Digi International, a global provider of business and mission critical Internet of Things (IoT) products, services and solutions, entered into a new senior secured credit facility.
The new bank debt provides Digi a $250 million senior secured revolving credit facility with an accordion feature that provides for additional borrowing capacity of the greater of $95 million or 100% of trailing 12-month adjusted EBITDA. The new facility replaces the existing Term B loan, which had a balance of $214 million. With an initial interest rate of SOFR + 250 bps on the revolver, Digi expects to save 300 bps on interest annually. Digi estimates this will save approximately $4 million in interest payments over the first year of the facility.
“We’re thrilled to work closely with our key banking relationships to save millions in interest annually with this new facility,” Jamie Loch, executive vice president, CFO and Treasurer at Digi, said. “After taking into account the costs to put this facility in place, we expect to see positive net cash from the transaction over the next three months. This facility will provide us with more flexibility to support our growth initiatives, both organically and inorganically. We remain committed to aggressively paying down this debt and delivering strong financial results in FY24.”
Subject to the terms of the new facility, Digi may use borrowings for working capital, capital expenditures, restricted payments, acquisitions and other general corporate purposes.
Lenders for the facility include BMO Bank, as administrative agent, Bank of America and MUFG Bank.
Key covenants on the revolver include a maximum total net leverage ratio of 3.0x and minimum interest coverage of 3.0x. Based on Digi’s September 30, 2023 financial results, the company is comfortably in compliance with these covenants.
Impact on First Fiscal Quarter GAAP Results
The reduced interest due under the new credit facility is anticipated to generate positive net cash flow in fiscal 2024. However, due to a one-time non-cash charge associated with previously incurred expenses relating to the Term B loan that were being amortized over the term of that debt, the entry into the new credit facility will have a negative impact on the company’s GAAP net income per share in its fiscal first quarter of an estimated $0.26 per weighted average diluted share, assuming a share count of 37.5 million shares.
