|6 Months Ended|
Mar. 31, 2020
|Debt Disclosure [Abstract]|
The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in March 2020. The amended and restated loan agreement includes a $750,000 senior secured revolving credit facility, which matures in March 2025, and a $35,000 senior secured amortizing term loan, which matures in July 2021. A portion of the revolving credit facility (not to exceed $350,000) can be drawn in foreign currencies. The term loan requires scheduled quarterly principal payments through its maturity date. Borrowings under both the revolving credit facility and the term loan bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75% to 2.00% (1.50% at March 31, 2020) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The Company is required to pay an annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs of approximately $2,000 in connection with the amended and restated agreement, which will be deferred and amortized over the term of the facility.
The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35,000) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at March 31, 2020 and September 30, 2019 were $372,500 and $325,638, respectively. Outstanding Euro denominated borrowings on the revolving credit facility at March 31, 2020 and September 30, 2019 were €125.0 million ($137,519) and €125.0 million ($136,470), respectively. Outstanding borrowings on the term loan at March 31, 2020 and September 30, 2019 were $34,766 and $53,497, respectively. The weighted-average interest rate on the outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at March 31, 2020 and March 31, 2019 was 2.40% and 3.25%, respectively.
The Company has $300,000 of 5.25% senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25% per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes. Unamortized costs were $3,014 and $3,284 at March 31, 2020 and September 30, 2019, respectively.
The Company has a $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions. The Securitization Facility, which had a maturity date of April 2020, was amended in March 2020 to extend the maturity date until March 2022. Under the Securitization Facility, the Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. Matthews RFC in turn assigns a collateral interest in these receivables to certain financial institutions, and then may borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75%. The Company is required to pay an annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at March 31, 2020 and September 30, 2019 were $103,190 and $93,950, respectively. At March 31, 2020 and 2019, the interest rate on borrowings under this facility was 1.74% and 3.24%, respectively.
The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:
Note 7. Debt (continued)
The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments, which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.
The fair value of the interest rate swaps reflected an unrealized loss, net of unrealized gains, of $6,032 ($4,554 after tax) at March 31, 2020 and an unrealized loss, net of unrealized gains, of $534 ($403 after tax) at September 30, 2019, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Assuming market rates remain constant with the rates at March 31, 2020, a loss (net of tax) of approximately $2,129 included in AOCI is expected to be recognized in earnings over the next twelve months.
At March 31, 2020 and September 30, 2019, the interest rate swap contracts were reflected in the Consolidated Balance Sheets as follows:
The gains recognized on derivatives were as follows:
The Company recognized the following gains (losses) in AOCI:
The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €35.0 million ($38,505). The credit facility matures in December 2020 and the Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled €14.2 million ($15,622) and €12.8 million ($14,024) at March 31, 2020 and September 30, 2019, respectively. The weighted-average interest rate on outstanding borrowings under this facility at March 31, 2020 and 2019 was 1.25%.
Note 7. Debt (continued)
The Company’s German subsidiary, Matthews Europe GmbH, had €15.0 million ($16,376 at September 30, 2019) of senior unsecured notes with European banks. The notes matured in November 2019 at which point they were paid. The weighted-average interest rate on the notes at March 31, 2019 was 1.40%.
Finance lease liabilities included as a component of debt totaled $5,248 and $3,631 at March 31, 2020 and September 30, 2019, respectively. See Note 8, "Leases" for further discussion on the Company's lease obligations. Other debt totaled $395 at September 30, 2019. The weighted-average interest rate on other debt was 5.50% at March 31, 2019.
The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $2,528 (net of income taxes of $820) and $3,320 (net of income taxes of $1,077), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at March 31, 2020 and September 30, 2019, respectively.
In September 2014, a claim was filed by a customer seeking to draw upon a letter of credit issued by the Company of £8,570,000 ($10,607 at March 31, 2020) with respect to a performance guarantee on an environmental solutions project in Saudi Arabia. Management assessed the customer's demand to be without merit and initiated an action with the court in the United Kingdom (the "U.K. Court"). Pursuant to this action, an order was issued by the U.K. Court in January 2015 requiring that, upon receipt by the customer, the funds were to be remitted by the customer to the U.K. Court pending resolution of the dispute between the parties. As a result, the Company made payment on the draw to the financial institution for the letter of credit and the funds were ultimately received by the customer. The customer did not remit the funds to the U.K. Court as ordered. On June 14, 2016, the U.K Court ruled completely in favor of Matthews following a trial on the merits. However, the ongoing dispute involves litigation in multiple foreign jurisdictions because the contract between the parties includes a venue clause requiring the venue for any litigation to be in the United Kingdom, while the enforcement of any final judgment is required to be executed in Saudi Arabia. The Company continues to pursue a trial on the merits in Saudi Arabia which is now scheduled to conclude in calendar year 2020. It is necessary to obtain an equivalent favorable ruling in the courts of Saudi Arabia to effectively enforce the judgment and commence collection efforts. The Company remains confident regarding the pending trial on the merits in Saudi Arabia and expects to be in a position to enforce the judgment and initiate collection efforts following completion of that trial. However, as the customer has neither yet remitted the funds nor complied with the final, un-appealed orders of the U.K. Court, it is possible the resolution of this matter could have an unfavorable financial impact on Matthews’ results of operations. The Company’s level of success in recovering funds from the customer will depend upon a number of factors including a successful completion of the pending trial on the merits in Saudi Arabia, the availability of recoverable funds, and the subsequent level of cooperation from the Saudi Arabian government to enforce a potential judgment against the customer. The Company has determined that resolution of this matter may take an extended period of time and therefore has classified the funded letter of credit within other assets on the Consolidated Balance Sheets as of March 31, 2020 and September 30, 2019. The Company will continue to assess the accounting and collectability related to this matter as facts and circumstances evolve.
As of March 31, 2020, the market value of the Company's 2025 Senior Notes was approximately 10% less than the carrying value. The fair value of the Company's remaining long-term debt, including current maturities, approximated the carrying value included in the Consolidated Balance Sheets. As of September 30, 2019, the fair value of the Company's long-term debt, including current maturities, approximated the carrying value included in the Consolidated Balance Sheets. The Company was in compliance with all of its debt covenants as of March 31, 2020.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef