| Item 1.01. | Entry into a Material Definitive Agreement. |
On April 7, 2022, Kaiser Aluminum Corporation (the “Company”) and certain subsidiaries of the Company (collectively with the Company, the “Borrowers”) entered into the Amendment No. 3 to Credit Agreement and Loan Documents with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, Wells Fargo and JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as joint lead arrangers and as joint book runners, and the other financial institutions party thereto (the “Amendment”), which modifies the Credit Agreement dated as of October 30, 2019 (as amended by the Amendment and as otherwise amended, restated, supplemented, or otherwise modified from time to time, the “Amended Credit Agreement”). The Amended Credit Agreement among other things, (1) increased the commitment from $375 million to $575 million (of which up to a maximum of $50 million may be utilized for letters of credit), (2) extended the maturity date from the earlier of (i) February 15, 2024 (if certain conditions were met) and (ii) October 30, 2024 to April 7, 2027, (3) removed eligible equipment from the borrowing base and as collateral, and (4) updated relevant benchmark provisions to reference the Secured Overnight Financing Rate (“SOFR”) instead of the London Interbank Offered Rate.
Under the Amended Credit Agreement, the Company may borrow from time to time an aggregate amount equal to the lesser of $575 million and a borrowing base comprised of (a) 90% of eligible accounts receivable in which the account debtor is an investment-grade domestic account debtor, less the amount, if any, of the dilution reserve, (b) 85% of eligible accounts receivable in which the account debtor is a domestic account debtor, but not an investment-grade domestic account debtor, less the amount, if any, of the dilution reserve, (c) the lesser of (i) 85% of eligible accounts receivable in which the account debtor is not a domestic account debtor, less the amount, if any, of the dilution reserve and (ii) an amount equal to 25% of the lesser of (A) maximum revolver amount or (B) borrowing base, (d) the lesser of (i) the product of 75% multiplied by the value of eligible inventory and (ii) the product of 85% multiplied by the net recovery percentage identified in the most recent acceptable appraisal of inventory, multiplied by the value of eligible inventory, and (e) at the option of the Company, 100% of eligible cash, (f) less certain reserves, all as specified in the Amended Credit Agreement.
At maturity, all principal amounts outstanding under the Amended Credit Agreement will be due and payable. Borrowings under the Amended Credit Agreement bear interest at a rate equal to either a base rate or SOFR, plus, in each case, a specified variable percentage of between 125 basis points and 150 basis points (the “Variable Margin”) determined by reference to the then-remaining borrowing availability under the Credit Agreement and, in certain instances, a fixed margin. The Company will also pay a monthly commitment fee equal to 0.25% per annum multiplied by the result of (i) the aggregate amount of revolver commitments, less (ii) the average revolver usage during the immediately preceding month. The Credit Agreement may, subject to certain conditions and the agreement of lenders thereunder, be increased up to $775 million and may be modified, subject to approval by the requisite number of lenders, to create certain ESG benchmarks.
Amounts owed under the Credit Agreement may be accelerated upon the occurrence of various events of default set forth in the Amended Credit Agreement, including, without limitation, the failure to make principal or interest payments when due and breaches of covenants, representations and warranties set forth in the Amended Credit Agreement. The Amended Credit Agreement places restrictions on the ability of the Company and certain of its subsidiaries to, among other things, grant liens, engage in mergers, sell assets, incur debt, enter into sale and leaseback transactions, make investments, undertake transactions with affiliates, prepay and repurchase debt, pay dividends and repurchase shares. In addition, if certain minimum availability thresholds are not met, as specified in the Amended Credit Agreement, the Company and its domestic operating subsidiaries will not permit their fixed charge coverage ratio on a consolidated basis to be less than 1.0 to 1.0. The Amended Credit Agreement is secured by a first priority lien on substantially all of the accounts receivable and inventory and certain other assets and proceeds relating thereto of the Company and its domestic operating subsidiaries.
The Company has various relationships with Wells Fargo, JP Morgan Chase and certain of the lenders and their respective affiliates. In addition, some of the other agents and the lenders under the Amended Credit Agreement, or their respective affiliates, have had in the past, and may have, in the future, various relationships with the Company involving the provision of financial or other advisory services, including cash management, investment banking and brokerage services. These agents and lenders under the Amended Credit Agreement, or their respective affiliates, have received, and may in the future receive, customary principal and interest payments, fees and expenses for these services.
The preceding description of the Amendment is a summary and is qualified in its entirety by the Amendment, which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.
