Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.21.2
Debt
 9 Months Ended
Jun. 30, 2021
Debt Disclosure [Abstract]  
Debt Debt
Concurrent with the acquisition of VES, we entered into a new credit agreement (the "Credit Agreement"), which replaced our existing revolving credit facility.
The Credit Agreement has three components.
•A five year $1.10 billion term loan with interest payable at a rate based upon the London Interbank Offered Rate (LIBOR) plus a margin dependent upon our leverage ratio. From the inception of the loan through June 30, 2021, the interest rate was LIBOR plus 1.75%.
•A seven year $400.0 million term loan with interest payable at the higher of LIBOR or 0.5%, plus 2.0%. From the inception of the loan through June 30, 2021, the interest rate was 2.5%.
•A $600.0 million revolving credit facility, which is repayable in full in May 2026. Interest on the revolving credit facility is based upon LIBOR plus a margin dependent upon our leverage ratio. From the inception of the loan through June 30, 2021, the interest rate was LIBOR plus 1.75%.
LIBOR is anticipated to be phased out over the next 18 months and alternative benchmark rates have been identified in this agreement. This is the only significant arrangement within the Company that utilizes LIBOR.
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. The Credit Agreement includes a number of 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 unrestricted cash, not to exceed $75.0 million. With certain exceptions, the leverage ratio does not permit our total indebtedness to exceed four times our EBITDA, as defined by the Credit Agreement, calculated over the previous twelve months. We are in compliance with those covenants at this time, with a calculated net total leverage ratio of 2.4:1. 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. Prior to the completion of the acquisition of VES, we entered into a bridging loan facility to ensure that funds were available in the event that our new credit facility would not be available in time. We did not use this interim facility. The $8.5 million cost of this facility was included within "other (expense)/income, net" on our consolidated statements of operations for the three and nine months ended June 30, 2021.
We estimate the fair value of its debt by discounting the future cash flows of each instrument using estimated market rates of debt instruments with similar maturities and credit profiles. These inputs are classified as Level 3 within the fair value hierarchy. At June 30, 2021, the carrying value reported in the consolidated balance sheet for our long-term debt approximated its fair value.
In addition to the Credit Agreement, we hold smaller credit facilities in Australia and the United Kingdom. These allow our businesses to borrow to meet any short-term working capital needs.
Our debt balances at June 30, 2021 and September 30, 2020 were as follows:
(in thousands) June 30, 2021 September 30, 2020
Five year, $1.1 billion loan $ 1,100,000  $ — 
Seven year, $400 million loan 400,000  — 
New $600 million revolving credit facility 200,000  — 
Old $400 million revolving credit facility —  — 
Subsidiary loan agreements 7,754  28,895 
Total debt principal 1,707,754  28,895 
Less unamortized debt-issuance costs and discounts (14,033) — 
Total debt 1,693,721  28,895 
Less current portion (60,586) (10,878)
Long-term debt $ 1,633,135  $ 18,017 
The scheduled repayments of our debt balance is as follows:
(In thousands) Scheduled Debt Repayments
Year ended September 30, 2021, Remainder of year $ 15,724 
Year ended September 30, 2022 62,895 
Year ended September 30, 2023 68,761 
Year ended September 30, 2024 86,500 
Year ended September 30, 2025 91,656 
Thereafter 1,382,218 
Total debt principal $ 1,707,754 
Derivative - Interest rate swap
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 hedged the floating LIBOR on a portion of the term loan (Tranche A, $1.10 billion balance) under the Credit Agreement to a fixed rate of 0.986%. We elected to designate this interest rate swap as a cash flow hedge for accounting purposes. At June 30, 2021, our derivative was in a $1.4 million net liability position and recorded in "other current liabilities" on our consolidated balance sheet. As this cash flow hedge is considered effective, any future gains and losses will be reflected within
Accumulated Other Comprehensive Income in the Consolidated Statements of Comprehensive Income. No ineffectiveness was recorded on this contract during the three or 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. At June 30, 2021,we had no collateral posted with its counterparty related to the derivatives.
The only assets or liabilities we had at June 30, 2021 that are recorded at fair value on a recurring basis is the interest rate swaps. Generally, the Company obtains its Level 2 pricing inputs from its counterparties. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.