| Item 1.01 | Entry Into a Material Definitive Agreement. |
Amendment to Credit Facility
On August 6, 2020, Tao Group Operating LLC (the “Senior Borrower”) and Tao Group Intermediate Holdings LLC (“Intermediate Holdings”), the parent of the Senior Borrower, entered into Amendment No. 1 (“Amendment No. 1”) to the senior credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as administrative agent, and the lenders party thereto. The Credit Agreement was entered into on May 23, 2019, along with a credit agreement between Tao Group Sub-Holdings LLC (the “Subordinated Borrower”) and MSG Entertainment Holdings LLC, as administrative agent and lender (the “Subordinated Credit Agreement”), pursuant to which MSG Entertainment Holdings LLC originally extended a $49 million subordinated term loan to the Subordinated Borrower. The Credit Agreement matures on May 23, 2024 and the Subordinated Credit Agreement matures on August 22, 2024. All capitalized terms not defined herein have the meaning set forth in the Credit Agreement.
The Credit Agreement and the related Security Agreement were filed as Exhibits 10.44 and 10.45, respectively, to Amendment No. 1 to the registration statement on Form 10 filed on March 18, 2020 by Madison Square Garden Entertainment Corp. (the “Registrant”). The Registrant indirectly owns a 77.5% interest in the Subordinated Borrower, which is the indirect parent company of the Senior Borrower.
Amendment No. 1 amends the Credit Agreement to, among other things, suspend the application of the financial maintenance covenants thereunder, modify certain restrictive covenants therein and modify the applicable interest rates.
In particular, while the Financial Covenant Suspension Period (as defined below) is in effect:
| | • | | Applicable Margin is a percentage per annum equal to (i) 2.50% with respect to Eurocurrency Loans and (ii) 1.50% with respect to ABR Loans; |
| | • | | the Fixed Charge Coverage Ratio will not be applicable; |
| | • | | the Senior Leverage Ratio will not be applicable; |
| | • | | the Total Leverage Ratio will not be applicable; and |
| | • | | certain other covenants in the Credit Agreement have been modified to impose greater restrictions on the Borrower’s ability to (i) make certain investments in joint ventures, (ii) designate or invest in Unrestricted Subsidiaries and (iii) make Permitted Acquisitions. |
“Financial Covenant Suspension Period” means the period commencing on the last day of the fiscal quarter ending on June 30, 2020 and ending on the last day of the fiscal quarter ending on December 31, 2021.
Additionally, from the effective date of Amendment No. 1 through December 31, 2021, Intermediate Holdings may not permit Consolidated Liquidity, as defined in the Credit Agreement, to be less than $10 million.
Amendment No. 1 has been filed as Exhibit 10.1 to this Current Report on Form 8-K. The Credit Agreement, as amended to incorporate edits to conform to Amendment No. 1, has been filed as Exhibit 10.2 to this Current Report on Form 8-K. The description of those agreements contained herein is qualified in its entirety by reference to those agreements, which are incorporated into this Item 1.01 by reference.
Guarantee Agreement
On August 6, 2020, MSG Entertainment Group, LLC (“MSGE Group”), a direct subsidiary of the Registrant and the parent of MSG Entertainment Holdings, LLC, entered into a guarantee and reserve account agreement (the “Guarantee Agreement”) in favor of JPMorgan Chase, as collateral agent, pursuant to which MSGE Group guarantees the Secured Obligations, as defined in the Security Agreement, jointly with the other Guarantors and severally, as a primary obligor. In addition, pursuant to the Guarantee Agreement, MSGE Group has agreed that its minimum liquidity shall be no less than $75 million at all times, and has agreed to establish a reserve account subject to a control agreement with JPMorgan Chase, in which MSGE Group will initially deposit proceeds equal to approximately $9.8 million, subject to decreases and the terms and conditions set forth in the Guarantee Agreement.
