Section 1— Registrant’s Business and Operations
| Item 1.01 | Entry into a Material Definitive Agreement. |
Credit Agreement
On April 23, 2021, Sanderson Farms, Inc. (the “Registrant”) entered into a Credit Agreement (the “Credit Agreement”) with BMO Harris Bank, N.A., as agent and a letter of credit issuer; BMO Harris Financing, Inc.; AgCountry Farm Credit Services, PCA; AgFirst Farm Credit Bank; Compeer Financial, PCA; Farm Credit Bank of Texas; Farm Credit Services of America, PCA; Northwest Farm Credit Services, PCA; Regions Bank; Bank of the West; Farm Credit Mid-America, PCA; Greenstone Farm Credit Services, ACA; Trustmark National Bank; U.S. Bank National Association; Farm Credit West, PCA; American AgCredit, PCA; and BankPlus.
The Credit Agreement provides for a $1.0 billion unsecured revolving credit facility on a committed basis. Subject to the terms of the Credit Agreement, the Registrant may, on one or more occasions, elect to increase the commitments under the credit facility or obtain term loans (in each case in an amount no less than $25.0 million), provided that any increase, together with the aggregate amount of any term loans issued, may not exceed $1.3 billion. The Credit Agreement has a maturity date of April 23, 2026.
The Registrant will pay interest, at its option, at a variable base or Eurodollar rate as determined under the Credit Agreement. The Registrant is also obligated to pay an applicable margin over the base rate or Eurodollar rate, as well as a letter of credit participation fee and a commitment fee payable on the amount of the average daily unused portion of the commitment, each according to its leverage ratio. If there is an event of default, loans outstanding will bear an additional 2.0% rate of interest. The Registrant must also pay a fronting fee of 0.125% of the face amount of each standby letter of credit issued, as well as usual and customary administrative fees.
Up to $30.0 million of the new credit facility is available for the issuance of standby and commercial letters of credit in the ordinary course of business. The agent has also established a $10.0 million swing line facility that will permit funding of small or late day draws that reduce available credit under the facility, with the credit risk allocated ratably among the lenders. Swing line loans bear interest at the base rate plus the applicable margin or the rate offered by the swing line lender in its discretion. The Credit Agreement contains restrictive covenants, which include maintaining a minimum tangible net worth of $950.0 million, subject to quarterly increases based in part on the Registrant’s quarterly consolidated net income and a maximum leverage ratio of 50%. The Registrant has a one-time right to increase the maximum leverage ratio by 5% in connection with the construction of a new poultry processing complex for the four fiscal quarters beginning on the first day of the fiscal quarter in which the Registrant gives notice of its intent to exercise this right.
The credit facility also contains customary provisions relating to acceleration of the Registrant’s payment obligations in an event of default, which include non-payment of interest, principal or fees; covenant defaults, subject to grace periods for certain covenants; inaccurate representations or warranties in any material respect; commencement of insolvency or bankruptcy proceedings by or against the Registrant; a change in control; the entry of certain judgments against the Registrant and cross-defaults on other agreements evidencing indebtedness. The Registrant’s obligations under the Credit Agreement are jointly and severally guaranteed by its wholly-owned subsidiaries under a Guaranty Agreement dated April 23, 2021.
Copies of the Credit Agreement and the Guaranty Agreement are filed as Exhibits 10.1 and 10.2, respectively, to this report and are incorporated herein by reference. The descriptions above are summaries of the Credit Agreement and Guaranty Agreement and are qualified in their entirety by the complete text of those agreements.
Certain Relationships
From time to time, certain of the lenders under the Credit Agreement (and Prior Credit Agreement (as defined below)) and their related entities have engaged, and may in the future engage, in commercial, investment banking and financial services transactions with the Registrant in the ordinary course of their business. They have received, and expect to receive, customary compensation and expense reimbursement for these commercial and investment banking transactions. In addition, one of the Registrant’s directors, Toni D. Cooley, is a director of Trustmark National Bank and its parent company, Trustmark Corporation.
