MESA LABS ANNOUNCES AMENDMENT TO CREDIT FACILITY AND REPURCHASE OF SENIOR CONVERTIBLE NOTES

Rhea-AI Summary

Mesa Laboratories, Inc. (MLAB) closes $200 million Credit Agreement with JPMorgan Chase Bank, N.A., repurchases $75 million of 2025 Notes. The agreement includes a Term Loan and Revolver, both maturing in April 2029, with interest rates tied to SOFR. Funds will be used to pay down existing debt, operating expenses, and potential acquisitions.

Insights

Financial Analyst

The announcement by Mesa Laboratories regarding the closure of a $200 million Credit Agreement is a significant financial maneuver, which indicates a strategic shift in their capital structure. The inclusion of both a Term Loan and a Revolver suggests a balanced approach to liquidity management. The interest rate, pegged to SOFR with a variable margin, reflects a hedging strategy against interest rate volatility. This financial structure could potentially improve Mesa's creditworthiness and provide the flexibility needed for operational and strategic initiatives, such as acquisitions.

From a financial analysis standpoint, the repurchase of the 2025 Notes at a price lower than the aggregate principal amount represents a savvy move to reduce future debt obligations and interest expenses. This could lead to an improvement in net income margins over time. Investors might view this as a positive signal of the company's proactive debt management and its implications for long-term financial health.

Market Research Analyst

Looking at the broader market implications, Mesa Laboratories' actions reflect a trend in the healthcare and technology sectors where companies are restructuring debt to capitalize on current market conditions. The use of the funds for 'permitted acquisitions' suggests an aggressive growth strategy that could reshape the company's market position. However, it is essential to monitor how Mesa deploys these funds, as acquisitions can carry integration risks that may affect the company's performance.

Additionally, the market's response to such financial restructuring often hinges on the perceived risk of the new debt structure and the company's ability to generate sufficient cash flow to meet its obligations. A successful execution of the strategy outlined in the Credit Agreement could lead to increased investor confidence and a more robust stock performance for Mesa Laboratories.

Debt Market Analyst

The closure of the Amended and Restated Credit Agreement by Mesa Laboratories is an insightful case for the debt markets. The decision to secure a mix of term and revolving credit facilities may be indicative of Mesa's need for both stable and flexible financing options. The term loan provides a predictable repayment plan, which is beneficial for long-term budgeting, while the revolver offers accessible funds that can be used as needed, providing a cushion for unforeseen expenses or investment opportunities.

It is also worth noting the absence of a springing maturity clause for the convertible notes, which gives Mesa a more stable debt repayment schedule without the pressure of accelerated repayment terms. This could be attractive to debt investors who prefer predictable cash flows. The SOFR-based interest rate indicates alignment with global financial trends towards the adoption of risk-free rates, post-LIBOR era. The Net Leverage Ratio-based interest margin demonstrates Mesa's commitment to maintaining a certain level of financial health, a factor closely watched by debt investors.

Lakewood, Colo., April 08, 2024 (GLOBE NEWSWIRE) -- Mesa Laboratories, Inc. (NASDAQ:MLAB) (we, us, our, “Mesa” or the “Company”) today announced the closing of its Amended and Restated Credit Agreement (the “Credit Agreement”), which provides up to $200 million of senior secured debt through a syndicate of banks led by JPMORGAN CHASE BANK, N.A. The Credit Agreement includes a $75 million senior secured term loan facility (the “Term Loan”) and a $125 million senior secured revolving credit facility (the “Revolver”), both of which mature in April 2029. The Credit Agreement includes a ten-year amortization schedule and no springing maturity relating to the Company’s 1.375% Convertible Senior Notes due August 2025 (the “2025 Notes”). Both the Term Loan and the Revolver bear interest at a rate of SOFR plus an applicable margin ranging from 1.5% to 3.5%, depending on the Company’s total Net Leverage Ratio. Proceeds from the Term Loan and Revolver will be used to pay down the Company’s 2025 Notes and for normal operating expenditures. The Credit Agreement also allows funds to be used for permitted acquisitions.

Additionally, Mesa has entered into separate, privately negotiated transactions with certain holders of the 2025 Notes to repurchase $75 million aggregate principal amount of the 2025 Notes for an aggregate repurchase price in cash of $71.25 million. The repurchases are expected to close on or about April 11, 2024, subject to customary closing conditions.

Following these repurchases, $97.5 million aggregate principal of the Company’s 2025 Notes will remain outstanding, and the Company will have $125.5 million of long-term debt outstanding under its Term Loan and the Revolver. “We are pleased to have implemented a solution to partially settle the 2025 Notes in cash, thereby reducing potential dilution to our shareholders related to the notes. We utilized the proceeds from the Term Loan to fund the repurchases and we plan to utilize free cash flow and proceeds from the revolver to pay off the remaining notes at maturity,” said John Sakys, Chief Financial Officer of Mesa. “After the acquisition of GKE GMBH in October 2023 and GKE China on December 31, 2023, our total Net Leverage Ratio, as calculated per the terms of our Credit Facility, was less than 3.9x. Consistent with our approach after previous acquisitions, we are committed to paying down our debt balances. We aim to reduce our total net leverage ratio to below 3x over approximately the next 18 months,” concluded Mr. Sakys.

^ Total Net Leverage Ratio under our Credit Facility is defined as the ratio of total debt minus unrestricted cash in excess of $10 million as compared to 12 months trailing EBITDA. EBITDA is defined as net income plus the sum of interest expense, income tax expense, depreciation, amortization, unusual or non-recurring non-cash charges and stock compensation expense. In addition, EBITDA gives effect to trailing 12 months pro-forma ownership of GKE and adds back certain GKE acquisition expenses.

About Mesa Laboratories, Inc.

Mesa is a global leader in the design and manufacture of life science tools and critical quality control solutions for regulated applications in the pharmaceutical, healthcare and medical device industries. Mesa offers products and services to help its customers ensure product integrity, increase patient and worker safety, and improve the quality of life throughout the world.

Forward Looking Statements

This press release may contain information that constitutes forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our historical experience and present expectations or projections.  Forward-looking statements include statements relating to the use of proceeds from the Term Loan and the Revolver, the closing of the 2025 Note repurchase, the source of funds to pay amounts due upon maturity of the remaining 2025 Notes, and the Company’s future Net Leverage Ratio. Generally, the words “expect,” “anticipate,” “seek,” “intend,” “plan,” “believe,” “could,” “estimate,” “may,” “target,” “project,” and similar expressions identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. These statements are based upon current information and expectations. Actual results may differ materially from those estimated or anticipated as a result of these risks and unknowns or other risks and uncertainties. For additional information concerning these and other risks and uncertainties that could affect these statements, and our business, see our Annual Report on Form 10-K for the year ended March 31, 2023, as well as other risks and uncertainties detailed from time to time in our reports on Forms 10-Q and 8-K subsequently filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof, to provide any updates, or to reflect the occurrence of future events.

FAQ

What was announced by Mesa Laboratories, Inc. (MLAB) in the press release?

Mesa Laboratories, Inc. announced the closing of its Amended and Restated Credit Agreement, providing up to $200 million of senior secured debt through a syndicate of banks led by JPMorgan Chase Bank, N.A.

What are the components of the Credit Agreement mentioned in the PR?

The Credit Agreement includes a $75 million senior secured term loan facility (the 'Term Loan') and a $125 million senior secured revolving credit facility (the 'Revolver'), both maturing in April 2029.

What is the interest rate for the Term Loan and Revolver as per the PR?

Both the Term Loan and Revolver bear interest at a rate of SOFR plus an applicable margin ranging from 1.5% to 3.5%, depending on the Company’s total Net Leverage Ratio.

How will the proceeds from the Term Loan and Revolver be utilized according to the PR?

The proceeds will be used to pay down the Company’s 2025 Notes and for normal operating expenditures. The Credit Agreement also allows funds to be used for permitted acquisitions.

What transactions did Mesa Laboratories, Inc. (MLAB) enter into regarding the 2025 Notes?

Mesa entered into separate, privately negotiated transactions to repurchase $75 million aggregate principal amount of the 2025 Notes for an aggregate repurchase price in cash of $71.25 million.