Celestica Amends and Upsizes Credit Facility

Rhea-AI Summary

Celestica has amended and increased its senior secured credit agreement, raising the total facility size to $1.5 billion. The amendment includes upsizing the revolving loan facility to $750 million and introducing new Term A and Term B loans totaling $750 million. The maturity dates for these loans extend to June 2029 and June 2031, respectively. The new loans will bear interest at varying rates based on the company's net leverage ratio. A portion of the proceeds will repay existing loans, with remaining funds available for corporate activities. Bank of America acted as the administrative agent, with several other financial institutions participating as joint lead arrangers and bookrunners.

Positive

• Increased credit facility size to $1.5 billion, supporting growth.
• Extended maturity dates: Revolver to June 2029, Term A Loan to June 2029, Term B Loan to June 2031.
• Upsized revolving loan facility to $750 million.
• New Term A and Term B loans with favorable interest rates based on leverage ratio.
• Use of proceeds for repaying existing loans and general corporate activities, improving financial flexibility.

Negative

• Increased quarterly principal repayment obligations: $3.125 million for Term A Loan, $1.250 million for Term B Loan.
• Remaining outstanding amounts under the Revolver post-closing: $40 million repaid with cash on hand.

Insights

Financial Analyst

Celestica's decision to amend and upsize its credit facility is a significant strategic move that reflects its ongoing growth trajectory and operational needs. The increase to a $1.5 billion facility and the extension of the maturity dates indicate a strong confidence in their long-term financial health. The new Revolver at $750 million and the introduction of Term A and Term B loans showcase an effort to optimize their debt structure.

From a financial risk management perspective, extending the maturity date to June 2029 for the Revolver and the Term A loan reduces near-term refinancing risks. This spread in maturities improves liquidity management and reduces the pressure to secure new financing in the immediate future. Additionally, the interest rates appear favorable, given the benchmark SOFR plus 1.75%, reflecting a competitive rate in the current market environment.

One notable point is the change from the previous $604 million term loans to the new $750 million term loans, indicating an increase in debt load. However, the structured quarterly repayments and the relatively low interest rates mitigate some of the risks associated with this increased borrowing.

Overall, this move is positive for the company's financial stability in the short and medium term, although investors should monitor the company’s ability to generate sufficient cash flow to service this increased debt burden in the long run.

Market Research Analyst

Celestica's expanded credit facility signals a strategic intent to capitalize on growth opportunities. The upsizing of the Revolver to $750 million and the newly structured term loans provide the company with substantial financial flexibility. This adaptability is important for responding to market demands and investing in innovation within the technology and supply chain sectors, where rapid scalability can be a competitive advantage.

Furthermore, the involvement of major financial institutions such as Bank of America and Canadian Imperial Bank of Commerce underscores the financial community’s confidence in Celestica’s business model and future prospects. This confidence is particularly relevant in a sector where access to capital can be a significant determinant of competitive positioning.

For investors, this move could imply upcoming investments in new technologies, potential acquisitions, or expansions. However, it is also necessary to consider that while the facility increases financial leverage, it also introduces higher interest obligations and dependency on sustaining operational performance to meet these obligations.

In summary, this move is perceived as positive from a market positioning and strategic growth perspective, with the caveat of increased financial commitments.

TORONTO, June 20, 2024 (GLOBE NEWSWIRE) -- Celestica Inc. (TSX: CLS) (NYSE: CLS), a leader in design, manufacturing, hardware platform and supply chain solutions for the world’s most innovative companies, has amended its existing senior secured credit agreement (“Existing Facility”)*, with an upsizing of the total facility to $1.5 billion (“Amended Facility”) to support continuing growth.

The Amended Facility consists of the following key changes to the Existing Facility:

Revolving loan facility upsized to $750 million (the “Revolver”)

• Increases the revolving loan commitments from $600 million to $750 million.
• Maturity date extended from March 2025 to June 2029.
  

New Term A and Term B loans with a total original principal amount of $750 million (the “Term Loans”)

• Replaces (and terminates) the two existing term loans (aggregate of $604 million outstanding) with (i) a new term A loan in the original principal amount of $250 million (the “Term A Loan”), with a maturity date in June 2029, and (ii) a new term B loan in the original principal amount of $500 million (the “Term B Loan”), with a maturity date in June 2031.
• The new Term A Loan currently bears interest at adjusted Term SOFR plus 1.75%¹, and is subject to quarterly principal repayments of $3.125 million.
• The new Term B Loan currently bears interest at Term SOFR plus 1.75%², and is subject to quarterly principal repayments of $1.250 million.
  

The Term Loans were drawn in full at closing. A substantial portion of the proceeds were used to repay all amounts outstanding under the terminated term loan facilities and a portion of the balance outstanding under the existing Revolver³, as well as certain fees and expenses relating to the Amended Facility. Remaining Term Loan proceeds, as well as amounts available under the Revolver, are permitted to be used for general corporate activities.

The Amended Facility was provided by a syndicate of lenders with Bank of America, N.A. acting as Administrative Agent. BofA Securities, Inc. acted as Left Lead Arranger and Left Lead Bookrunner. Canadian Imperial Bank of Commerce and CIBC World Markets Corp., MUFG Bank., Canada Branch and Crédit Agricole Corporate and Investment Bank (Canada Branch) acted as Joint Lead Arrangers, Joint Bookrunners and Co-Syndication Agents.

All dollar amounts are denominated in U.S. dollars.

* via an amended and restated agreement

¹ The Term A Loan bears interest at varying rates (as specified in the Amended Facility), plus a margin ranging from 1.50% — 2.25% or from 0.50% - 1.25%, in each case depending on the rate we select and our consolidated total net leverage ratio (as defined in the Amended Facility). Adjusted Term SOFR is Term SOFR + 0.10%.
² The Term B Loan bears interest at Term SOFR plus 1.75% or the Base Rate plus 0.75%, depending on the rate we select and our consolidated total net leverage ratio (each as defined in the Amended Facility).
³ Under the Amended Facility, outstanding amounts under the Revolver bear interest at varying rates (as specified therein), plus a margin ranging from 1.50% — 2.25%, or from 0.50% — 1.25%, in each case depending on the currency of the borrowing, the rate we select, and our consolidated total net leverage ratio (as defined in the Amended Facility). A portion of the Term Loan proceeds were used to repay $93 million of the aggregate amount outstanding under the Revolver at closing. Remaining amounts outstanding under the Revolver at closing ($40 million) were repaid with other cash on hand. The current margin applicable to post-closing U.S. dollar Revolver borrowings under adjusted Term SOFR is 1.75%. Commitment fees on undrawn funds available under the Revolver range between 0.30% to 0.45%, depending on our consolidated total net leverage ratio (as defined in the Amended Facility).

About Celestica

Celestica enables the world's best brands. Through our recognized customer-centric approach, we partner with leading companies in Aerospace and Defense, Communications, Enterprise, HealthTech, Industrial, and Capital Equipment to deliver solutions for their most complex challenges. As a leader in design, manufacturing, hardware platform and supply chain solutions, Celestica brings global expertise and insight at every stage of product development — from the drawing board to full-scale production and after-market services. With talented teams across North America, Europe and Asia, we imagine, develop and deliver a better future with our customers. For more information on Celestica, visit www.celestica.com. Our securities filings can be accessed at www.sedarplus.ca and www.sec.gov.

FAQ

What is the new size of Celestica's amended credit facility (CLS)?

Celestica's amended credit facility has been upsized to $1.5 billion.

What are the new maturity dates for Celestica's (CLS) loans?

The revolving loan facility matures in June 2029, the Term A Loan in June 2029, and the Term B Loan in June 2031.

What are the interest rates for the new loans in Celestica's (CLS) amended credit facility?

The Term A Loan bears interest at adjusted Term SOFR plus 1.75%, and the Term B Loan at Term SOFR plus 1.75% or the Base Rate plus 0.75%.

How will Celestica (CLS) use the proceeds from the amended credit facility?

A substantial portion of the proceeds will repay existing loans, with remaining funds available for general corporate activities.

Who acted as the administrative agent for Celestica's (CLS) amended credit facility?

Bank of America acted as the administrative agent for Celestica's amended credit facility.

What were the new changes made to Celestica's (CLS) revolving loan facility?

The revolving loan facility was upsized from $600 million to $750 million, with a maturity date extended to June 2029.