Ribbon Communications Inc. Announces Closing of New $385 Million Senior Secured Credit Facility

Rhea-AI Summary

Ribbon Communications (Nasdaq: RBBN) announced the closure of a new $385 million senior secured credit facility, including a $350 million term loan and a $35 million revolving credit facility. The proceeds will be used to repay existing debt, redeem Series A Preferred Stock, and cover related fees and expenses, with remaining funds allocated for working capital and general corporate purposes. The loans, maturing on June 21, 2029, will bear interest at SOFR plus 6.25%, adjustable based on net leverage. HPS Investment Partners and WhiteHorse Capital led the arrangement.

The company has issued a full redemption notice for its Series A Preferred Stock, effective June 25, 2024. CFO Mick Lopez expressed confidence in the new capital structure to support profitable growth and flexibility for future opportunities.

Positive

• Closure of a $385 million senior secured credit facility.
• Refinancing of prior credit facility.
• Redemption of Series A Preferred Stock.
• Remaining funds allocated for working capital and general corporate purposes.
• Interest rate adjustable based on consolidated net leverage.
• Maturity date set for June 21, 2029.
• New capital structure expected to support profitable growth.

Negative

• Loans bear a relatively high interest rate at SOFR plus 6.25%.
• Outstanding loans secured by substantially all assets of Ribbon and certain subsidiaries.

Insights

Financial Analyst

The announcement of Ribbon Communications' new $385 million senior secured credit facility is noteworthy. This move effectively reduces the company's cost of capital by refinancing the existing debt and redeeming the Series A Preferred Stock. The shift to a new credit facility with a maturity date in June 2029 introduces a more favorable debt structure and grants the company longer financial runway for strategic initiatives.

One key point for investors to note is the interest rate on the new term loan, which will initially be SOFR plus 6.25%. The use of SOFR (Secured Overnight Financing Rate) indicates a shift from LIBOR, aligning with industry trends towards more stable rate benchmarks. Depending on the company’s consolidated net leverage, the interest margin could range from 5.75% to 6.25%, which provides some flexibility but still indicates relatively high leverage risk.

Furthermore, the excess proceeds allocated for working capital and general corporate purposes can support future growth initiatives, but it also signals a continued need for liquidity within the firm. Investors should monitor how effectively Ribbon employs this capital towards value-creating projects.

Overall, this restructuring can be seen positively as it provides a clearer pathway for debt management and operational growth, but the relatively high interest rate reflects underlying leverage and associated risks.

Market Research Analyst

From a market perspective, Ribbon’s new credit facility positions the company better to compete in the real-time communications and IP optical networking space. These sectors are marked by rapid technological advancements and significant capital expenditure requirements. The company’s ability to secure a substantial credit facility underscores confidence from financial partners like HPS Investment Partners and WhiteHorse Capital in Ribbon’s market position and potential.

Redemption of the Series A Preferred Stock can reduce the dividend burden on the company, providing more flexibility with cash flows. However, the term loan's interest rate structure ties future costs to the firm's net leverage, placing pressure on Ribbon to maintain or improve its financial health. Successful management of this leverage will be critical in ensuring that the high interest payments do not erode the potential benefits of this capital influx.

Investors should also be aware of the collateralization of this loan, as the company has secured it against substantially all assets, which increases the risk in case of financial distress—but also indicates commitment to utilizing these funds prudently.

Proceeds will be used to repay outstanding debt under current credit facility and to redeem Series A Preferred Stock

PLANO, Texas, June 21, 2024 /PRNewswire/ -- Ribbon Communications Inc. (Nasdaq: RBBN) ("Ribbon"), a global provider of real time communications technology and IP optical networking solutions to many of the world's largest service providers, enterprises, and critical infrastructure operators to modernize and protect their networks, today announced that it has completed the previously announced $385 million senior secured credit facility (the "2024 Credit Facility") comprised of a $350 million term loan and a $35 million revolving credit facility. Proceeds from the term loan under the 2024 Credit Facility will be used to refinance the prior credit facility, redeem in full Ribbon's outstanding Series A Preferred Stock and pay fees, costs and expenses related to the 2024 Credit Facility.  Excess proceeds from the term loan will be used for working capital and other general corporate purposes.

Loans under the 2024 Credit Facility will mature on June 21, 2029.  The loans will initially bear interest at a rate per annum equal to SOFR plus 6.25%.  After Ribbon delivers the financial statements for the fiscal year ended December 31, 2024 pursuant to the 2024 Credit Facility, the interest rate will be SOFR plus a margin of 5.75% to 6.25% depending on the Company's consolidated net leverage.  At the Company's option, interest may be calculated using an alternative base rate plus a margin ranging from 4.75% to 5.25%.  Outstanding amounts under the 2024 Credit Facility are secured by substantially all of the assets of Ribbon, and certain of the Ribbon's subsidiaries. 

HPS Investment Partners, LLC will serve as Administrative Agent under the 2024 Credit Facility and HPS Investment Partners, LLC and WhiteHorse Capital served as joint lead arrangers and bookrunners.

"We are pleased to complete this important milestone for the Company that provides us with the right capital structure as we look to continue to profitably grow the business," said Mick Lopez, Chief Financial Officer of Ribbon Communications.  "We believe that HPS and WhiteHorse Capital will be excellent financial partners due to their strategic perspective and financial strength.  With them, we believe our capital structure will have the flexibility to address our future growth opportunities."

In connection with the closing of the 2024 Credit Facility, the Company also issued a notice of redemption in full of its Series A Preferred Stock.  Under the terms of the redemption, the Series A Preferred Stock will be redeemed on June 25, 2024.

About Ribbon 
Ribbon Communications (Nasdaq: RBBN) delivers communications software, IP and optical networking solutions to service providers, enterprises and critical infrastructure sectors globally. We engage deeply with our customers, helping them modernize their networks for improved competitive positioning and business outcomes in today's smart, always-on and data-hungry world. Our innovative, end-to-end solutions portfolio delivers unparalleled scale, performance, and agility, including core to edge software-centric solutions, cloud-native offers, leading-edge security and analytics tools, along with IP and optical networking solutions for 5G and broadband internet. We maintain a keen focus on our commitments to Environmental, Social and Governance (ESG) matters, offering an annual Sustainability Report to our stakeholders. To learn more about Ribbon visit rbbn.com.

Important Information Regarding Forward-Looking Statements 
The information in this release contains "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which are subject to a number of risks and uncertainties.  All statements other than statements of historical facts contained in this release, including without limitation statements regarding the Company's future growth and the redemption of the Series A Preferred Stock, are forward-looking statements. Without limiting the foregoing, the words "believes", "estimates", "expects", "expectations", "intends", "may", "plans", "projects" and other similar language, are intended to identify forward-looking statements. 

Forward-looking statements are based on the Company's current expectations and assumptions regarding its business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.  Actual results may differ materially from those contemplated in these forward-looking statements due to various risks, uncertainties and other important factors, including, among others, the effects of geopolitical instabilities and wars, including in Israel and Ukraine (and the impact of sanctions and trade restrictions imposed as a result thereof); operational disruptions at facilities located in Israel including as a result of military call-ups of the Company's employees in Israel, closure of the offices there or the temporary or long-term closure of contract manufacturing in the region; the potential impact of litigation; risks related to supply chain disruptions, including as a result of component availability; the impact of new terms and/or covenants in the 2024 Credit Facility; risks resulting from higher interests rates and continued inflationary pressures;  the impact of restructuring and cost-containment activities; unpredictable fluctuations in quarterly revenue and operating results; risks related to cybersecurity and data intrusion; failure to compete successfully against telecommunications equipment and networking companies; failure to grow the Company's customer base or generate recurring business from existing customers; credit risks; the timing of customer purchasing decisions and the Company's recognition of revenues; macroeconomic conditions, including inflation; market acceptance of the Company's products and services; rapid technological and market change; the ability to protect Company intellectual property rights and obtain necessary licenses; the ability to maintain partner, reseller, distribution and vendor support and supply relationships; the potential for defects in the Company's products; increases in tariffs, trade restrictions or taxes on the Company's products; and currency fluctuations.

These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company's business and results from operations. Additional information regarding these and other factors can be found in the Company's reports filed with the Securities and Exchange Commission, including, without limitation, its Form 10-K for the year ended December 31, 2023. In providing forward-looking statements, the Company expressly disclaims any obligation to update these statements publicly or otherwise, whether as a result of new information, future events or otherwise, except as required by law.

Investor Relations
+1 (978) 614-8050
ir@rbbn.com  

Media Contact
Catherine Berthier
+1 (646) 741-1974
cberthier@rbbn.com  

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SOURCE Ribbon Communications Inc.

FAQ

What did Ribbon Communications announce on June 21, 2024?

Ribbon Communications announced the closure of a $385 million senior secured credit facility.

What will Ribbon Communications use the proceeds from the $385 million credit facility for?

Proceeds will be used to repay existing debt, redeem Series A Preferred Stock, and cover related fees and expenses, with remaining funds for working capital and general corporate purposes.

What is the maturity date of the new credit facility announced by Ribbon Communications?

The loans under the new credit facility will mature on June 21, 2029.

How will the interest rate for Ribbon's new credit facility be determined?

The interest rate will initially be SOFR plus 6.25%, adjustable to SOFR plus 5.75% to 6.25% based on the company's consolidated net leverage after December 31, 2024.

When will Ribbon Communications' Series A Preferred Stock be redeemed?

Ribbon Communications' Series A Preferred Stock will be redeemed on June 25, 2024.