Annual report pursuant to Section 13 and 15(d)

Debt And Derivatives

v3.22.2.2
Debt And Derivatives
 12 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
Debt And Derivatives DEBT AND DERIVATIVES
Table 8.1: Details of Debt
As of September 30,
2022 2021
(in thousands)
Term Loan A, due 2026 $ 971,250  $ 1,086,250 
Term Loan B, due 2028 395,000  399,000 
Subsidiary loan agreements 64  38,281 
Total debt principal 1,366,314  1,523,531 
Less: Unamortized debt-issuance costs and discounts (10,373) (13,839)
Total debt 1,355,941  1,509,692 
Less: Current portion of long-term debt (63,458) (80,555)
Long-term debt $ 1,292,483  $ 1,429,137 
On May 28, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent ("Credit Agreement"). 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;
•$600.0 million revolving credit facility ("Revolver"), which matures May 28, 2026.
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 range between 1% and 2%, based upon our leverage ratio. Term Loan B is set to LIBOR plus 2.00% subject to a LIBOR floor of 0.50%. LIBOR is being phased out, and the Secured Overnight Financing Rate ("SOFR") has been identified as an alternative benchmark rate in this agreement. We anticipate transferring to SOFR during the first quarter of fiscal year 2023. As of September 30, 2022, the annual effective interest rate, including the original issue discount and amortization of debt issuance costs, was 4.69%.
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, the Company is 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 and contingent consideration liabilities less the lower of (a) unrestricted cash or (b) $75.0 million. With certain exceptions, the covenant requires the net total leverage ratio, as defined by the Credit Agreement to be less than 4.0, calculated over the previous twelve months. The net interest coverage ratio is calculated as EBITDA divided by interest expense, over the previous twelve months, all defined by the Credit Agreement. The covenant requires a net interest coverage ratio of 3.0 or greater. As of September 30, 2022, as defined by the Credit Agreement, the company calculated a net total leverage ratio of 2.6 and net interest coverage ratio of 11.0. The Company was in compliance with all applicable covenants under the Credit Agreement as of September 30, 2022. 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 8.2: Details of Future Minimum Principal Payments Due
Amount Due
(in thousands)
Year ended September 30, 2023 $ 65,939 
Year ended September 30, 2024 86,500 
Year ended September 30, 2025 93,375 
Year ended September 30, 2026 741,500 
Year ended September 30, 2027 4,000 
Thereafter 375,000 
Total Payments $ 1,366,314 
Interest Rate Derivative Instrument
In June 2021, we 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 A 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 of September 30, 2022, we had a net asset of $31.4 million, which was recorded in "other assets" on our consolidated balance sheet. As of September 30, 2021, we had a liability of $0.4 million, which was recorded in "other liabilities" on our consolidated balance sheet. As this cash flow hedge is considered effective, all gains and losses are reflected within Accumulated Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.
Table 8.3: Gains/(Losses) on Derivatives
For the Year Ended September 30,
2022 2021 2020
(in thousands)
Gain/(loss) recognized in AOCI on derivatives, net of tax $ 23,004  $ (811) $ — 
Amounts reclassified to earnings from accumulated other comprehensive income 447  508  — 
Net current period other comprehensive income $ 23,451  $ (303) $ — 
In October 2022, we entered into another interest rate swap agreement for a notional amount of $200.0 million, also hedging the floating LIBOR rate on a portion of the Term Loan A. This has been designated as a cash flow hedge for accounting purposes. Both interest rate swap agreements include provisions to allow for an orderly transition to SOFR in coordination with the change in the Term Loan A.
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, 2022 and 2021, there was no collateral posted with its counterparty related to the derivatives.
Debt And Derivatives DEBT AND DERIVATIVES
Table 8.1: Details of Debt
As of September 30,
2022 2021
(in thousands)
Term Loan A, due 2026 $ 971,250  $ 1,086,250 
Term Loan B, due 2028 395,000  399,000 
Subsidiary loan agreements 64  38,281 
Total debt principal 1,366,314  1,523,531 
Less: Unamortized debt-issuance costs and discounts (10,373) (13,839)
Total debt 1,355,941  1,509,692 
Less: Current portion of long-term debt (63,458) (80,555)
Long-term debt $ 1,292,483  $ 1,429,137 
On May 28, 2021, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent ("Credit Agreement"). 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;
•$600.0 million revolving credit facility ("Revolver"), which matures May 28, 2026.
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 range between 1% and 2%, based upon our leverage ratio. Term Loan B is set to LIBOR plus 2.00% subject to a LIBOR floor of 0.50%. LIBOR is being phased out, and the Secured Overnight Financing Rate ("SOFR") has been identified as an alternative benchmark rate in this agreement. We anticipate transferring to SOFR during the first quarter of fiscal year 2023. As of September 30, 2022, the annual effective interest rate, including the original issue discount and amortization of debt issuance costs, was 4.69%.
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, the Company is 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 and contingent consideration liabilities less the lower of (a) unrestricted cash or (b) $75.0 million. With certain exceptions, the covenant requires the net total leverage ratio, as defined by the Credit Agreement to be less than 4.0, calculated over the previous twelve months. The net interest coverage ratio is calculated as EBITDA divided by interest expense, over the previous twelve months, all defined by the Credit Agreement. The covenant requires a net interest coverage ratio of 3.0 or greater. As of September 30, 2022, as defined by the Credit Agreement, the company calculated a net total leverage ratio of 2.6 and net interest coverage ratio of 11.0. The Company was in compliance with all applicable covenants under the Credit Agreement as of September 30, 2022. 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 8.2: Details of Future Minimum Principal Payments Due
Amount Due
(in thousands)
Year ended September 30, 2023 $ 65,939 
Year ended September 30, 2024 86,500 
Year ended September 30, 2025 93,375 
Year ended September 30, 2026 741,500 
Year ended September 30, 2027 4,000 
Thereafter 375,000 
Total Payments $ 1,366,314 
Interest Rate Derivative Instrument
In June 2021, we 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 A 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 of September 30, 2022, we had a net asset of $31.4 million, which was recorded in "other assets" on our consolidated balance sheet. As of September 30, 2021, we had a liability of $0.4 million, which was recorded in "other liabilities" on our consolidated balance sheet. As this cash flow hedge is considered effective, all gains and losses are reflected within Accumulated Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.
Table 8.3: Gains/(Losses) on Derivatives
For the Year Ended September 30,
2022 2021 2020
(in thousands)
Gain/(loss) recognized in AOCI on derivatives, net of tax $ 23,004  $ (811) $ — 
Amounts reclassified to earnings from accumulated other comprehensive income 447  508  — 
Net current period other comprehensive income $ 23,451  $ (303) $ — 
In October 2022, we entered into another interest rate swap agreement for a notional amount of $200.0 million, also hedging the floating LIBOR rate on a portion of the Term Loan A. This has been designated as a cash flow hedge for accounting purposes. Both interest rate swap agreements include provisions to allow for an orderly transition to SOFR in coordination with the change in the Term Loan A.
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, 2022 and 2021, there was no collateral posted with its counterparty related to the derivatives.