Merger Agreement instead of establishing these matters as facts or made for other purposes, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties, and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures.
Item 2.03. | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
On August 27, 2021, Centuri and Centuri Canada Division Inc. (collectively, the “Borrowers”) entered into a second amended and restated credit agreement (the “Credit Agreement”) with Wells Fargo Securities, LLC and BofA Securities, Inc., as joint lead arrangers, Wells Fargo Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, and the other lenders and agents party thereto. The Credit Agreement provides for a $1.145 billion term loan “B” facility (the “Term Loan Facility”) and a $400 million revolving credit facility (the “Revolving Credit Facility”). Subject to certain conditions, the capacity under the Term Loan Facility and the Revolving Credit Facility may be increased at Centuri’s option by an aggregate amount of up to the greater of (1) $300 million and Consolidated EBITDA as of the most recently ended four fiscal quarter period plus (2) an amount which, after giving pro forma effect to such increase, would not cause Centuri’s net leverage ratio to exceed 4.00 to 1.00. The obligations under the Credit Agreement are secured by present and future ownership interests in substantially all direct and indirect subsidiaries of Centuri, substantially all of the tangible and intangible personal property of each Borrower and certain of their direct and indirect subsidiaries (collectively, the “Guarantors”), and all products, profits and proceeds of the foregoing, and are guaranteed by the Guarantors. The Term Loan Facility matures on August 27, 2028 and the Revolving Credit Facility matures on August 27, 2026.
At Centuri’s option, interest rates for the Term Loan Facility and the Revolving Credit Facility are based on either a “base rate” or LIBOR, plus an applicable margin in either case. The Term Loan Facility is also subject to a LIBOR floor of 0.50%. Furthermore, Centuri Canada Division Inc. may borrow under the Revolving Credit Facility with interest rates based on either a “base rate” or CDOR plus the applicable margin, at the Borrower’s option. The margin for the Term Loan Facility will be 1.50% for base rate loans and 2.50% for LIBOR loans. The margin for the Revolving Credit Facility ranges from 0.0% to 1.25% for base rate loans and from 1.00% to 2.25% for LIBOR loans, depending on Centuri’s net leverage ratio.
The Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default. There are no financial covenants related to the Term Loan Facility. The Revolving Credit Facility requires Centuri to (i) maintain a maximum total net leverage ratio of 5.50 to 1.00 with a step-down to 4.75 to 1.0 on December 31, 2022 and a step-down to 4.00 to 1.00 on December 31, 2023; provided, however, Centuri may elect to increase the maximum total net leverage ratio up to 4.50 to 1.00 in connection with certain material acquisitions, which such increase shall be applicable for one year following the acquisition and (ii) maintain a minimum interest coverage ratio of 2.50 to 1.00.
Subject to certain exceptions, amounts outstanding under the Credit Agreement are required to be prepaid with (i) 100% of the net cash proceeds of the issuance or incurrence of debt by Centuri or any of its subsidiaries, (ii) 100% of the net cash proceeds of all non-ordinary course asset sales, insurance and condemnation recoveries and other asset dispositions by Centuri or any of its subsidiaries and (iii) 50% of the excess cash flow for each fiscal year of Centuri commencing with the fiscal year ending December 31, 2022, subject to 100% credit for any voluntary prepayments of the loans under the Credit Agreement and with a step down to 25% if Centuri’s total net leverage ratio is less than 4.00 to 1.00 but greater than 3.50 to 1.00 and 0% if Centuri’s total net leverage ratio is less than or equal to 3.50 to 1.0. All mandatory prepayments will be allocated first to amounts outstanding under the Term Loan Facility and second to amounts outstanding under the Revolving Credit Facility.
On August 27, 2021, Centuri made borrowings of $1.145 billion under the Term Loan Facility and Centuri Canada Division Inc. made borrowings of C$145 million under the Revolving Credit Facility in order (i) to finance the consideration payable under the Merger Agreement and to pay related fees and expenses, (ii) to refinance