Capital allocation
Signify intends to maintain a robust capital structure and continues to aim for a financing structure that is compatible with an investment grade profile. The new term loan structure, coupled with the anticipated strong future free cash flows, is expected to allow the company to drive down its anticipated net leverage ratio of around 2x at the time of closing of the Cooper Lighting acquisition to below 1x net debt/EBITDA within three years following the closing on March 2, 2020. The company intends to use EUR 350 million to reduce its debt in 2020.
Term Loans and Revolving Credit Facility
In January 2020, Signify announced that it has signed new committed financing facilities to replace its current term loans of EUR 740 million and USD 500 million, and its existing revolving credit facility of EUR 500 million which were due to expire in May 2021.
The new committed term loan structure consists of EUR 400 million and USD 275 million with a maturity of three years (January 2023) and EUR 340 million and USD 225 million with a maturity of five years (January 2025).
The new committed EUR 500 million multi-currency revolving credit facility (RCF) has a maturity of five years (January 2025), with the option to extend it twice by one year at the end of the first and second anniversary. These new facilities have similar terms to the previous facilities. To date, Signify did not have any amounts drawn under the revolving credit facility.
Bridge Loan facility agreement related to the Cooper Lighting Solutions acquisition
In November 2019, Signify entered into a USD 1.4 billion bridge loan facility agreement to finance the acquisition of Cooper Lighting Solutions. The initial maturity date of this facility is October 15, 2020, which may be extended for two additional periods of six months each.
Financial covenant
The new term loans, RCF agreement, and bridge loan facility agreement include a financial covenant providing that Signify maintains a net leverage ratio of no greater than 3.5x. The net leverage ratio may temporarily increase to 4.0x within 12 months of the closing (March 2, 2020) of the Cooper Lighting Solutions acquisition or other material acquisitions. The net leverage ratio will be tested on 30 June and 31 December each year. The covenant does not apply if the company has at least one investment grade rating, which it currently has (please see below).