Annual report pursuant to Section 13 and 15(d)

Debt And Derivatives

v3.24.3
Debt And Derivatives
 12 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Debt And Derivatives DEBT AND DERIVATIVES
Our principal credit agreements are held within the United States. In addition, we hold revolving credit facilities in Australia, Canada, and the United Kingdom.
On May 30, 2024, we amended our credit agreement with J.P. Morgan Chase Bank, N.A. (the Credit Agreement). The amendment extended the life of the debt, updated the mandatory repayments, and adjusted the mix of debt, but did not significantly change the rates or conditions under which we borrow funds. The Credit Agreement is available for general corporate purposes, including the funding of working capital, capital expenditures, purchases of Maximus common stock, and possible future acquisitions.
The Credit Agreement has three components.
•A Term Loan A facility (the TLA), which matures on May 30, 2029. Interest rates on this facility are variable, based upon a combination of a Secured Overnight Financing Rate (SOFR) and a margin based on our leverage, varying between 1.0% and 2.0%. At May 2024, it was set at 1.5% and will remain at this level until our December 2024 leverage calculation is submitted, which is likely to be in February 2025.
•A Term Loan B facility (the TLB), which matures on May 30, 2031. The interest rates are based upon SOFR, subject to a floor of 0.5%, plus a fixed 2.0% margin.
•A revolving credit facility, which enables us to borrow or utilize up to $750.0 million. The interest on this facility is generally based upon the same rates as those used for the TLA. In addition, we are charged a commitment fee between 0.125% and 0.30% on unused funds, which is based upon our leverage. Commitment fees are recorded as interest expense on the consolidated statements of operations.
Table 6.1: Details of Debt
As of September 30,
2024 2023
(in thousands)
Term Loan A $ 641,875  $ 909,375 
Term Loan B 498,750  344,934 
Subsidiary loan agreements 5,194  3,220 
Funded Debt 1,145,819  1,257,529 
Less: Unamortized debt-issuance costs and discounts (13,726) (7,536)
Total debt 1,132,093  1,249,993 
Less: Current portion of long-term debt (40,139) (86,844)
Long-term debt $ 1,091,954  $ 1,163,149 
Under the terms of the Credit Agreement, we are required to comply with certain covenants, the terms of which are customary and include a Consolidated Net Total Leverage Ratio and a Consolidated Net Interest Coverage Ratio. The Consolidated Net Total Leverage Ratio is calculated as total outstanding debt less the lower of (a) unrestricted cash or (b) $150.0 million divided by Consolidated EBITDA (as defined by the Credit Agreement). With certain exceptions, the covenant requires the Consolidated Net Total Leverage Ratio to be less than 4.00, calculated over the previous twelve months. The Consolidated Net Interest Coverage Ratio is calculated as Consolidated EBITDA divided by Consolidated Net Interest Expense over the previous twelve months, all defined by the Credit Agreement. The covenant requires a Consolidated Net Interest Coverage Ratio of 3.00 or greater. As of September 30, 2024, the Consolidated Net Total Leverage Ratio and the Consolidated Net Interest Coverage Ratio were 1.37 and 8.54, respectively. We were in compliance with all applicable covenants under the Credit Agreement as of September 30, 2024. We do not believe that the covenants represent a significant restriction on our ability to successfully operate the business or to pay our dividends.
The Credit Agreement is, subject to customary exceptions, secured by substantially all of the assets of the Company and its wholly owned material domestic subsidiaries, and guaranteed by each of the Company’s wholly owned material domestic subsidiaries.
Costs incurred in establishing the Credit Agreement were recorded as a reduction to the gross debt balance and will be amortized over the respective lives of the arrangements. Costs incurred in amending the Credit Agreement were deferred or expensed depending upon the nature of the costs. All costs deferred as of the amendment date are being amortized prospectively over the new respective lives of the arrangements.
In addition to the Credit Agreement, we hold smaller credit facilities in Australia, Canada, and the United Kingdom. These agreements allow our businesses to borrow to meet any short-term working capital needs.
Table 6.2: Details of Future Minimum Principal Payments Due
Amount Due
(in thousands)
Year ended September 30, 2025 $ 42,694 
Year ended September 30, 2026 41,563 
Year ended September 30, 2027 53,750 
Year ended September 30, 2028 57,812 
Year ended September 30, 2029 476,250 
Thereafter 473,750 
Total Payments $ 1,145,819 
Interest Rate Derivative Instruments
We utilize interest rate swaps to manage our exposure to interest rates on our Credit Agreement, which we have designated as cash flow hedges.
•We have an arrangement for a notional amount of $75.0 million, which hedges a SOFR component of our TLB to a fixed amount of 4.09%. This arrangement expires in September 2025.
•We have arrangements for a combined notional amount of $500.0 million, which hedges a SOFR component of our TLA to a fixed amount of 2.31%. These arrangements expire in May 2026.
•We have an arrangement for a notional amount of $75.0 million, which hedges a SOFR component of our TLB to a fixed amount of 3.72%. This arrangement expires in September 2026.
In addition to the arrangements above, we had an arrangement for a notional amount of $150 million, which hedged a SOFR component of our TLA to a fixed amount of 4.38%. This arrangement expired in September 2024.
Our effective interest rate as of September 30, 2024 was 5.52%.
At September 30, 2024 and September 30, 2023, we had assets of $12.6 million and $31.0 million, respectively, related to these interest rate swaps. At September 30, 2024, we had liabilities of $3.4 million related to these interest rate swaps, with no comparison at September 30, 2023. These instruments were recorded as "other assets" and "other liabilities" within our consolidated balance sheets. As these instruments are considered effective cash flow hedges, gains and losses based upon interest rate fluctuations are recorded within "accumulated other comprehensive income (AOCI)" within our consolidated financial statements.
Table 6.3: Gains/(Losses) on Derivatives
For the Year Ended September 30,
2024 2023 2022
(in thousands)
Gain/(loss) recognized in AOCI on derivatives, net of tax $ (3,681) $ 8,558  $ 23,004 
Amounts reclassified to earnings from accumulated other comprehensive income (12,423) (8,837) 447 
Net current period other comprehensive income $ (16,104) $ (279) $ 23,451 
Counterparty Risk
The Company is 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 September 30, 2024 and 2023, there was no collateral posted with the Company's counterparty related to the derivatives.
At September 30, 2024 and 2023, we had letters of credit totaling $3.0 million, respectively.
Debt And Derivatives DEBT AND DERIVATIVES
Our principal credit agreements are held within the United States. In addition, we hold revolving credit facilities in Australia, Canada, and the United Kingdom.
On May 30, 2024, we amended our credit agreement with J.P. Morgan Chase Bank, N.A. (the Credit Agreement). The amendment extended the life of the debt, updated the mandatory repayments, and adjusted the mix of debt, but did not significantly change the rates or conditions under which we borrow funds. The Credit Agreement is available for general corporate purposes, including the funding of working capital, capital expenditures, purchases of Maximus common stock, and possible future acquisitions.
The Credit Agreement has three components.
•A Term Loan A facility (the TLA), which matures on May 30, 2029. Interest rates on this facility are variable, based upon a combination of a Secured Overnight Financing Rate (SOFR) and a margin based on our leverage, varying between 1.0% and 2.0%. At May 2024, it was set at 1.5% and will remain at this level until our December 2024 leverage calculation is submitted, which is likely to be in February 2025.
•A Term Loan B facility (the TLB), which matures on May 30, 2031. The interest rates are based upon SOFR, subject to a floor of 0.5%, plus a fixed 2.0% margin.
•A revolving credit facility, which enables us to borrow or utilize up to $750.0 million. The interest on this facility is generally based upon the same rates as those used for the TLA. In addition, we are charged a commitment fee between 0.125% and 0.30% on unused funds, which is based upon our leverage. Commitment fees are recorded as interest expense on the consolidated statements of operations.
Table 6.1: Details of Debt
As of September 30,
2024 2023
(in thousands)
Term Loan A $ 641,875  $ 909,375 
Term Loan B 498,750  344,934 
Subsidiary loan agreements 5,194  3,220 
Funded Debt 1,145,819  1,257,529 
Less: Unamortized debt-issuance costs and discounts (13,726) (7,536)
Total debt 1,132,093  1,249,993 
Less: Current portion of long-term debt (40,139) (86,844)
Long-term debt $ 1,091,954  $ 1,163,149 
Under the terms of the Credit Agreement, we are required to comply with certain covenants, the terms of which are customary and include a Consolidated Net Total Leverage Ratio and a Consolidated Net Interest Coverage Ratio. The Consolidated Net Total Leverage Ratio is calculated as total outstanding debt less the lower of (a) unrestricted cash or (b) $150.0 million divided by Consolidated EBITDA (as defined by the Credit Agreement). With certain exceptions, the covenant requires the Consolidated Net Total Leverage Ratio to be less than 4.00, calculated over the previous twelve months. The Consolidated Net Interest Coverage Ratio is calculated as Consolidated EBITDA divided by Consolidated Net Interest Expense over the previous twelve months, all defined by the Credit Agreement. The covenant requires a Consolidated Net Interest Coverage Ratio of 3.00 or greater. As of September 30, 2024, the Consolidated Net Total Leverage Ratio and the Consolidated Net Interest Coverage Ratio were 1.37 and 8.54, respectively. We were in compliance with all applicable covenants under the Credit Agreement as of September 30, 2024. We do not believe that the covenants represent a significant restriction on our ability to successfully operate the business or to pay our dividends.
The Credit Agreement is, subject to customary exceptions, secured by substantially all of the assets of the Company and its wholly owned material domestic subsidiaries, and guaranteed by each of the Company’s wholly owned material domestic subsidiaries.
Costs incurred in establishing the Credit Agreement were recorded as a reduction to the gross debt balance and will be amortized over the respective lives of the arrangements. Costs incurred in amending the Credit Agreement were deferred or expensed depending upon the nature of the costs. All costs deferred as of the amendment date are being amortized prospectively over the new respective lives of the arrangements.
In addition to the Credit Agreement, we hold smaller credit facilities in Australia, Canada, and the United Kingdom. These agreements allow our businesses to borrow to meet any short-term working capital needs.
Table 6.2: Details of Future Minimum Principal Payments Due
Amount Due
(in thousands)
Year ended September 30, 2025 $ 42,694 
Year ended September 30, 2026 41,563 
Year ended September 30, 2027 53,750 
Year ended September 30, 2028 57,812 
Year ended September 30, 2029 476,250 
Thereafter 473,750 
Total Payments $ 1,145,819 
Interest Rate Derivative Instruments
We utilize interest rate swaps to manage our exposure to interest rates on our Credit Agreement, which we have designated as cash flow hedges.
•We have an arrangement for a notional amount of $75.0 million, which hedges a SOFR component of our TLB to a fixed amount of 4.09%. This arrangement expires in September 2025.
•We have arrangements for a combined notional amount of $500.0 million, which hedges a SOFR component of our TLA to a fixed amount of 2.31%. These arrangements expire in May 2026.
•We have an arrangement for a notional amount of $75.0 million, which hedges a SOFR component of our TLB to a fixed amount of 3.72%. This arrangement expires in September 2026.
In addition to the arrangements above, we had an arrangement for a notional amount of $150 million, which hedged a SOFR component of our TLA to a fixed amount of 4.38%. This arrangement expired in September 2024.
Our effective interest rate as of September 30, 2024 was 5.52%.
At September 30, 2024 and September 30, 2023, we had assets of $12.6 million and $31.0 million, respectively, related to these interest rate swaps. At September 30, 2024, we had liabilities of $3.4 million related to these interest rate swaps, with no comparison at September 30, 2023. These instruments were recorded as "other assets" and "other liabilities" within our consolidated balance sheets. As these instruments are considered effective cash flow hedges, gains and losses based upon interest rate fluctuations are recorded within "accumulated other comprehensive income (AOCI)" within our consolidated financial statements.
Table 6.3: Gains/(Losses) on Derivatives
For the Year Ended September 30,
2024 2023 2022
(in thousands)
Gain/(loss) recognized in AOCI on derivatives, net of tax $ (3,681) $ 8,558  $ 23,004 
Amounts reclassified to earnings from accumulated other comprehensive income (12,423) (8,837) 447 
Net current period other comprehensive income $ (16,104) $ (279) $ 23,451 
Counterparty Risk
The Company is 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 September 30, 2024 and 2023, there was no collateral posted with the Company's counterparty related to the derivatives.
At September 30, 2024 and 2023, we had letters of credit totaling $3.0 million, respectively.