draw term loan in the aggregate principal amount of $1.0 billion. The proceeds of the Term Loans will be used to pay a portion of the cash consideration payable in connection with the previously-announced transaction to reclassify and convert each share of the Class B Common Stock, par value $0.01 per share, of the Company (the “Class B Common Stock”) into one share of Class A Common Stock, par value $0.01 per share, of the Company (the “Class A Common Stock”) and the right to receive $64.64 in cash, without interest (the “Reclassification”) and to pay related fees as well as fees related to closing the Credit Agreement. The commitments under the Credit Agreement will terminate on the earliest of (i) the date on which the Term Loans are funded pursuant to the terms and conditions to funding set forth in the Credit Agreement (the “Funding Date”), (ii) June 30, 2023 and (iii) the date the Company fails to obtain the requisite Company stockholder approvals to consummate the Reclassification. The Term Loans will mature on the earliest of (a) three years after the Funding Date and (b) December 31, 2025.
The Term Loans will bear interest, at the Company’s option, at Term SOFR (plus an additional credit spread adjustment of 0.10%) or Base Rate (each, as defined in the Credit Agreement) plus (i) in the case of Term SOFR Term Loans, a margin ranging from 0.875% to 1.50% per annum based on the Company’s credit rating as determined by Standard & Poor’s Financial Services LLC (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”) and (ii) in the case of Base Rate Term Loans, a margin ranging from 0.00% to 0.50% per annum based on the Company’s credit rating as determined by S&P or Moody’s. Unused commitments under the Credit Agreement will incur a ticking fee of 0.10% per annum.
The Credit Agreement also contains certain affirmative and negative covenants that the Company considers customary for facilities of this type and which are consistent with the Company’s existing (i) Tenth Amended and Restated Revolving Credit Agreement dated as of April 14, 2022 (the “Revolving Facility”) and (ii) Term Loan Agreement dated as of March 26, 2020 (as amended by that certain Amendment No. 1 to the Term Loan Agreement dated as of June 10, 2021 and that certain Amendment No. 2 to the Term Loan Agreement dated as of April 14, 2022, together with the Revolving Facility, the “Existing Facilities”). Such covenants include, among other things, restrictions on the incurrence of subsidiary indebtedness, additional liens, mergers and consolidations, transactions with affiliates, and sale and leaseback transactions, in each case subject to numerous conditions, exceptions, and thresholds. Consistent with the Existing Facilities, the Credit Agreement also requires the Company to maintain a minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) of 2.50:1.00 as of the end of each fiscal quarter and a maximum Consolidated Net Leverage Ratio (as defined in the Credit Agreement and which shall be calculated net of up to $750 million of unrestricted cash and cash equivalents) of 4.00:1:00 with a step-up to 4.50:1.00 with respect to the four fiscal quarters following a Material Acquisition (as defined in the Credit Agreement). The Credit Agreement also contains certain events of default consistent with the Existing Facilities. Upon the occurrence of an event of default after any applicable grace or cure period, any outstanding loans under the Credit Agreement may be accelerated and/or the Credit Agreement Lenders’ commitments may be terminated.
Certain of the Credit Agreement Lenders, the Administrative Agent and their affiliates have performed, and may in the future perform, various commercial banking, investment banking, lending, underwriting and brokerage services, and other financial and advisory services for the Company and its subsidiaries for which they have received, and will receive, customary fees and expenses. The Company
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