Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.22.2
Debt
 9 Months Ended
Jun. 30, 2022
Debt Disclosure [Abstract]  
Debt DEBT
Table 7.1: Details of Debt
June 30, 2022 September 30, 2021
(in thousands)
Term Loan A, due 2026 $ 1,045,000  $ 1,086,250 
Term Loan B, due 2028 396,000  399,000 
Subsidiary loan agreements 3,645  38,281 
Revolver 50,000  — 
Total debt principal 1,494,645  1,523,531 
Less: Unamortized debt-issuance costs and discounts (11,671) (13,839)
Total debt 1,482,974  1,509,692 
Less: Current portion of long-term debt (59,698) (80,555)
Long-term debt $ 1,423,276  $ 1,429,137 
On May 28, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent ("Credit Agreement"), which replaced our existing revolving credit facility. The Credit Agreement provided for the following three components.
•$1.10 billion term loan facility ("Term Loan A") which matures on May 28, 2026;
•$400.0 million term loan facility ("Term Loan B") which matures May 28, 2028; and
•$600.0 million revolving credit facility ("Revolver") which matures May 28, 2026. As of June 30, 2022, we had $50.0 million outstanding balance on the Revolver.
The interest rates applicable to loans under the Credit Agreement are floating rates based upon the London Interbank Offered Rate ("LIBOR") plus a margin. Term Loan A and the Revolver margins are dependent upon our leverage ratio. At the execution of the Credit Agreement, the interest rates were based upon LIBOR plus 1.75% during the first quarter of 2022, which was reduced to LIBOR plus 1.50% as our total leverage ratio declined to below 2.50:1.00. As of June 30, 2022, the net total leverage ratio was 2.90:1.00, which we anticipate will result in an interest rate of LIBOR plus 1.75%.
Term Loan B is set to LIBOR plus 2.00% subject to a LIBOR floor of 0.50%.
LIBOR is anticipated to be phased out over the next 18 months, and alternative benchmark rates have been identified in this agreement. This is our only significant arrangement that utilizes LIBOR. As of June 30, 2022, the annual effective interest rate, including original issue discount and amortization of debt issuance costs, was 3.4%.
The Credit Agreement is available for general corporate purposes, including the funding of working capital, capital expenditures, and possible future acquisitions. In addition to borrowings, it allows us to continue to issue letters of credit when necessary.
Under the terms of the Credit Agreement, we are required to comply with certain covenants, the terms of which are customary and include a net total leverage ratio and a net interest coverage ratio. The net total leverage ratio is calculated as total outstanding debt less the lower of (a) unrestricted cash or (b) $75.0 million divided by adjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA"). With certain exceptions, the covenant requires the net total leverage ratio, as defined by the Credit Agreement to be less than 4.00:1.00, calculated over the previous twelve months. The net interest coverage ratio is calculated as EBITDA divided by interest expense, over the previous 12 months. The covenant requires a net interest coverage ratio of 3.00:1.00 or greater. As of June 30, 2022, as defined by the Credit Agreement, we calculated a net total leverage ratio of 2.90:1.00 and net interest coverage ratio of 12.0. We were in
compliance with all applicable covenants under the Credit Agreement as of June 30, 2022, and September 30, 2021. We do not believe that the covenants represent a significant restriction to our ability to successfully operate the business or to pay our dividends.
Costs incurred in establishing the Credit Agreement have been reported as a reduction to the gross debt balance and will be amortized over the respective lives of the arrangements. In addition to the corporate Credit Agreement, we hold smaller credit facilities in Australia, Canada, and the United Kingdom. These allow our businesses to borrow to meet any short-term working capital needs.
Table 7.2: Details of Future Minimum Principal Payments Due
Amount Due
(in thousands)
July 1, 2022 through September 30, 2022 $ 18,328 
Year ending September 30, 2023 65,942 
Year ending September 30, 2024 86,500 
Year ending September 30, 2025 93,375 
Year ending September 30, 2026 851,500 
Thereafter 379,000 
Total payments $ 1,494,645 
Interest Rate Derivative Instrument
In June 2021, the Company entered into an interest rate swap agreement for a notional amount of $300.0 million, effective June 28, 2021, with an expiration date of May 28, 2026, which hedges the floating LIBOR on a portion of the term loan (Term Loan A, $1.10 billion balance) under the Credit Agreement to a fixed rate of 0.986%. The Company elected to designate this interest rate swap as a cash flow hedge for accounting purposes.
As this cash flow hedge is considered effective, any future gains and losses are reflected within Accumulated Other Comprehensive Income in the Consolidated Statements of Comprehensive Income. Derivatives in a net asset position are recorded in "Other assets" on our Consolidated Balance Sheets and derivatives in a net liability position are recorded in "Other liabilities" on our Consolidated Balance Sheets. No ineffectiveness was recorded on this contract during the nine months ended June 30, 2022.
Table 7.3: Details of Derivatives Fair Value
June 30, 2022 September 30, 2021
(in thousands)
Assets:
Interest rate swap $ 21,864  $ — 
Total assets $ 21,864  $ — 
Liabilities:
Interest rate swap $ —  $ 410 
Total liabilities $ —  $ 410 
Table 7.4: Gains on Derivatives
For the Three Months Ended For the Nine Months Ended
June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021
(in thousands)
Net gains/(losses) recognized in AOCI on derivatives, net of tax (1) $ 2,904  $ (1,062) $ 15,306  $ (1,062)
Amounts reclassified to earnings from accumulated other comprehensive loss (2) 138  —  1,110  — 
Net current period other comprehensive income $ 3,042  $ (1,062) $ 16,416  $ (1,062)
(1)Amount is net of tax expense of $1.0 million and $5.5 million for the three and nine months ended June 30, 2022, respectively. For the three and nine months ended June 30, 2021, $0.4 million was recorded as a tax benefit.
(2)Amount is net of a tax expense of $0.0 million and $0.4 million for the three and nine months ended June 30, 2022, respectively. No tax credit or expense was recorded for the three and nine months ended June 30, 2021.
We are exposed to credit losses in the event of nonperformance by the counterparty to our derivative instrument. Our counterparty has investment grade credit ratings; accordingly, we anticipate that the counterparty will be able to fully satisfy its obligations under the contracts. Our agreements outline the conditions upon which it or the counterparty are required to post collateral. As of June 30, 2022, there was no collateral posted with its counterparty related to the derivatives.