Item 1.01 Entry into a Material Definitive Agreement.
Cadence Credit Facility
On October 27, 2022, Adams Resources & Energy, Inc. (the “Company”) entered into a Credit Agreement (the “Credit Agreement”) between and among the Company, GulfMark Asset Holdings, LLC and Service Transport Company, each a wholly-owned subsidiary of Adams, as borrowers (the “Borrowers”), Cadence Bank, as administrative agent, swingline lender and issuing lender, and the other lenders party thereto (collectively, the “Lenders”). All capitalized words used in this description of the Credit Agreement without definition have the meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for (a) a revolving credit facility that allows for borrowings up to $60 million in aggregate principal amount from time to time (the “Revolving Credit Facility”) and (b) a Term Loan in aggregate principal amount of $25 million (the “Term Loan”).
The Credit Agreement replaces the Borrowers’ prior $60 million credit facility with Wells Fargo Bank, National Association (“Wells Fargo”) as Agent and Issuing Lender, entered into May 4, 2021. In connection with Borrowers’ termination of its prior credit facility with Wells Fargo, Borrowers and Wells Fargo deposited cash equaling 103% of the face value of three letters of credit previously issued by Wells Fargo in May 2021. The three letters of credit are fully collateralized, have no associated debt, and no draws against any of the letters of credit are pending.
For each borrowing under the Revolving Credit Facility, the applicable Borrower may elect whether such loans bear interest at (i) the Base Rate plus Applicable Margin for Base Rate Loans; or (ii) Term SOFR plus the Applicable Margin for SOFR Loans. The Base Rate is the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5% and (c) Adjusted Term SOFR for a one month tenor in effect on the date of determination plus 1.0%. The Applicable Margin to be added to a Base Rate borrowing under either (a), (b) or (c) in the preceding sentence is an amount determined quarterly between 1.00% and 2.00% depending on the Company’s consolidated total leverage ratio. The Applicable Margin to be added to a Term SOFR borrowing under the Revolving Credit Facility is an amount determined quarterly between 2.00% and 3.00% depending on the Company’s consolidated total leverage ratio. A commitment fee of 0.25% per annum accrues on the daily average unused amount of the commitments of the Lenders under the Revolving Credit Facility. The Company may obtain letters of credit under the Revolving Credit Facility up to a maximum amount of $30 million. The amount of the Company’s outstanding letters of credit reduces availability under the Revolving Credit Facility. The Revolving Credit Facility matures on October 27, 2027 unless earlier terminated.
The Term Loan amortizes on a 10 year schedule with quarterly payments beginning December 31, 2022, and matures on October 27, 2027 unless earlier accelerated. The Term Loan may be prepaid in whole or in part without premium or penalty, and must be prepaid with proceeds of any future debt issuance, the proceeds of any equity issuance to the extent proceeds exceed $2 million in any quarter with limited exceptions, and the proceeds of certain asset dispositions. The Term Loan bears interest at the SOFR Rate plus the Applicable Margin for SOFR Rate Loans as described above.
Pursuant to the terms of the Credit Agreement, Adams is required to maintain compliance with the following financial covenants on a pro forma basis, after giving effect to any borrowings (in each case commencing with the fiscal quarter ending December 31, 2022): (i) the Consolidated Total Leverage Ratio shall not be greater than 2.50 to 1.00; (ii) the Asset Coverage Ratio shall not be less than 2.00 to 1.00; and (iii) the Consolidated Fixed Charge Coverage Ratio shall not be less than 1.25 to 1.00. Each of such ratios is calculated as outlined in the Credit Agreement and subject to certain exclusions and qualifications described therein.
The Credit Agreement contains certain customary representations and warranties and affirmative and negative covenants. The affirmative covenants require Adams to provide the Lenders with certain financial statements, business plans, compliance certificates and other documents and reports and to comply with certain laws. The negative covenants restrict each of the Borrowers’ ability to incur additional indebtedness, create additional
liens on its assets, make certain investments, dispose of its assets or engage in a merger or other similar transaction or engage in transactions with affiliates, subject, in each case, to the various exceptions and conditions described in the Credit Agreement. The negative covenants further restrict each of the Borrowers’ ability to make certain restricted payments.
The Borrowers’ obligations under the Credit Agreement are secured by a pledge of substantially all of their personal property and substantially all of the personal property of certain other direct and indirect subsidiaries of Adams.
The foregoing is a summary description of certain terms of the Credit Agreement and does not purport to be complete, and is qualified in its entirety by reference to the full text of the Credit Agreement, a copy of which is filed as Exhibit 10.1 hereto and incorporated by reference herein.
KSAI Stock Repurchase
On October 31, 2022, the Company entered into a Stock Repurchase Agreement (the “Stock Purchase Agreement”) with KSA Industries, Inc. (“KSAI”) and certain members of the family of the late Kenneth Stanley Adams, Jr., the Company’s founder (collectively, the “Sellers”). Prior to the transaction, KSAI was the Company’s largest stockholder. Under the terms of the Repurchase Agreement, the Company purchased an aggregate of 1,942,433 shares of its common stock from the Sellers for an aggregate purchase price of $69.9 million, at a price per share of $36.00 per share. Following the transaction, the Company will have 2,452,404 shares of common stock outstanding. The purchase price was funded with the proceeds of the $25 million term loan under the Company’s new credit facility with Cadence Bank, described in more detail above, with the balance funded with cash on hand.
The transactions contemplated by the Repurchase Agreement were reviewed and approved by a special committee of the Company’s board of directors, which received (among other things) fairness and solvency opinions from leading national advisory firms.
The foregoing is a summary description of certain terms of the Repurchase Agreement and does not purport to be complete, and is qualified in its entirety by reference to the full text of the Repurchase Agreement, which is attached hereto as Exhibit 10.2 hereto and incorporated by reference herein.