Matthews International Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Debt

Debt

3 Months Ended

Dec. 31, 2020

Long-term debt at December 31, 2020 and September 30, 2020 consisted of the following:


	December 31, 2020		September 30, 2020
Revolving credit facilities	$	413,483	$	416,793
Securitization facility	64,300		67,700
Senior secured term loan	22,406		22,359
2025 Senior Notes	297,391		297,256

Other borrowings	18,112		20,742
Finance lease obligations	8,939		9,684
	824,631		834,534
Less current maturities	(26,826)		(26,824)
	$	797,805	$	807,710

The Company has a domestic credit facility with a syndicate of financial institutions that was amended and restated in March 2020. The amended and restated loan agreement includes a $750,000 senior secured revolving credit facility, which matures in March 2025, and a $35,000 senior secured amortizing term loan, which matures in July 2021. A portion of the revolving credit facility (not to exceed $350,000) can be drawn in foreign currencies. The term loan requires scheduled quarterly principal payments through its maturity date. Borrowings under both the revolving credit facility and the term loan bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75% to 2.00% (1.25% at December 31, 2020) based on the Company's secured leverage ratio. The secured leverage ratio is defined as net secured indebtedness divided by EBITDA (earnings before interest, income taxes, depreciation and amortization) as defined within the domestic credit facility agreement. The Company is required to pay an annual commitment fee ranging from 0.15% to 0.30% (based on the Company's leverage ratio) of the unused portion of the revolving credit facility. The Company incurred debt issuance costs in connection with the amended and restated agreement. Unamortized costs were $2,565 and $2,734 at December 31, 2020 and September 30, 2020, respectively.

The domestic credit facility requires the Company to maintain certain leverage and interest coverage ratios. A portion of the facility (not to exceed $35,000) is available for the issuance of trade and standby letters of credit. Outstanding U.S. dollar denominated borrowings on the revolving credit facility at December 31, 2020 and September 30, 2020 were $262,923 and $257,439, respectively. Outstanding Euro denominated borrowings on the revolving credit facility at December 31, 2020 and September 30, 2020 were €117.0 million ($143,507) and €117.0 million ($137,188), respectively. Outstanding borrowings on the term loan at December 31, 2020 and September 30, 2020 were $22,406 and $22,359, respectively. The weighted-average interest rate on the outstanding borrowings for the domestic credit facility (including the effects of interest rate swaps and Euro denominated borrowings) at December 31, 2020 and December 31, 2019 was 2.07% and 2.60%, respectively.

The Company has $300,000 of 5.25% senior unsecured notes due December 1, 2025 (the "2025 Senior Notes"). The 2025 Senior Notes bear interest at a rate of 5.25% per annum with interest payable semi-annually in arrears on June 1 and December 1 of each year. The Company's obligations under the 2025 Senior Notes are guaranteed by certain of the Company's direct and indirect wholly-owned domestic subsidiaries. The Company is subject to certain covenants and other restrictions in connection with the 2025 Senior Notes. The Company incurred direct financing fees and costs in connection with the 2025 Senior Notes. Unamortized costs were $2,609 and $2,744 at December 31, 2020 and September 30, 2020, respectively.

The Company has a $115,000 accounts receivable securitization facility (the "Securitization Facility") with certain financial institutions which matures in March 2022. Under the Securitization Facility, the Company and certain of its domestic subsidiaries sell, on a continuous basis without recourse, their trade receivables to Matthews Receivables Funding Corporation, LLC (“Matthews RFC”), a wholly-owned bankruptcy-remote subsidiary of the Company. Matthews RFC in turn assigns a collateral interest in these receivables to certain financial institutions, and then may borrow funds under the Securitization Facility. The Securitization Facility does not qualify for sale treatment. Accordingly, the trade receivables and related debt obligations remain on the Company's Consolidated Balance Sheet. Borrowings under the Securitization Facility bear interest at LIBOR plus 0.75%. The Company is required to pay an annual commitment fee ranging from 0.25% to 0.35% of the unused portion of the Securitization Facility. Outstanding borrowings under the Securitization Facility at December 31, 2020 and September 30, 2020 were $64,300 and $67,700, respectively. At December 31, 2020 and 2019, the interest rate on borrowings under this facility was 0.89% and 2.51%, respectively.

Note 7. Debt (continued)

The following table presents information related to interest rate contracts entered into by the Company and designated as cash flow hedges:


	December 31, 2020			September 30, 2020
Pay fixed swaps - notional amount	$	262,500		$	312,500
Net unrealized loss	$	(6,422)		$	(7,792)
Weighted-average maturity period (years)	2.8			2.6
Weighted-average received rate	0.14		%	0.15		%
Weighted-average pay rate	1.31		%	1.34		%

The Company enters into interest rate swaps in order to achieve a mix of fixed and variable rate debt that it deems appropriate. The interest rate swaps have been designated as cash flow hedges of future variable interest payments, which are considered probable of occurring. Based on the Company's assessment, all of the critical terms of each of the hedges matched the underlying terms of the hedged debt and related forecasted interest payments, and as such, these hedges were considered highly effective.

The fair value of the interest rate swaps reflected an unrealized loss of $6,422 ($4,849 after tax) at December 31, 2020 and an unrealized loss of $7,792 ($5,884 after tax) at September 30, 2020, that is included in shareholders' equity as part of accumulated other comprehensive income (loss) ("AOCI"). Assuming market rates remain constant with the rates at December 31, 2020, a loss (net of tax) of approximately $2,181 included in AOCI is expected to be recognized in earnings over the next twelve months.

At December 31, 2020 and September 30, 2020, the interest rate swap contracts were reflected in the Consolidated Balance Sheets as follows:


Derivatives	December 31, 2020		September 30, 2020




Current liabilities:
Other current liabilities	$	(2,889)	$	(3,164)
Long-term liabilities:
Other liabilities	(3,533)		(4,628)
Total derivatives	$	(6,422)	$	(7,792)

The (losses) gains recognized on derivatives were as follows:


Derivatives in Cash Flow Hedging Relationships	Location of (Loss) Gain Recognized in Income on Derivative	Amount of (Loss) Gain Recognized in Income on Derivatives


		Three Months Ended December 31,
		2020		2019
Interest rate swaps	Interest expense	$	(903)	$	364

The Company recognized the following (losses) gains in AOCI:


Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in AOCI on Derivatives				Location of (Loss) Gain Reclassified From AOCI into Income (Effective Portion*)	Amount of (Loss) Gain Reclassified from AOCI into Income (Effective Portion*)
	December 31, 2020		December 31, 2019			December 31, 2020		December 31, 2019
Interest rate swaps	$	353	$	566	Interest expense	$	(682)	$	275
*There is no ineffective portion or amount excluded from effectiveness testing.

Note 7. Debt (continued)

The Company, through certain of its European subsidiaries, has a credit facility with a European bank, which is guaranteed by Matthews. The maximum amount of borrowing available under this facility is €25.0 million ($30,664), which includes €8.0 million ($9,812) for bank guarantees. In the first quarter of fiscal 2021, the Company extended this facility to a current maturity of December 2021 and the Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled €5.8 million ($7,053) and €18.9 million ($22,166) at December 31, 2020 and September 30, 2020, respectively. The weighted-average interest rate on outstanding borrowings under this facility at December 31, 2020 and 2019 was 2.25% and 1.25%, respectively.

The Company uses certain foreign currency debt instruments as net investment hedges of foreign operations. Currency losses of $9,148 (net of income taxes of $2,968) and currency losses of $4,377 (net of income taxes of $1,420), which represent effective hedges of net investments, were reported as a component of AOCI within currency translation adjustment at December 31, 2020 and September 30, 2020, respectively.

As of December 31, 2020 and September 30, 2020, the fair value of the Company's long-term debt, including current maturities, which is classified as Level 2 in the fair value hierarchy, approximated the carrying value included in the Consolidated Balance Sheets. The Company was in compliance with all of its debt covenants as of December 31, 2020.