DMC Global Inc. (NASDAQ:BOOM) today announced it has amended its credit agreement to provide covenant flexibility following a severe downturn in its core oil and gas end market.
Michael Kuta, CFO, said, “While we expect to end the second quarter with a net cash position and an undrawn, fully available $50 million revolving credit facility, we obtained temporary covenant relief to address the expected effects of a decline in our sales and adjusted EBITDA due to the Covid-19 pandemic and its impact on oil and gas demand. The key component of the amendment is a waiver of our 1.35x debt service coverage ratio*. The waiver period begins with this year’s third quarter and extends through the first quarter of 2021.
“While we have minimal long-term debt and associated interest expense, the coverage ratio applies to the trailing 12 months, during which time we were making capital investments, distributing a $0.50 annual dividend, and paying substantial cash taxes. We recently reduced our selling, general and administrative expense by 25%; cut our 2020 capital budget by 50%, suspended our dividend and expect a sharply lower tax burden during the balance of the year.”
Kuta added, “This covenant waiver enables us to maintain our focus on innovation, market development, and the commercialization of new products and applications at our DynaEnergetics and NobelClad businesses. We appreciate the support of our senior lenders, and the confidence they have shown in our business strategy.”
Key elements of the amended credit agreement are:
- A waiver of the debt service coverage ratio for the third and fourth quarters of 2020 and the first quarter of 2021. The agreement includes a minimum liquidity covenant during the waiver period of $10 million, which is calculated as total availability under DMC’s $50 million revolving credit facility, plus unrestricted U.S. cash.
- Total lender commitments under the revolving credit facility will remain at $50 million, and the maturity date remains March 2023. The maximum total leverage ratio, defined as total funded debt to consolidated trailing 12-month adjusted EBITDA, will remain at 3.0x.
- Borrowings outstanding under the amended revolving credit facility will bear interest at the greater of LIBOR or .75% plus a margin of 1.50% to 3.00%; or for base rate borrowings, the greater of 1.75% or a base rate plus a margin of .50% to 2.00%. For both LIBOR and base rate borrowings, the applicable margin is based on a ratio of DMC’s total funded debt to consolidated trailing 12-month adjusted EBITDA. During the waiver period, the applicable margin for LIBOR and base rate loans shall not be less than 1.75% or .75%, respectively.
*DMC’s debt service coverage ratio is calculated as the sum of trailing-12 month (TTM) adjusted EBITDA, less dividends, capital expenditures and cash paid for income taxes, divided by TTM principal and interest payments. The resulting ratio must exceed 1.35x.