UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(Exact name of registrant as specified in its charter)
(State or other jurisdiction | (Commission File Number) | (IRS Employer |
CPI Card Group Inc. |
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( | ||
N/A |
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Item 1.01Entry into a Material Definitive Agreement.
10.000% Senior Secured Notes due 2029
On July 11, 2024 (the “Closing Date”), CPI Card Group Inc. (the “Company”) completed the previously announced private offering by its wholly-owned subsidiary, CPI CG Inc. (the “issuer”), of $285 million aggregate principal amount of 10.000% senior secured notes due 2029 (the “notes”) and related guarantees at an issue price of 100%.
The notes and related guarantees were offered and sold in a private transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), to persons reasonably believed to be qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States to certain non-U.S. persons in compliance with Regulation S under the Securities Act. The issuance and sale of the notes and related guarantees have not been, and will not be, registered under the Securities Act or the securities laws of any state or other jurisdiction, and the notes and related guarantees may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and other applicable securities laws.
Net proceeds from the offering, together with cash on hand, were used to redeem all of the issuer’s outstanding 8.625% senior secured notes due 2026 (the “2026 notes”) and to pay related fees, premiums and expenses.
Indenture
The terms of the notes and related guarantees are governed by an indenture, dated as of the Closing Date (the “Indenture”), among the issuer, the Company and certain of its current and future wholly-owned domestic subsidiaries (other than the issuer), as guarantors (collectively and together with the Company, the “guarantors”), and U.S. Bank Trust Company, National Association, as trustee (in such capacity, the “trustee”) and as notes collateral agent (in such capacity, the “notes collateral agent”).
Interest and Maturity. The notes bear interest at a rate of 10.000% per annum and mature on July 15, 2029. Interest is payable on the notes on January 15 and July 15 of each year, beginning on January 15, 2025.
Guarantees and Security. The issuer’s obligations under the notes are unconditionally guaranteed by the guarantors on a senior secured basis and will be guaranteed by any future wholly-owned domestic subsidiaries that will guarantee the New ABL Credit Agreement (as defined below) and/or certain other indebtedness.
The notes and related guarantees are secured (i) on a first-priority basis in the collateral granted to the notes collateral agent for the benefit of the holders of the notes (the “Notes Priority Collateral”), and (ii) on a second-priority basis by the collateral securing the New ABL Credit Agreement (the “ABL Priority Collateral”), in each case, subject to certain permitted liens, and in each case subject to certain exceptions as to the scope of the collateral and required actions to perfect such liens. On the Closing Date, each of the issuer, the Company, the guarantors and the notes collateral agent entered into a notes collateral agreement, which created and established the terms of the security interests that secure the notes and related guarantees, and an intercreditor agreement, which governs the relative rights of the secured parties in respect of the New ABL Credit Agreement and the notes. The intercreditor agreement restricts the actions permitted to be taken by the notes collateral agent with respect to the notes collateral on behalf of the holders of the notes.
Ranking. The notes and related guarantees are senior secured obligations of issuer and the guarantors, respectively, and (i) rank equal in right of payment with any of the issuer’s and the guarantors’ existing and future senior indebtedness (including the New ABL Credit Agreement), (ii) rank senior in right of payment to any of the issuer’s and the guarantors’ future subordinated indebtedness, (iii) rank effectively senior to any of the issuer’s and the guarantors’ existing and future unsecured indebtedness to the extent of the value of the collateral securing the notes (after giving effect to the sharing of such collateral with the holders of equal or prior ranking liens on the collateral), (iv) are effectively junior to any indebtedness under the New ABL Credit Agreement to the extent of the value of the ABL Priority Collateral securing such indebtedness, (v) are effectively junior to any existing and future indebtedness of the issuer that is secured by liens on assets that do not constitute a part of the collateral securing the notes and (vi) are structurally subordinated to any existing and future indebtedness and other liabilities (including trade payables and preferred stock) of the issuer’s and the guarantors’ existing and future subsidiaries that do not guarantee the notes.
Covenants. The Indenture contains covenants limiting the ability of the Company and the Company’s restricted subsidiaries to, among other things, incur or guarantee additional debt or issue disqualified stock or certain preferred stock; create or incur liens; pay dividends, redeem stock or make other distributions; make certain investments; create restrictions on the ability of our restricted subsidiaries to pay dividends to the Company or make other intercompany transfers; transfer or sell assets; merge or consolidate; and enter into certain transactions with affiliates. These covenants are subject to a number of important exceptions and qualifications as set forth in the Indenture. In addition, most of these covenants will be suspended in the event and for as long as the notes have investment grade ratings.
Events of Default. The Indenture provides for events of default (subject in certain cases to customary grace and cure periods) which include, among others, nonpayment of principal or interest when due, breach of covenants or other agreements in the Indenture, defaults in payment of certain other indebtedness and certain events of bankruptcy or insolvency. Generally, if an event of default occurs, the trustee or the holders of at least 30% in principal amount of the outstanding notes may declare the principal of and accrued but unpaid interest on all of the notes to be due and payable immediately.
Optional Redemption and Offer to Repurchase. At any time and from time to time prior to July 15, 2026, the issuer may redeem some or all of the notes at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus a “make-whole” premium as set forth in the Indenture and form of note. At any time and from time to time on or after July 15, 2026, the issuer may redeem some or all of the notes at the redemption prices described in the Indenture and form of note. At any time prior to July 15, 2026, the issuer may redeem, on one or more occasions, up to 40% of the aggregate principal amount of the notes with the proceeds of certain equity offerings, at a redemption price equal to 110.000% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, prior to July 15, 2026, but not more than once during each consecutive twelve-month period commencing on the Closing Date, the issuer may also redeem up to 10% of the aggregate principal amount of the notes (including the aggregate principal amount of any additional notes issued after the Closing Date) at a redemption price equal to 103% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Offer to Repurchase. If the Company experiences a change of control, the issuer may be required to offer to repurchase the notes at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. In certain circumstances, the issuer must use certain of the proceeds from a sale of assets to make an offer to repurchase notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
No Registration Rights or Listing. The notes and related guarantees do not have the benefit of any registration rights. The notes will not be listed on any securities exchange.
The foregoing descriptions of the Indenture, the notes and related guarantees do not purport to be complete and are qualified in their entirety by reference to the Indenture and form of note, copies of which are filed as Exhibits 4.1 and 4.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.
Asset-Based, Senior Secured Revolving Credit Facility
On the Closing Date, the Company and CPI CG Inc. (the “borrower”) entered into a credit agreement (the “New ABL Credit Agreement”) with JPMorgan Chase Bank, N.A., as lender, administrative agent and collateral agent (the “Agent”). Capitalized terms used without definition in this section are defined in the New ABL Credit Agreement.
General Terms. The New ABL Credit Agreement provides for an ABL revolver of up to $75.0 million (“Revolver Commitment”) consisting of revolving loans, letters of credit and swing line loans provided by lenders, with a sublimit on letters of credit outstanding at any time of $10.0 million. The New Credit Agreement also includes an uncommitted accordion feature whereby the borrower may increase the Revolver Commitment by an aggregate amount not to exceed $25.0 million, subject to certain conditions. The ABL revolver matures on the earliest to occur of July 11, 2029 and the date that is 91 days prior to the maturity of the notes. The payment and performance in full of the secured obligations under the ABL revolver are secured by a lien on and security interest in substantially all of the assets of the Company, the borrower and their subsidiaries other than Excluded Subsidiaries.
The maximum borrowings permitted to be made at any time under the New ABL Credit Agreement is equal to (a) the lesser of (x) the Maximum Revolver Amount and (y) the Borrowing Base, less the sum of (1) the outstanding Revolving Loans (inclusive of Swing Loans and Protective Advances), plus (2) Letter of Credit Usage. The Borrowing Base is equal to (a) 85% of the Borrowers’ and Designated Subsidiary Guarantors’ eligible receivables, plus (b) 85% of the net orderly liquidation value (NOLV) of each such category of eligible inventory, subject in each case other than with respect to eligible work-in-process inventory, to a cap set at 80% of the value of such category of eligible inventory and a further cap of $7.5 million for each of eligible work-in-process inventory and eligible in-transit inventory plus (c) 100% of eligible cash less (d) reserves established by the Agent. As of the Closing Date, the borrower had $4 million of outstanding borrowings under the New ABL Credit Agreement. The borrower used initial borrowings under the New ABL Credit Agreement, together with cash on hand and proceeds under the notes, to repay in full and terminate the existing credit facilities evidenced by the Prior ABL Credit Agreement (as defined below) and to pay related fees and expenses and future borrowings for general corporate purposes.
Interest Rates and Fees. The unused portion of the Revolver Commitment accrues a commitment fee, which ranges from 0.375% to 0.50% per annum, based on the average daily borrowing capacity under the New ABL Credit Agreement over the immediately preceding month. Borrowings under the New ABL Credit Agreement bear interest at a rate per annum that ranges from Term SOFR plus 1.50% to Term SOFR plus 1.75% (subject, in each case, to a credit spread adjustment of 0.10%) based on the average daily borrowing capacity under the ABL revolver over the most recently completed month.
Covenants. The New ABL Credit Agreement contains covenants limiting the ability of the Company, the borrower and the Company’s restricted subsidiaries to, among other things, incur or guarantee additional debt or issue disqualified stock or certain preferred stock; create or incur liens; pay dividends, redeem stock or make other distributions; make certain investments; create restrictions on the ability of the borrower and its restricted subsidiaries to pay dividends to the Company or make other intercompany transfers; transfer or sell assets; merge or consolidate; and enter into certain transactions with affiliates. These covenants are subject to a number of important exceptions and qualifications as set forth in the New ABL Credit Agreement.
Events of Default. The New ABL Credit Agreement provides for events of default (subject in certain cases to customary grace and cure periods) which include, among others, nonpayment of principal or interest when due, breach of covenants or other agreements in the Loan Documents, defaults in payment of certain other indebtedness and certain events of bankruptcy or insolvency. Generally, if an event of default occurs, Agent or the lenders holding more than 50% in revolving loan exposure of all lenders (subject to certain exceptions) may declare the principal of and accrued but unpaid interest on all of the loans to be due and payable immediately.
Guarantees and Security. The borrower’s obligations under the New ABL Credit Agreement are unconditionally guaranteed by Company and its subsidiaries (other than the borrower and other than Excluded Subsidiaries) on a senior secured basis.
The loans and related guarantees are secured (i) on a first-priority basis in the ABL Priority Collateral, and (ii) on a second-priority basis by the Notes Priority Collateral, in each case, subject to certain permitted liens and in each case subject to certain exceptions as to the scope of the collateral and required actions to perfect such liens. On the Closing Date, each of the borrower, the Company, the guarantors and the Agent entered into a guaranty and security agreement (the “Guaranty and Security Agreement”), which created and established the terms of the security interests that secure the obligations under the New ABL Credit Agreement and related guarantees, and an intercreditor agreement, which governs the relative rights of the secured parties in respect of the New ABL Credit Agreement and the notes. The intercreditor agreement restricts the actions permitted to be taken by the Agent with respect to the ABL Priority Collateral.
The foregoing descriptions of the New ABL Credit Agreement and the Guaranty and Security Agreement do not purport to be complete and are subject to, and qualified in their entirety by reference to the New ABL Credit Agreement and the Guaranty and Security Agreement, respectively, copies of which are filed as Exhibits 10.1 and 10.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference. The Company and its affiliates may from time to time engage certain of the lenders under the New ABL Credit Agreement to provide other banking, investment banking and financial services.
Item 1.02Termination of a Material Definitive Agreement.
In connection with the issuance of notes and entry into the New ABL Credit Agreement on the Closing Date, the Company terminated its existing credit facility evidenced by the Credit Agreement, dated as of March 15, 2021 (the “Prior ABL Credit Agreement”), among the Company, the borrower, the lenders party thereto and Wells Fargo Bank, National Association as administrative agent and collateral agent, and other agreements and documents related to the Prior ABL Credit Agreement.
Item 2.03Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 1.01 above is incorporated by reference into this Item 2.03.
Item 8.01Other Events.
On July 11, 2024, the Company issued a press release made pursuant to Rule 135c promulgated under the Securities Act, announcing the issuance of the notes and the entry into the ABL revolver. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
CPI Card Group Inc. | ||
By: | /s/ Jessica Browne | |
Jessica Browne | ||
| Acting Chief Legal and Compliance Officer | |
Date: July 11, 2024 | ||