Item 1.01 Entry into a Material Definitive Agreement
On December 31, 2021, Armstrong Flooring, Inc. (the "Company"), announced that
it entered into an ABL Amendment (as defined below) and a Term Loan Amendment
(as defined below), that became effective as of December 30, 2021 (the
"Effective Date"), each of which is described in greater detail below. In
connection with the Term Loan Amendment, Pathlight Capital LP, in its capacity
as the Company's current term loan lender, loaned the Company and the Company's
subsidiary, Armstrong Flooring Pty Ltd (the "Australian Borrower"), additional
term loans in an aggregate principal amount of $35 million (the "Incremental
Term Loan") to support the Company.
The Company also announced it retained Houlihan Lokey Capital, Inc. ("Houlihan")
to assist with a process for the sale of the Company and with the consideration
of other strategic alternatives. Based on all the factors deemed relevant by the
Board of Directors of the Company (the "Board"), the Board determined this
process to be in the best interests of the Company and that a sale of the
Company or another strategic transaction are the best means to maximize value
for the Company's stockholders and other stakeholders.
Please see below for a discussion of certain risks and uncertainties facing the
Company in connection with the process for consideration of a sale of the
Company and other strategic alternatives, the terms of the ABL Amendment and
Term Loan Amendment, the Company's operational performance, and related matters.
The Company undertakes no obligation to provide further disclosure, unless and
until a definitive agreement is executed, regarding the status of the process
for consideration of a sale of the Company and other strategic alternatives, and
does not presently intend to make such disclosure.
Amended ABL Credit Facility
The Fifth Amendment to Credit Agreement and First Amendment to Pledge Agreement,
dated as of the Effective Date (the "ABL Amendment"), by and among the Company,
as borrower, the guarantors named therein, the lenders party thereto and Bank of
America, N.A., as administrative agent and collateral agent (in such capacities,
the "ABL Agent"), as Australian security trustee and as letter of credit issuer
and as swingline lender, amends (i) that certain Credit Agreement, dated as of
December 31, 2018, by and among the Company, the guarantors named therein, the
lenders party thereto, the letter of credit issuer, the swingline lender and the
ABL Agent (as amended, restated, supplemented or otherwise modified from time to
time, including by the ABL Amendment, the "Amended ABL Credit Facility") and
(ii) that certain Pledge Agreement, dated as of December 31, 2018 (the "Existing
ABL Pledge").
Among other things, the ABL Amendment amends the interest rates applicable to
the loans under the Amended ABL Credit Facility, modifies certain financial
maintenance and other covenants thereunder, as described in greater detail
below, and includes the consent of the lenders under the Amended ABL Credit
Facility to the making of the Incremental Term Loans. In connection with, and as
a condition precedent to, the ABL Amendment, the Australian Borrower guaranteed
the
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obligations of the Company under the Amended ABL Credit Facility. In addition,
the Existing ABL Pledge was amended to require 100% of the equity interests in
the Australian Borrower and certain other foreign subsidiaries of the Company to
be pledged to secure the obligations of the Company under the Amended ABL Credit
Facility. Previously, this was limited to a 65% pledge, in the case of voting
equity of foreign subsidiaries.
Borrowings under the Amended ABL Credit Facility will bear interest at a rate
per annum equal to, at the Company's option, a base rate or a Eurodollar rate
equal to the London interbank offered rate ("LIBOR") for the relevant interest
period, plus, in each case, an applicable margin determined in accordance with
the provisions of the Amended ABL Credit Facility. The base rate will be the
highest of (a) the federal funds rate plus 0.50%, (b) the prime rate of Bank of
America, N.A. and (c) one month LIBOR plus 1.00%. The applicable margin for
borrowings under the Amended ABL Credit Facility will be determined based on the
Company's Consolidated Leverage Ratio (as defined in the Amended ABL Credit
Facility) and will range from 2.25% to 3.50% with respect to base rate
borrowings and 3.25% to 4.50% with respect to Eurodollar rate borrowings. The
Amended ABL Credit Facility also contains customary "LIBOR replacement"
provisions.
Pursuant to the ABL Amendment, the Company has elected to enter into a cash
dominion period that will be effective as of February 1, 2022, and will continue
until the obligations under the Amended ABL Credit Facility and the Amended Term
Loan Facility (as defined below) (together, the "Amended Facilities") are paid
in full. During this period, if the Company has cash in its disbursement
accounts in excess of $500,000 on the last business day of any week, the Company
will apply any such excess to prepay loans under the Amended ABL Credit
Facility. This prepayment requirement does not apply to amounts in such accounts
with respect to which a disbursement has been initiated or scheduled.
The Amended ABL Credit Facility includes certain milestones ("Milestones")
related to the Company's consideration of a sale of the Company or other
strategic alternatives. These milestones include: (i) a requirement that the
Company deliver a confidential information memorandum regarding the sale process
to potential buyers, investors and/or refinancing sources by January 14, 2022,
(ii) a requirement that the Company cause Houlihan to provide a summary to the
ABL Agent by February 18, 2022 of all written indications of interest regarding
the acquisition of the Company or an alternative transaction that are received
on or before that date, (iii) a requirement that the Company notify the ABL
Agent by February 28, 2022 whether any binding letter of intent for the
acquisition of the Company has been entered into prior to such date and,
thereafter, providing copies of any such letter of intent entered into after
such date (subject to any necessary redaction), (iv) a requirement that the
Company enter into a definitive agreement for the acquisition of the Company by
March 31, 2022 which provides for a purchase price in an amount sufficient to
repay in full the outstanding loans under the Amended ABL Credit Facility and
the Amended Term Loan Facility and otherwise be in form and substance reasonably
satisfactory to the ABL Agent, and (v) a requirement that the Company consummate
the sale of the Company or a similar transaction by no later than May 15, 2022.
In addition, the
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Company agreed to provide bi-weekly updates to the ABL Agent and the other
lenders under the Amended ABL Credit Facility regarding the potential sale
transaction. The Company is required to refinance the Amended Facilities no
later than June 30, 2022, even if a sale of the Company or other strategic
transaction has not been consummated prior to such date. The Company will pay a
sale process fee to its lenders under the Amended ABL Credit Facility upon the
consummation of a sale of the Company or similar transaction, which fee will be
$500,000 if such transaction closes before March 31, 2022, and $750,000, if it
closes any time thereafter. Pursuant to the ABL Amendment, the Company must
continue to retain a consultant to provide rolling 13-week cash flow reports and
participate in weekly updates with the ABL Agent and the lenders under the
Amended ABL Credit Facility.
In addition, the ABL Amendment amends certain financial covenants applicable to
the Company and its subsidiaries (the "Financial Covenant Amendments"). Among
other things, the Amended ABL Credit Facility requires that the Company and its
subsidiaries (i) maintain minimum Availability (as defined in the Amended ABL
Credit Facility) of $40 million during the months ending December 31, 2021 and
January 31, 2022, $37.5 million during the month ending February 28, 2022, and
$25 million thereafter, (ii) maintain minimum Consolidated Cash Flow (as defined
in the Amended ABL Credit Facility) for each month, commencing with the month
ending December 31, 2021, and calculated on a cumulative basis, ranging from
negative $21 million as of December 31, 2021, to negative $40 million as of
June 30, 2022 and (iii) maintain a minimum Formula Availability (as defined in
the Amended ABL Credit Facility) in an amount ranging from $86.4 million during
the month ending December 31, 2021 to $106.4 million during the month ending
June 30, 2022.
Amended Term Loan Facility
The Second Amendment to Term Loan Agreement and First Amendment to Pledge
Agreement, dated as of the Effective Date (the "Term Loan Amendment"), by and
among the Company, as borrower, the Australian Borrower, the guarantors named
therein, the lenders party thereto and Pathlight Capital LP, as administrative
agent, collateral agent and Australian security trustee (in such capacities, the
"Term Loan Agent"), amend (i) that certain Term Loan Agreement, dated as of
June 23, 2020, by and among the Company, the guarantors named therein, the
lenders party thereto and the Term Loan Agent (as amended, restated,
supplemented or otherwise modified from time to time, including by the Term Loan
Amendment, the "Amended Term Loan Facility") and (ii) that certain Pledge
Agreement, dated as of June 23, 2020 (the "Existing Term Loan Pledge").
. . .
Item 7.01 Regulation FD Disclosure
On December 31, 2021, the Company issued a press release announcing that it had
entered into the ABL Amendment and the Term Loan Amendment and certain related
matters.
The information in Item 7.01 of this Current Report on Form 8-K, including
Exhibit 99.1, is being furnished herewith and shall not be deemed "filed" for
the purposes of Section 18 of the Exchange Act, or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference
into any filing under the Securities Act or the Exchange Act, except as
expressly set forth by specific reference in such filing.
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Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit No. Description
10.1 Fifth Amendment to Credit Agreement and First Amendment to
Pledge Agreement, dated as of December 30, 2021, by and among
Armstrong Flooring, Inc., as borrower, the guarantors named
therein, the lenders party thereto and Bank of America, N.A., as
administrative agent, collateral agent, Australian security
trustee, swingline lender and letter of credit issuer.
10.2 Second Amendment to Term Loan Agreement and First Amendment to
Pledge Agreement, dated as of December 30, 2021, by and among
Armstrong Flooring, Inc., as borrower, Armstrong Flooring Pty
Ltd, as Australian borrower, the guarantors named therein, the
lender parties thereto and Pathlight Capital LP, as
administrative agent, collateral agent and Australian security
trustee.
99.1 Press Release of Armstrong Flooring, Inc., dated December 31,
2021.
104 Cover Page Interactive Data File (formatted as inline XBRL)
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