UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Item 1.01. Entry into a Material Definitive Agreement
On July 27, 2021, NetScout Systems, Inc. (the “Company” or “NetScout”) entered into a second amendment and restatement (the “Second Amendment”) of its Amended and Restated Credit Agreement, dated as of January 16, 2018 (the “Previously Amended Credit Agreement”; as amended by the Second Amendment, the “Amended Credit Agreement”), by and among: the Company, as borrower; certain subsidiaries of the Company, as loan parties; the lenders and issuing banks party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The Amended Credit Agreement provides for a new five-year $800,000,000 senior secured revolving credit facility, including a letter of credit sub-facility of up to $75,000,000. The Company may elect to use the new credit facility for working capital and other general corporate purposes, including to refinance revolving loans outstanding under the Previously Amended Credit Agreement and to repurchase common stock. The commitments under the Amended Credit Agreement will expire on July 27, 2026, and any outstanding loans will be due on that date.
At the Company’s election, revolving loans under the Amended Credit Agreement bear interest at either (a) a Base Rate (determined in a customary manner); or (b) an adjusted LIBO rate (for the interest period selected by the Company, subject to customary provisions regarding succession from LIBO rate to SOF rate in anticipation of the upcoming discontinuation of LIBO rate), in each case plus an applicable margin. For the initial period until the Company has delivered financial statements for the quarter ending September 30, 2021, the applicable margin will be 1.25% per annum for LIBOR loans and 0.25% per annum for Base Rate loans, and thereafter the applicable margin will vary depending on the Company’s consolidated gross leverage ratio, ranging from 1.00% per annum for Base Rate loans and 2.00% per annum for LIBOR loans if the Company’s consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0.00% per annum for Base Rate loans and 1.00% per annum for LIBOR loans if the Company’s consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.
The Company’s consolidated leverage ratio is the ratio of its total funded debt (which in certain circumstances is calculated net of the Company’s unrestricted cash, up to certain agreed limits) compared to its consolidated adjusted EBITDA. Consolidated adjusted EBITDA includes certain adjustments, including, without limitation, adjustments relating to extraordinary, unusual or non-recurring charges, certain restructuring charges, non-cash charges, certain transaction costs and expenses and certain pro forma adjustments in connection with material acquisitions and dispositions, all as set forth in detail in the definition of Consolidated EBITDA in the Amended Credit Agreement. The Amended Credit Agreement provides for increases to limits on certain of these adjustments to Consolidated EBITDA which are beneficial to the Company, including, (1) increasing the limit for add-backs for extraordinary, unusual or non-recurring losses, charges or expenses for any test period from the greater of $20,000,000 and 7.5% of Consolidated EBITDA to 25.0% of Consolidated EBITDA for such test period and (2) increasing the limit for add-backs for pro forma adjustments for permitted acquisitions and nonrecurring integration or restructuring expenses in connection with acquisitions and restructurings outside the ordinary course of business from 17.5% of Consolidated EBITDA to 25.0% of Consolidated EBITDA.
Commitment fees will accrue on the daily unused amount of the credit facility. For the initial period until the Company has delivered financial statements for the quarter ended September 30, 2021, the commitment fee will be 0.20% per annum, and thereafter the commitment fee will vary depending on the Company’s consolidated gross leverage ratio, ranging from 0.30% per annum if the Company’s consolidated gross leverage ratio is greater than 3.50 to 1.00, down to 0.15% per annum if the Company’s consolidated gross leverage ratio is equal to or less than 1.50 to 1.00.
Letter of credit participation fees are payable to each lender providing the letter of credit subfacility on the amount of such lender’s letter of credit exposure, during the period from the closing date of the Amended Credit Agreement to, but excluding, the date which is the later of (i) the date on which such lender’s commitment terminates or (ii) the date on which such lender ceases to have any letter of credit exposure, at a rate per annum equal to the applicable margin for LIBOR loans. Additionally, the Company will pay a fronting fee to each issuing bank in amounts to be agreed to between the Company and the applicable issuing bank.
Interest on Base Rate loans is payable at the end of each calendar quarter. Interest on LIBOR loans is payable at the end of each interest rate period or at the end of each three-month interval within an interest rate period if the period is longer than three months. The Company may also prepay loans under the Amended Credit Agreement at any time, without penalty, subject to certain notice requirements.
The loans and other obligations under the credit facility are (a) guaranteed by each of the Company’s wholly-owned material domestic restricted subsidiaries, subject to certain exceptions, and (b) are secured by substantially all of the assets of the Company and the subsidiary guarantors, including a pledge of all the capital stock of material subsidiaries held directly by the Borrower and the subsidiary guarantors (which pledge, in the case of any foreign subsidiary, is limited to 65% of the voting stock), subject to certain customary exceptions and limitations. The Amended Credit Agreement generally prohibits any other liens on the assets of the Company and its restricted subsidiaries, subject to certain exceptions as described in the Amended Credit Agreement.
The Amended Credit Agreement contains certain covenants applicable to the Company and its restricted subsidiaries, including, without limitation, limitations on additional indebtedness, liens, various fundamental changes, dividends and distributions, investments (including acquisitions), transactions with affiliates, asset sales, including sale-leaseback transactions, speculative hedge agreements, payment of junior financing, changes in business and other limitations customary in senior secured credit facilities. The Amended Credit Agreement provides for increases in baskets available to the Company and its restricted subsidiaries to incur additional indebtedness, to repay junior financing, for asset sales and to make investments and restricted payments.
The Amended Credit Agreement also provides for an increase to the maximum pro forma consolidated leverage ratio the Company must not exceed in order to access the unlimited investments basket from a consolidated gross leverage ratio of 3.25 to 1.00 to a consolidated net leverage ratio of 3.75 to 1.00 and the unlimited restricted payments basket from a consolidated
gross leverage ratio of 3.00 to 1.00 to a consolidated net leverage ratio of 3.50 to 1.00. In addition, the Company is required to maintain a consolidated net leverage ratio of less than 4.00 to 1.00. The Amended Credit Agreement allows the Company to elect to increase the permitted maximum consolidated net leverage ratio by 0.50 to 1.00 for four fiscal quarters in the event the Company consummates an acquisition for consideration in excess of $100,000,000 that, on a pro forma basis, would result in an increase in the consolidated net leverage ratio by 0.25 to 1.00 or more; provided that the Company may not make such election more than two times during the term of the facility and the consolidated net leverage ratio may not exceed 4.50 to 1.00 at any time. The Second Amendment also removes the previous requirement that the Company maintain a minimum consolidated interest coverage ratio. These covenants and limitations are more fully described in the Amended Credit Agreement.
The Amended Credit Agreement provides that events of default will exist in certain circumstances, including failure to make payment of principal or interest on the loans when required, failure to perform certain obligations under the Amended Credit Agreement and related documents, defaults under certain other indebtedness, certain insolvency events, certain events arising under ERISA, a change of control and certain other events. Upon an event of default, the administrative agent with the consent of, or at the request of, the holders of more than 50% in principal amount of the loans and commitments, may terminate the commitments and accelerate the maturity of the loans and enforce certain other remedies under the Amended Credit Agreement and the other loan documents.
The foregoing description of the Amended Credit Agreement is qualified in its entirety by reference to the Amended Credit Agreement which is attached to the Second Amendment, attached hereto as Exhibit 10.5 and incorporated by reference herein.
| Item 9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| NETSCOUT SYSTEMS, INC. | ||
| By: | /s/ Jean Bua | |
| Jean Bua | ||
| Chief Financial Officer | ||
Date: July 29, 2021