Comtech Announces Improved Capital Structure

Rhea-AI Summary

Comtech Telecommunications Corp. (NASDAQ: CMTL) has announced significant improvements to its capital structure through an amendment to its senior secured credit agreement. The company has secured a $40 million capital infusion from existing holders of convertible preferred stock and subordinated debt.

Key financial improvements include:

• $27.3 million prepayment of senior secured term loan
• $3.2 million reduction in revolving credit facility
• Waiver of prepayment penalties
• Reduced interest rate on senior secured loans
• Suspension of fixed charge coverage ratio and net leverage ratio covenants until October 31, 2025

The amendment addresses covenant breaches anticipated as of January 31, 2025, which were previously disclosed in January 2025. The new investment maintains the same terms and conditions as prior subordinated debt investments.

Positive

• New $40M capital infusion strengthens balance sheet
• $30.5M immediate debt reduction
• Lower interest rates on senior secured loans
• Financial covenant testing suspended until October 2025
• Waiver of prepayment penalties

Negative

• Company faced covenant breaches as of January 31, 2025
• Additional subordinated debt increases overall debt burden
• Required financial restructuring indicates previous financial difficulties

Insights

Financial Restructuring Specialist

Comtech's announcement represents a critical financial restructuring addressing both immediate covenant breaches and providing a runway for its transformation plan. The $40 million capital infusion substantially improves the company's precarious financial position through multiple mechanisms:

First, the covenant cure and suspension until October 2025 prevents potential default scenarios that would have triggered severe consequences given the January 31 breaches. This 7-month covenant holiday provides important operational flexibility but also signals the depth of Comtech's financial challenges.

The debt reduction strategy is particularly significant - $27.3 million term loan prepayment and $3.2 million revolving facility reduction will immediately improve balance sheet metrics and reduce interest expenses through both principal reduction and the announced rate decrease.

Most revealing is the source of funding - existing preferred stockholders and subordinated debtholders providing additional subordinated debt. This indicates both supporter confidence but also suggests potential difficulty attracting fresh capital from new investors. While this forestalls immediate crisis, it adds to the subordinated debt stack on the same previous terms.

The fact that a $40 million investment was required for a company with just $49.4 million market capitalization underscores the severity of Comtech's situation. This restructuring buys critical time but doesn't itself resolve the underlying performance issues that created the covenant breaches.

New Capital Infusion of $40 Million

Immediate Reduction in Senior Debt, Waiver of Financial Covenants and Enhanced Financial Flexibility

CHANDLER, Ariz.--(BUSINESS WIRE)-- March 3, 2025-- Comtech Telecommunications Corp. (NASDAQ: CMTL) (“Comtech” or the “Company”), a global communications technology leader, today announced an amendment to its senior secured credit agreement that cures the covenant breaches as of January 31, 2025, that the Company had disclosed it anticipated in its earnings release, 10Q and conference call on January 13, 2025. The agreement also provides for improved financial flexibility with the suspension of the fixed charge coverage ratio and the net leverage ratio covenants in the senior secured credit agreement such that the next test will be for the quarter ending on October 31, 2025. Furthermore, the agreement reduces the interest rate on the senior secured loans.

These remedies and improvements in the senior secured credit facility were enabled by a new capital infusion of $40 million, of which $27.3 million is being used to prepay the senior secured term loan and a $3.2 million reduction in the revolving credit facility, with a waiver of the prepayment penalties that would have been owed in accordance with the terms of the credit agreement.

The new $40 million investment is being made by existing holders of the Company’s convertible preferred stock and subordinated debt on the same terms and conditions as the prior investment in subordinated debt.

“Today’s announcement is a testament to the confidence that our lenders and preferred stockholders have in our recently announced comprehensive transformation plan. We greatly appreciate their support as we reset the trajectory of Comtech with an improved capital structure,” said Ken Traub, President and Chief Executive Officer.

The foregoing description of the amendment to the senior secured credit agreement and the subordinated debt is not complete and is qualified in its entirety by the terms of the underlying documents, copies of which will be made available in the Company’s filings with the Securities and Exchange Commission.

Additional information can be found in the Company's Current Report on Form 8-K filed with the SEC today and available on Comtech’s investor relations website at https://comtech.com/investors/.

About Comtech

Comtech Telecommunications Corp. is a leading provider of satellite and space communications technologies; terrestrial and wireless network solutions; Next Generation 911 (“NG911”) and emergency services; and cloud native capabilities to commercial and government customers around the world. Through its culture of innovation and employee empowerment, Comtech leverages its global presence and decades of technology leadership and experience to create some of the world’s most innovative solutions for mission-critical communications. For more information, please visit www.comtech.com.

Cautionary Note Regarding Forward-Looking Statements

Certain information in this press release contains, and oral statements made by the Company’s representatives from time to time may contain, forward-looking statements. Forward-looking statements can be identified by words such as: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “future,” “goal,” “outlook,” “intend,” “likely,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would,” and similar references to future periods. Forward-looking statements include, among others, statements regarding its expectations for its strategic alternatives process, expectations for further portfolio-shaping opportunities, expectations for other operational initiatives, the intended use of proceeds from the Credit Facility and Subordinated Credit Facility, expectations for completing further financing initiatives, future performance and financial condition, plans to address its ability to continue as a going concern, the plans and objectives of management and assumptions regarding such future performance, financial condition, and plans and objectives that involve certain significant known and unknown risks and uncertainties and other factors not under its control which may cause actual results, future performance and financial condition, and achievement of plans and objectives of management to be materially different from the results, performance or other expectations implied by these forward-looking statements. Factors that could cause actual results to differ materially from current expectations include, among other things: the outcome and effectiveness of the aforementioned strategic alternatives process, further portfolio-shaping opportunities, other operational initiatives, and the completion of further financing activities; its ability to access capital and liquidity so that the Company is able to continue as a going concern; its ability to implement changes in executive leadership; the possibility that the expected synergies and benefits from strategic activities will not be fully realized, or will not be realized within the anticipated time periods; the risk that acquired businesses will not be integrated successfully; impacts from, and uncertainties regarding, future actions that may be taken by activist stockholders; the possibility of disruption from acquisitions or dispositions, making it more difficult to maintain business and operational relationships or retain key personnel; the risk that the Company will be unsuccessful in implementing a tactical shift in its Satellite and Space Communications segment away from bidding on large commodity service contracts and toward pursuing contracts for niche products and solutions with higher margins; the nature and timing of receipt of, and performance on, new or existing orders that can cause significant fluctuations in net sales and operating results; the timing and funding of government contracts; adjustments to gross profits on long-term contracts; risks associated with international sales; rapid technological change; evolving industry standards; new product announcements and enhancements; changing customer demands and/or procurement strategies and ability to scale opportunities and deliver solutions to current and prospective customers; changes in prevailing economic and political conditions, including as a result of Russia’s military incursion into Ukraine, the Israel-Hamas war and attacks in the Red Sea region; changes in the price of oil in global markets; changes in prevailing interest rates and foreign currency exchange rates; risks associated with legal proceedings, customer claims for indemnification, and other similar matters; risks associated with obligations under its credit facilities; risks associated with large contracts; risks associated with supply chain disruptions; and other factors described in this and other Company filings with the Securities and Exchange Commission. However, the risks described above are not the only risks that we face. Additional risks and uncertainties, not currently known to us or that do not currently appear to be material, may also materially adversely affect our business, financial condition and/or operating results in the future. We describe risks and uncertainties that could cause actual results and events to differ materially in the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures about Market Risk" sections of our SEC filings. We do not intend to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise, except as required by law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250303130874/en/

Investor Relations Contact

Maria Ceriello

631-962-7115

Maria.Ceriello@comtech.com

Media Contact

Jamie Clegg

480-532-2523

Jamie.Clegg@comtech.com

Source: Comtech Telecommunications Corp.

FAQ

What is the size of Comtech's (CMTL) new capital infusion announced in March 2025?

Comtech secured a $40 million capital infusion from existing holders of convertible preferred stock and subordinated debt.

How much debt reduction did Comtech (CMTL) achieve through the March 2025 refinancing?

Comtech reduced its debt by $30.5 million total, with $27.3 million prepayment of senior secured term loan and $3.2 million reduction in revolving credit facility.

When will Comtech (CMTL) resume covenant testing after the March 2025 amendment?

Covenant testing will resume for the quarter ending October 31, 2025.

What immediate benefits did Comtech (CMTL) secure from the March 2025 credit agreement amendment?

Benefits include reduced interest rates, waived prepayment penalties, cured covenant breaches, and suspended financial covenant testing until October 2025.