McGraw Hill |
McGraw HillRefinancing Transaction
Summary
December 15, 2020
Summary and Subject to Terms of Definitive Documentation
This presentation contains a summary of the proposed terms of the Transaction (as defined herein) and does not purport to be complete. Lenders should refer to
the proposed definitive documentation posted on SyndTrak in making any decision with respect to the Transaction.
Forward-Looking StatementsThis presentation includes statements that are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can be identified by the
use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will” or “should” or, in each case,
their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a
number of places throughout this presentation and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our
results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur
in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition
and liquidity, and the developments in the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements
contained in this presentation. In addition, even if our results of operations, financial condition and liquidity, and the developments in the industry in which we
operate are consistent with the forward-looking statements contained in this presentation, those results of operations, financial condition and liquidity or
developments may not be indicative of results or developments in subsequent periods.
Any forward-looking statements we make in this presentation speak only as of the date of such statement, and we undertake no obligation to update such
statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless
expressed as such, and should only be viewed as historical data.
Non-GAAP Financial MeasuresCertain financial information included herein, including Billings, EBITDA and Adjusted EBITDA, are not presentations made in accordance with U.S. GAAP, and
use of such terms varies from others in our industry. Billings, EBITDA and Adjusted EBITDA should not be considered as alternatives to revenue, net income from
continuing operations, operating cash flows or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance,
debt covenant compliance or cash flows as measures of liquidity. Billings, EBITDA and Adjusted EBITDA have important limitations as analytical tools, and you
should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. This presentation includes a reconciliation of
certain non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP.
Adjusted EBITDA, which is defined in accordance with our debt agreements, is provided herein on a segment basis and on a consolidated basis. Adjusted EBITDA
by segment, as determined in accordance with Accounting Standards Codification Topic 280, Segment Reporting, is a measure used by Management to assess
the performance of our segments. Adjusted EBITDA on a consolidated basis is presented as a debt covenant compliance measure. Management believes that the
presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that
we do not expect to continue at the same level in the future as well as other items to assess our debt covenant compliance, ability to service our indebtedness and
make capital allocation decisions in accordance with our debt agreements.
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Important Notice
Summary and Subject to Terms of Definitive Documentation
3McGraw Hill |
Summary
Executive Summary
• After McGraw Hill’s (“McGraw” or the “Company”) strong performance in its critically important fiscal second quarter (~50% of FY
Billings), the Company has negotiated a comprehensive Amend & Extend transaction (the “Transaction”) which includes extending
the maturity of the current Term Loan to November 2024 (the “Extended Term Loan”)
• The Transaction addresses all near-term debt maturities and has broad support from all creditor constituencies who continue
to be supportive of the business and want to remain invested
• The Transaction was negotiated with and has the support of 63% of First Lien Term Loan lenders (the “Term Loan”), 76% of
Unsecured Noteholders and 100% of HoldCo Term Loan lenders
• The Transaction is open to all Term Loan lenders on the same terms
• On a pro forma basis post Transaction, the Company will have Net First Lien Leverage of 2.2x and Net Total Leverage of 4.1x
Transaction Highlights
Credit Agreement
Enhancements
Substantial Paydown and
Enhanced Economics to
Participating Lenders
Extends Maturity Runway
while reducing First Lien
Leverage
• Amended Credit Agreement provides lenders with improved terms and a tighter credit agreement
that reduces the Company’s debt, lien, investment, and restricted payment capacity
• Term Loans that provide consent by the Early Consent Deadline will receive approximately
12.6% paydown (up to $200 million in aggregate) and 25 bps Extension Fee
‒ New junior capital in the form of new 1.5L Secured Notes to help fund paydown
• Term Loan Interest rate increased to L + 475 bps (from L + 400 bps)
• Term Loan and HoldCo Term Loan extended through November 2024
• Revolving Credit Facility extended through November 2023
• Pro forma for the Transaction, Net First Lien leverage will be reduced from 2.6x to 2.2x
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2
3
Summary and Subject to Terms of Definitive Documentation
4McGraw Hill |
Key Deal Terms
Executive Summary (Cont’d)The Transaction has broad support from all creditor constituencies and
comprehensively addresses McGraw Hill’s upcoming maturities
Securitization
Facility
• Unchanged (extended in August 2020 for three-year period) – provides up to $150 million of seasonal availability to
fund operations
Revolving Credit
Facility(1)
• Maturity extended to November 2023 (from May 2021)
• Interest rate increased to L+ 475 bps (from L + 400 bps)
• Commitment reduction expected given extension of lower cost Securitization facility
• 25 bps extension fee
First Lien Term
Loan
• Maturity extended to November 2024(2) (from May 2022)
• Interest rate increased to L+ 475 bps (from L + 400 bps)
• Paydown / Fees(3):
‒ Approximately 12.6% paydown (up to $200 million) paid pro rata on extending Term Loan
‒ 25 bps extension fee
New 1.5L
Secured Notes
• ~$695 million(4) of new 1.5L Secured Notes comprised of (i) $200 million of new money, (ii) ~$305 million of Unsecured
Notes exchange and (iii) ~$191 million HoldCo Term Loan exchange
• Interest Rate of 8.0%
• Matures in November 2024(2)
Unsecured
Notes
• ~$305 million exchanged into new 1.5L Notes; approximately $95 million stub with May 2024 maturity remains
outstanding
HoldCo Term
Loan
• Maturity addressed through November 2024(2) (from April 2022) and interest rate reduced to 8.0% (from 11.0%)
through (i) exchange into New 1.5L Secured Notes, or at the Company’s discretion and (ii) paydown from balance
sheet cash or proceeds from the issuance of additional 1.5L Secured Notes
(1) Final terms of Revolver extension subject to ongoing negotiation.
(2) Subject to a springing maturity to 90 days prior to the maturity date on the Unsecured Notes if the
aggregate principal amount of Unsecured Notes that remain outstanding on such date exceeds $65 million.
(3) Fee and portion of paydown provided to Term Loan lenders that provide consent by the Early
Consent deadline. See page 13 for detailed timeline.
(4) Amount of new 1.5L Secured Notes issued may be increased or decreased at Company
discretion.
Summary and Subject to Terms of Definitive Documentation
Pro Forma Capital StructureThe Transaction will address upcoming maturities and reduce First Lien leverage
without materially increasing total leverage or cash interest expense
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(1) November 2024 maturities are subject to a springing maturity to 90 days prior to the maturity date on
the Unsecured Notes if the aggregate principal amount of Unsecured Notes that remain outstanding
on such date exceeds $65 million.
(2) Amount of new 1.5L Secured Notes issued may be increased or decreased at Company discretion.
(3) For modeling purposes, assumes HoldCo TL is exchanged into 1.5L Notes. Company has flexibility to
paydown with balance sheet cash and / or new money in the form of additional 1.5L Secured Notes.
(4) Cash adjustment does not reflect any accrued and unpaid interest that will be paid on the Term Loan,
Unsecured Notes, and HoldCo Term Loan prior to closing; such amount to be calculated prior to closing. McGraw Hill |
Capital Structure as of 11/30/2020 (excl. RCF and Securitization Facilities) Pre-Transaction Adjustments Pro Forma
Interest Adj. Cash Adj. Cash
($ in millions) Maturity⁽¹⁾ Rate Principal EBITDA (x) Interest Principal EBITDA (x) Interest
1L Term Loan May-22 L+400 1,595 80 (1,595) – –
New Extended 1L Term Loan Nov-24 L+475 – – 1,395 1,395 80
Total 1L Debt $1,595 3.8x $80 ($200) $1,395 3.3x $80
Net First Lien Debt 2.6x 2.2x
New 1.5L Secured Notes Nov-24 8.00% – – 695 ⁽²⁾ 695 56
Total Secured Debt $1,595 3.8x $80 $495 $2,090 4.9x $136
Net Secured Debt 2.6x 3.9x
Unsecured Notes May-24 7.875% 400 32 (305) 95 7
Total Operating Company Debt $1,995 4.7x $111 $191 $2,186 5.1x $143
Net Operating Company Debt 3.6x 4.1x
HoldCo Term Loan Apr-22 11.00% / PIK 11.75% 191 21 (191)⁽³⁾ – –
Total Debt $2,186 5.1x $132 – $2,186 5.1x $143
(‒) Cash Balance (as of 11/30/2020) (478) 37 ⁽⁴⁾ (441)
Net Debt $1,708 4.0x $132 37 $1,745 4.1x $143
Memo: September LTM Adjusted EBITDA + Actioned Cost Savings 425 425
Summary and Subject to Terms of Definitive Documentation
Transaction Sources & Uses
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Note: Excludes any extension fees in connection with the RCF extension.
(1) For modeling purposes, assumes HoldCo TL is exchanged into 1.5L Notes.
McGraw Hill |
($ in millions)
Sources and Uses
Sources Uses
1L Extended Term Loan $1,395 Retirement of 2022 1L Term Loan $1,595
New 1.5L Secured Notes (New Money) 200 Partial Retirement of Unsecured Notes 305
New 1.5L Secured Notes (Unsecureds Exch. Portion) 305 Retirement of HoldCo Term Loan 191
New 1.5L Secured Notes (HoldCo Exch. Portion)⁽¹⁾ 191 1L Extended Term Loan Amendment Fee 3
Balance Sheet Cash 37 New 1.5L Secured Notes Upfront Fee 8
HoldCo Term Loan Consent Fee 10
Estimated Professional Fees 15
Total Sources $2,127 Total Uses $2,127
Summary and Subject to Terms of Definitive Documentation
7
Fees /
Paydown(1)
• 25 bps paid in cash at closing on Extending Term Loans
• Approximately 12.6% pro rata paydown (up to $200 million) on Extending Term Loans
Borrower • McGraw Hill LLC (f/k/a McGraw-Hill Global Education Holdings, LLC)
Maturity
• November 1, 2024 on Extending Term Loans (subject to a springing maturity to 90 days prior to the maturity date on the Unsecured Notes
if the aggregate principal amount of Unsecured Notes that remain outstanding on such date exceeds $65 million)
• RCF extension through November 2023
Rate• L + 475 bps in cash (payable from amendment through extended maturity)(2)
• 1.0% LIBOR Floor
Amortization • 1.0% per annum
Call Protection• Soft Call (e.g., 102 / 101 / Par)
‒ No call premium for M&A related refinancing
Security • First Lien
Collateral• Same as existing Collateral, plus a 100% stock pledge of first tier foreign subsidiaries (rather than a 65% stock pledge of the first tier
foreign subsidiaries as set forth in the existing Credit Agreement)
Ratings
Requirement
• Company to use commercially reasonable efforts to facilitate Extended Term Loan rating(s)
‒ Company has worked proactively with ratings agencies ahead of a launch
Participation
Requirement• Minimum consent threshold of 95% of existing Term Loan
McGraw Hill |
Key Economic Terms – Amended & Extended Term Loan
(1) Fee and paydown provided to Term Loan lenders that provide consent by the Early Consent deadline. See page 13 for detailed timeline.
(2) Applicable rate also applies to the extended Revolving Credit Facility.
Summary and Subject to Terms of Definitive Documentation
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Borrower • McGraw Hill LLC (f/k/a McGraw-Hill Global Education Holdings, LLC)
New Instrument• ~$695 million(1) of new 1.5L Secured Notes comprised of (i) $200 million of new money, (ii) ~$305 million of Unsecured Notes exchange
and (iii) ~$191 million HoldCo Term Loan exchange
Maturity• November 30, 2024 (subject to a springing maturity to 90 days prior to the maturity date on the Unsecured Notes if the aggregate principal
amount of Unsecured Notes that remain outstanding on such date exceeds $65 million)
Rate • 8.0% in cash, payable semi-annually
Fees on New
Money• 4.0% Upfront Fee
Call Protection • 102 / 101 / Par
Security • 1.5L on all assets of the borrower and its subsidiaries that secure the Extended Term Loan
Use of Proceeds • Used for general corporate purposes, including but not limited to, to provide par paydown to consenting Term Loan lenders
Other • New Money providers will commit to participate 100% of Term Loan holdings in the Term Loan extension
McGraw Hill |
Key Economic Terms – New 1.5L Secured Notes
(1) Amount of new 1.5L Secured Notes issued can be increased or decreased at Company discretion.
Summary and Subject to Terms of Definitive Documentation
9
0 Existing Credit Agreement Modified Credit Agreement
Ge
ne
ral M
od
ific
ati
on
s
Unrestricted
Subsidiaries
• Concept present in existing document • Removed (no Unrestricted Subsidiaries concept)
Reporting
Covenants
• Quarterly and annual financial statements • Quarterly and annual financial statements
• Customary quarterly public-side investor calls with Q&A
ECF Sweep
• 50% with ratio based stepdowns • 50% with no stepdowns
Events of
Default
• Material Indebtedness Threshold: $100 million • Material Indebtedness Threshold: $50 million
De
bt
an
d L
ien
s
Accordion
• Dollar prong: $425 million
• Ratio prong: Net First Lien Leverage Ratio is not greater than
2.75x and in the case of junior debt, the Net Secured Leverage
Ratio is not greater than 3.00x
• 18-months MFN for pari passu term loans (expired 11/4/2017)
• Dollar prong: $350 million less outstanding revolver
commitments at any time
• Ratio prong: Removed
• Pari passu term loans incurred under $350 million basket
subject to MFN (50 bps cushion; no sunset)
• Pari passu debt cannot be used to repurchase or refinance
Unsecured Notes
Non-
Exchanging
Unsecured
Notes
• N / A • Permit refinancing debt in respect of the non-exchanging
unsecured notes, which may be secured by junior liens on the
collateral or unsecured
McGraw Hill |
Credit Agreement ModificationsGeneral Modifications and Debt and Lien Baskets
Lenders in the Extended Term Loan, Revolver and New 1.5L Secured Notes will benefit from the credit agreement modifications below.
Summary and Subject to Terms of Definitive Documentation
10
Existing Credit Agreement Modified Credit Agreement
De
bt
an
d L
ien
s
Ratio Debt /
Liens
• Pari passu debt if Net First Lien Leverage Ratio is not greater
than 2.75x
• Junior lien debt if Net Secured Leverage Ratio not greater than
3.00x
• Other debt if Net Total Leverage Ratio is not greater than 4.50x
• Cap of greater of $250 million and 0.5x EBITDA for debt of non-
Guarantor subs
• Removed pari passu ratio capacity
• Same as existing for junior lien debt
• Same as existing for Unsecured debt
• Removed non-guarantor sublimit; debt may only be incurred by
guarantors
Capital Lease /
Purchase
Money Debt /
Liens
• Greater of $200 million and 0.4x EBITDA plus an additional
amount so long as Total Net Leverage Ratio is not greater than
2.75x
• $50 million
General Debt /
Liens
• Greater of $300 million and 0.6x EBITDA • $75 million, provided it may only be used by Loan Parties
Non-Guarantor
Debt / Liens
• Greater of $150 million and 0.3x EBITDA • $45 million
Acquisition
Debt / Liens
• Same as ratio debt / liens above (or accretive)
• Non-guarantor sublimit: greater of $250M and 0.5x EBITDA
• Same as existing
• Delete non-guarantor sublimit; acquisition debt may only be
incurred by guarantors
JV Debt / Liens • Greater of $150 million and 0.3x EBITDA • Removed
Permitted
Securitizations
• Uncapped • $200 million cap on any permitted securitization
McGraw Hill |
Credit Agreement Modifications (Cont’d)Debt and Lien Baskets
Lenders in the Extended Term Loan, Revolver and New 1.5L Secured Notes will benefit from the credit agreement modifications below.
Summary and Subject to Terms of Definitive Documentation
11
` Existing Credit Agreement Modified Credit Agreement
Inve
stm
en
ts
Permitted
Business
Acquisition
Basket – Non-
Guarantor
Subsidiary
Sublimit
• Greater of $400 million and 0.8x EBITDA • $75 million
General
Investment
Basket
• Greater of $150 million and 0.3x EBITDA, plus may use any
available Cumulative Credit builder basket
• $75 million
Investments in
JVs
• Unlimited if Net Total Leverage Ratio is < 3.00x, but if > 3.00x
then greater of $150 million and 0.3x EBITDA
• Removed
Investments in
Unrestricted
Subsidiaries
• Greater of $150 million and 0.3x EBITDA • Removed; no concept of Unrestricted Subsidiaries
Investments in
Similar
Business
• Greater of $150 million and 0.3x EBITDA • Removed
Intercompany
Investments –
Non-Guarantor
Subsidiary
Limit
• Unlimited if Net Total Leverage Ratio is < 3.00x, but if > 3.00x
then greater of $100 million and 0.2x EBITDA
• $25 million
• Removed 6.04(u) (additional non-guarantor subsidiary
investment basket)
Ratio
Investments
• Net Total Leverage Ratio < 3.00x • Removed
McGraw Hill |
Credit Agreement Modifications (Cont’d)Investment Baskets
Lenders in the Extended Term Loan, Revolver and New 1.5L Secured Notes will benefit from the credit agreement modifications below.
Summary and Subject to Terms of Definitive Documentation
12
Existing Credit Agreement Modified Credit Agreement
Re
str
icte
d P
aym
en
ts
General RP
Basket
• Greater of $100 million and 0.2x EBITDA • $10 million, provided cannot be used for dividends to the
Sponsor
“Cumulative
Credit” Builder
Basket for RPs
and
Investments
• Builder based on retained Excess Cash Flow commencing with
fiscal year 2016
• Usage for RPs and restricted debt payments subject to no EoD
• Removed builder basket concept
Ratio RP
Basket
• Net Total Leverage Ratio < 3.0x • Removed
Management
Equity Baskets
• $25 million per FY (increasing to $50 million after a Qualified
IPO), with unlimited carry forward
• Removed
General
Subordinated
Debt
Prepayment
Baskets
• Greater of $50 million and 0.1x EBITDA
• Net Total Leverage Ratio < 3.0x
• May use any available Cumulative Credit, subject to no EoD
• $25 million
• Removed ratio carveout
• Removed builder basket
As
set
Sa
les
De Minimis
Basket
• Single transaction carve-out of $15 million and annual carve-out
of $40 million (plus additional amounts if ratio satisfied)
• $10 million per single transaction
• $30 million per FY
Designated
Non-cash
Consideration
• Greater of $150 million and 0.3x EBITDA • $75 million
McGraw Hill |
Credit Agreement Modifications (Cont’d)Restricted Payment Basket and Asset Sales
Lenders in the Extended Term Loan, Revolver and New 1.5L Secured Notes will benefit from the credit agreement modifications below.
Summary and Subject to Terms of Definitive Documentation
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Date Final Terms
Launch Transaction December 15th
Solicit Consent December 15th through December 30th
Early Consent Deadline December 22nd
Consent Deadline December 30th
Deadline to Close
TransactionJanuary 15th
McGraw Hill |
Term Loan Extension Transaction Timeline
Dec-20 Jan-21
S M T W T F S S M T W T F S
1 2 3 4 5 1 2
6 7 8 9 10 11 12 3 4 5 6 7 8 9
13 14 15 16 17 18 19 10 11 12 13 14 15 16
20 21 22 23 24 25 26 17 18 19 20 21 22 23
27 28 29 30 31 24 25 26 27 28 29 30
31
Launch Transaction Deadline to Close Transaction
Early Consent Deadline Holiday
Consent Deadline
Summary and Subject to Terms of Definitive Documentation
14McGraw Hill |
Key Contact & Other Additional Information
Signature Pages(1)
Transaction
Documentation
Key Contacts
Please direct all Transaction Questions to:
Please direct all questions on the Transaction documentation (or any other legal questions) to:
Please indicate your election online via LendAmend or by submitting an executed signature page
no later than 5:00 P.M. New York City time on December 22, 2020 (the Early Consent Deadline)(2)
to:
Josh Abramson
PJT Partners
(917) 328-0877
Vinit Kothary
PJT Partners
(732) 983-8304
Catherine Goodall
Paul, Weiss
(212) 373-3919
LendAmend
+1 (646) 453-2812 or +1 (646) 453-2834
Paul Sheaffer
PJT Partners
(646) 402-4943
Danielle Penhall
Paul, Weiss
(212) 373-3265
(1) Signature page (Consent to Incremental Assumption and Amendment Agreement) can be found in the Posting Memorandum on SyndTrak.
(2) Consent must be provided by 5:00 P.M. New York City time on December 22, 2020 in order to receive the extension fee and paydown contemplated herein.