| Item 1.01 | Entry into a Material Definitive Agreement. |
On July 14, 2022 (the “Closing Date”) Ducommun Incorporated, a Delaware corporation (“Ducommun”) and certain of its subsidiaries entered into a Credit Agreement with Bank of America, N.A., as administrative agent, swingline lender and issuing bank, and the lender parties thereto (the “Credit Agreement”).
The Credit Agreement provides for (i) a five year $250 million senior secured term loan facility (the “Term Loan Facility”), all of which was drawn on the Closing Date and (ii) a five year $200 million senior secured revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Facilities”), of which $0 was drawn on the Closing Date. The Revolving Credit Facility includes a $25 million sublimit for the issuance of standby and commercial letters of credit and a $10 million swingline subfacility.
Ducommun used the proceeds of the borrowings made on the Closing Date under the Revolving Credit Facility to prepay all outstanding loans and accrued and unpaid interest thereon under that certain Credit Agreement, dated as of June 26, 2015, as amended and restated on November 21, 2018, and as further amended on March 20, 2020 (the “Existing Credit Agreement”), among Ducommun, certain subsidiaries of Ducommun party thereto, Bank of America, N.A., as administrative agent, swingline lender and issuing bank, and the lender parties thereto, and to pay all related fees and expenses. Upon the repayment of all outstanding loans under the Existing Credit Agreement, the Existing Credit Agreement was terminated. Ducommun intends to use the proceeds of future borrowings under each of the Facilities for general corporate purposes.
Ducommun has the option to request the addition of one or more incremental term loan facilities or the increase of commitments under the Revolving Credit Facility by (i) an aggregate principal amount of up to the greater of (A) $100 million and (B) 100% of consolidated EBITDA for the most recently ended period of four fiscal quarters plus (ii) such amounts (A) if secured on a pari passu basis as the Facilities, as would not cause the consolidated first lien net leverage ratio, determined on a pro forma basis after giving effect to any such additions and increase, to exceed 4.00:1.00 or (B) if unsecured or if secured on a junior basis to the Facilities, as would not cause the consolidated total net adjusted leverage ratio, determined on a pro forma basis after giving effect to any such additions and increase, to exceed a ratio which is 0.25:1.00 less than the maximum consolidated total net adjusted leverage ratio covenant then applicable under the Credit Agreement, which additions and increase are subject to the satisfaction of certain conditions set forth in the Credit Agreement.
The variable interest rate on amounts outstanding under each of the Facilities will be, at the option of Ducommun, equal to (i) Term SOFR for the applicable interest period, plus a margin to be determined based on Ducommun’s consolidated total net adjusted leverage ratio, which margins shall range from 1.375% to 2.375% or (ii) a base rate equal to the highest of: (a) the federal funds rate plus one-half of one percent (0.50%); (b) Bank of America’s prime rate; or (c) Term SOFR for an interest period of one month plus one percent (1.00%), in each case, plus a margin to be determined based on Ducommun’s consolidated total net adjusted leverage ratio, which margins shall range from 0.375% to 1.375%.
Ducommun’s obligations under the Credit Agreement and any hedging or cash management obligations entered into by Ducommun or any of its current and future material domestic restricted subsidiaries (the “Subsidiary Guarantors” and, together with Ducommun, the “Loan Parties”) with a lender under the Credit Agreement or an affiliate of such lender are guaranteed by Ducommun and each such Subsidiary Guarantor. Ducommun’s and the Subsidiary Guarantors’ obligations under the Credit Agreement are secured by substantially all of their assets, subject to certain customary exceptions.
Ducommun is required to make prepayments of amounts outstanding under the Credit Agreement (without payment of a premium or penalty) with (i) 100% of the net cash proceeds received from certain non-ordinary course asset sales and dispositions, subject to certain reinvestment rights and repatriation issues, (ii) 100% of the net cash proceeds received from certain extraordinary proceeds received by Ducommun or any of its restricted subsidiaries in excess of agreed upon thresholds, subject to certain reinvestment rights and repatriation issues and (iii) 100% of the net cash proceeds received by Ducommun or any of its restricted subsidiaries from the issuance of any indebtedness (other than indebtedness permitted to be incurred under the Credit Agreement). The loans under the Term Loan Facility will amortize in quarterly installments, equal to 0.625% of the original aggregate principal amount thereof during the first two years, 1.250% of the original aggregate principal amount thereof during the next two years, and 1.875% of the original aggregate principal amount thereof for the next year, with the remaining balance payable on July 14, 2027. The loans under the Revolving Credit Facility are due on July 14, 2027.
The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Loan Parties and the restricted subsidiaries of Ducommun, including, without limitation, restrictions on liens, indebtedness, investments, fundamental changes, dispositions, restricted payments and prepayment of junior indebtedness. The Credit Agreement contains financial covenants that require the Loan Parties and restricted subsidiaries of Ducommun to (i) not exceed a maximum consolidated total net adjusted leverage ratio initially set at 4.75:1.00, which, at Ducommun’s option, may increase to 5.00:1.00 for certain permitted acquisitions and (ii) have a minimum consolidated interest coverage ratio of at least 2.50:1.00.
