Debt

9 Months Ended

Sep. 30, 2022

Debt [Abstract]

Debt [Text Block]

Note 14 – Debt 

Debt as of September 30, 2022 and December 31, 2021 includes the following:

As of September 30, 2022

As of December 31, 2021

Interest

Outstanding 

Interest

Outstanding 

Rate

Balance

Rate

Balance

Credit Facilities:

Original Revolver

—

$

—

1.62%

$

211,955

Original U.S. Term Loan

—

—

1.65%

540,000

Original Euro Term Loan

—

—

1.50%

137,616

Amended Revolver

4.12%

201,536

—

—

Amended U.S. Term Loan

4.26%

600,000

—

—

Amended Euro Term Loan

1.50%

139,627

—

—

Industrial development bonds

5.26%

10,000

5.26%

10,000

Bank lines of credit and other debt obligations

Various

2,903

Various

1,777

Total debt

$

954,066

$

901,348

Less: debt issuance costs

(2,104)

(8,001)

Less: short-term and current portion of long-term debts

(20,471)

(56,935)

Total long-term debt

$

931,491

$

836,412

Credit facilities

The Company, its wholly owned subsidiary, Quaker Chemical B.V., as borrowers, Bank of America, N.A., as administrative

agent, U.S. Dollar swing line lender and letter of credit issuer, and the other lenders party thereto, entered into a credit agreement on

August 1, 2019, as amended (the “Original Credit Facility”). The Original Credit Facility was comprised of a $

400.0

 million

multicurrency revolver (the “Original Revolver”), a $

600.0

 million term loan (the “Original U.S. Term Loan”), each with the

Company as borrower, and a $

150.0

 million (as of August 1, 2019) Euro equivalent term loan (the “Original Euro Term Loan”) with

Quaker Chemical B.V., a Dutch subsidiary of the Company as borrower, each with a

five year

 term, maturing in

August 2024

. 

During June 2022, the Company, and its wholly owned subsidiary, Quaker Houghton B.V., as borrowers, Bank of America, N.A.,

as administrative agent, U.S. Dollar swing line lender and letter of credit issuer, Bank of America Europe Designated Active

Company, as Euro Swing Line Lender, certain guarantors and other lenders entered into an amendment to the Original Credit Facility

(the “Amended Credit Facility”). The Amended Credit Facility established (A) a new $

150.0

 million Euro equivalent senior secured

term loan (the “Amended Euro Term Loan”), (B) a new $

600.0

 million senior secured term loan (the “Amended U.S. Term Loan”),

and (C) a new $

500.0

 million senior secured revolving credit facility (the “Amended Revolver”). The Company has the right to

increase the amount of the Amended Credit Facility by an aggregate amount not to exceed the greater of $

300.0

 million or

100

% of

Consolidated EBITDA, subject to certain conditions including the agreement to provide financing by any lender providing such

increase). In addition, the Amended Credit Facility also: 

(i) eliminated the requirement that material foreign subsidiaries must guaranty the Original Euro Term Loan; 

(ii) replaced the U.S. Dollar borrowings reference rate from LIBOR to SOFR; 

(iii) extended the maturity date of the Original Credit Facility from

August 2024

 to

June 2027

; and

(iv) effected certain other changes to the Original Credit Facility as set forth in the Amended Credit Facility. 

The Company used the proceeds of the Amended Credit Facility to repay all outstanding loans under the Original Credit Facility,

unpaid accrued interest and fees on the closing date under the Original Credit Facility and certain expenses and fees. U.S. Dollar-

denominated borrowings under the Amended Credit Facility bear interest, at the Company’s election, at the base rate or term SOFR

plus an applicable rate ranging from

1.00

% to

1.75

% for term SOFR loans and from

0.00

% to

0.75

% for base rate loans, depending

upon the Company’s consolidated net leverage ratio. Loans based on term SOFR also include a spread adjustment equal to

0.10

% per

annum. Borrowings under the Amended Credit Facility denominated in currencies other than U.S. Dollars bear interest at the

alternative currency term rate plus the applicable rate ranging from

1.00

% to

1.75

%.

The Amended Credit Facility contains affirmative and negative covenants, financial covenants and events of default, including

without limitation restrictions on (a) the incurrence of additional indebtedness; (b) investments in and acquisitions of other businesses,

lines of business and divisions; (c) the making of dividends or capital stock purchases; and (d) dispositions of assets. Dividends and

share repurchases are permitted in annual amounts not exceeding the greater of $

75

 million annually and

25

% of consolidated

EBITDA if there is no default. If the consolidated net leverage ratio is less than

2.50

 to

1.00

, then the Company is no longer subject to

restricted payments. 

Financial covenants contained in the Amended Credit Facility include a consolidated interest coverage ratio test and a

consolidated net leverage ratio test. The consolidated net leverage ratio at the end of a quarter may not be greater than

4.00

 to

1.00

,

subject to a permitted increase during a four-quarter period after certain acquisitions. The Company has the option of replacing the

consolidated net leverage ratio test with a consolidated senior net leverage ratio test if the Company issues certain types of unsecured

notes, subject to certain limitations. Events of default in the Amended Credit Facility include without limitation defaults for non-

payment, breach of representations and warranties, non-performance of covenants, cross-defaults, insolvency, and a change of control

in certain circumstances. The occurrence of an event of default under the Amended Credit Facility could result in all loans and other

obligations becoming immediately due and payable and the Amended Credit Facility being terminated. As of September 30, 2022, the

Company was in compliance with all of the Amended Credit Facility covenants.

The weighted average variable interest rate incurred on the outstanding borrowings under the Original Credit Facility and the

Amended Credit Facility during the nine months ended September 30, 2022 was approximately

2.4

%. As of September 30, 2022, the

interest rate on the outstanding borrowings under the Amended Credit Facility was approximately

3.8

%. In addition to paying interest

on outstanding principal under the Original Credit Facility, the Company was required to pay a commitment fee ranging from

0.2

% to

0.3

% depending on the Company’s consolidated net leverage ratio under the Original Revolver in respect of the unutilized

commitments thereunder. As part of the Amended Credit Facility, the Company is required to pay a commitment fee ranging from

0.150

% to

0.275

% related to unutilized commitments under the Amended Revolver, depending on the Company’s consolidated net

leverage ratio. The Company had unused capacity under the Amended Revolver of approximately $

295

 million, which is net of bank

letters of credit of approximately $

3

 million, as of September 30, 2022.

The Company previously capitalized $

23.7

 million of certain third-party debt issuance costs in connection with executing the

Original Credit Facility. Approximately $

15.5

 million of the capitalized costs were attributed to the Original Term Loans and

recorded as a direct reduction of Long-term debt on the Condensed Consolidated Balance Sheet. Approximately $

8.3

 million of the

capitalized costs were attributed to the Original Revolver and recorded within Other assets on the Condensed Consolidated Balance

Sheet. These capitalized costs were being amortized into Interest expense over the

five year

 term of the Original Credit Facility. As

of December 31, 2021, the Company had $

8.0

 million of debt issuance costs recorded as a reduction of Long-term debt attributable to

the Original Credit Facility. As of December 31, 2021, the Company had $

4.3

 million of debt issuance costs recorded within Other

assets attributable to the Original Credit Facility. Prior to executing the Amended Credit Facility, the Company had $

6.6

 million of

debt issuance costs recorded as a reduction of Long-term debt attributable to the Original Credit Facility and $

3.5

 million of debt

issuance costs recorded within Other assets attributable to the Original Credit Facility.

In connection with executing the Amended Credit Facility, the Company recorded a loss on extinguishment of debt of

approximately $

6.8

 million which includes the write-off of certain previously unamortized deferred financing costs as well as a

portion of the third-party and creditor debt issuance costs incurred to execute the Amended Credit Facility. Also in connection with

executing the Amended Credit Facility, during the second quarter of 2022, the Company capitalized $

2.2

 million of certain third-party

and creditor debt issuance costs. Approximately $

0.7

 million of the capitalized costs were attributed to the Amended Euro Term Loan

and Amended U.S. Term Loan. These costs were recorded as a direct reduction of Long-term debt on the Condensed Consolidated

Balance Sheet. Approximately $

1.5

 million of the capitalized costs were attributed to the Amended Revolver and recorded within

Other assets on the Condensed Consolidated Balance Sheet. These capitalized costs, as well as the previously capitalized costs that

were not written off will collectively be amortized into Interest expense over the

five year

 term of the Amended Credit Facility. As of

September 30, 2022, the Company had $

2.1

 million of debt issuance costs recorded as a reduction of Long-term debt on the

Condensed Consolidated Balance Sheet and $

4.6

 million of debt issuance costs recorded within Other assets on the Condensed

Consolidated Balance Sheet. 

The Original Credit Facility required the Company to fix its variable interest rates on at least

20

% of its total Original Term

Loans. In order to satisfy this requirement as well as to manage the Company’s exposure to variable interest rate risk associated with

the Original Credit Facility, in November 2019, the Company entered into $

170.0

 million notional amounts of three-year interest rate

swaps at a base rate of

1.64

% plus an applicable margin as provided in the Original Credit Facility, based on the Company’s

consolidated net leverage ratio. At the time the Company entered into the swaps, and as of September 30, 2022, the aggregate interest

rate on the swaps, including the fixed base rate plus an applicable margin, was

3.1

%. The Amended Credit Facility does not require

the Company to fix variable interest rates on any portion of its borrowings. As of September 30, 2022, the Company had not amended

its current interest rate swaps. In October 2022, the Company’s interest rate swap contracts expired. Upon expiration, the Company is

entitled to a cash payment from the counterparties, which is materially consistent with the fair value as of September 30, 2022. See

Note 17 of Notes to Condensed Consolidated Financial Statements.

Industrial development bonds

As of September 30, 2022 and December 31, 2021, the Company had fixed rate, industrial development authority bonds totaling

$

10.0

 million in principal amount due in

2028

. These bonds have similar covenants to the Amended Credit Facility noted above.

Bank lines of credit and other debt obligations

The Company has certain unsecured bank lines of credit and discounting facilities in certain foreign subsidiaries, which are not

collateralized. The Company’s other debt obligations primarily consist of certain domestic and foreign low interest rate or interest-

free municipality-related loans, local credit facilities of certain foreign subsidiaries and capital lease obligations. Total unused

capacity under these arrangements as of September 30, 2022 was approximately $

12

 million.

In addition to the bank letters of credit described in the “Credit facilities” subsection above, the Company’s other off-balance

sheet arrangements include certain financial and other guarantees. The Company’s total bank letters of credit and guarantees

outstanding as of September 30, 2022 were approximately $5 million.

The Company incurred the following debt related expenses included within Interest expense, net, in the Condensed Consolidated

Statements of Income:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2022

2021

2022

2021

Interest expense

$

9,465

$

4,779

$

20,339

$

14,242

Amortization of debt issuance costs

353

1,187

2,589

3,562

Total

$

9,818

$

5,966

$

22,928

$

17,804

Based on the variable interest rates associated with the Amended Credit Facility, as of September 30, 2022 and the Original

Credit Facility as of December 31, 2021, the amounts at which the Company’s total debt were recorded are not materially different

from their fair market value.

On September 30, 2022, annual maturities on the Amended Credit Facility in the next five fiscal years (excluding the reduction to

long-term debt attributed to capitalized and unamortized debt issuance costs) are as follows:

`

September 30,

2022

For the remainder of 2022

$

4,623

For the year ended December 31, 2023

18,491

For the year ended December 31, 2024

23,113

For the year ended December 31, 2025

36,981

For the year ended December 31, 2026

36,981

For the year ended December 31, 2027

820,974

Total payments

$

941,163