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

Quarterly report pursuant to Section 13 or 15(d)

Debt

Debt

6 Months Ended

Mar. 31, 2021

Long-term debt at March 31, 2021 and September 30, 2020 consisted of the following:


	March 31, 2021		September 30, 2020
Revolving credit facilities	$	367,352	$	416,793
Securitization facility	97,590		67,700
Senior secured term loan	—		22,359
2025 Senior Notes	297,526		297,256

Other borrowings	12,022		20,742
Finance lease obligations	7,993		9,684
	782,483		834,534
Less current maturities	(4,274)		(26,824)
	$	778,209	$	807,710

The Company has a domestic credit facility with a syndicate of financial institutions that includes a $750,000 senior secured revolving credit facility, which matures in March 2025, and a $35,000 senior secured amortizing term loan. The senior secured amortizing term loan was paid in full in March 2021. A portion of the revolving credit facility (not to exceed $350,000) can be drawn in foreign currencies. Borrowings under the revolving credit facility bear interest at LIBOR (Euro LIBOR for balances drawn in Euros) plus a factor ranging from 0.75% to 2.00% (1.25% at March 31, 2021) 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 domestic credit facility. Unamortized costs were $2,481 and $2,734 at March 31, 2021 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 March 31, 2021 and September 30, 2020 were $250,000 and $257,439, respectively. Outstanding Euro denominated borrowings on the revolving credit facility at March 31, 2021 and September 30, 2020 were €97.0 million ($113,764) and €117.0 million ($137,188), respectively. There were no outstanding borrowings on the term loan as of March 31, 2021. Outstanding borrowings on the term loan at September 30, 2020 were $22,359. 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 March 31, 2021 and March 31, 2020 was 2.17% and 2.40%, 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 $2,474 and $2,744 at March 31, 2021 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 March 31, 2021 and September 30, 2020 were $97,590 and $67,700, respectively. At March 31, 2021 and 2020, the interest rate on borrowings under this facility was 0.86% and 1.74%, 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:


	March 31, 2021			September 30, 2020
Pay fixed swaps - notional amount	$	250,000		$	312,500
Net unrealized loss	$	(2,905)		$	(7,792)
Weighted-average maturity period (years)	2.7			2.6
Weighted-average received rate	0.11		%	0.15		%
Weighted-average pay rate	1.34		%	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, net of unrealized gains, of $2,905 ($2,194 after tax) at March 31, 2021 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 March 31, 2021, a loss (net of tax) of approximately $1,772 included in AOCI is expected to be recognized in earnings over the next twelve months.

At March 31, 2021 and September 30, 2020, the interest rate swap contracts were reflected in the Consolidated Balance Sheets as follows:


Derivatives	March 31, 2021		September 30, 2020
Current assets:
Other current assets	$	78	$	—
Long-term assets:
Other assets	393		—
Current liabilities:
Other current liabilities	(2,425)		(3,164)
Long-term liabilities:
Other liabilities	(951)		(4,628)
Total derivatives	$	(2,905)	$	(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				Amount of (Loss) Gain Recognized in Income on Derivatives


		Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020
Interest rate swaps	Interest expense	$	(751)	$	182	$	(1,654)	$	546

Note 7. Debt (continued)

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


Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) 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*)
	March 31, 2021		March 31, 2020			March 31, 2021		March 31, 2020
Interest rate swaps	$	2,441	$	(3,739)	Interest expense	$	(1,249)	$	412
*There is no ineffective portion or amount excluded from effectiveness testing.

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 ($29,321), which includes €8.0 million ($9,383) for bank guarantees. The credit facility matures in December 2021 and the Company intends to continue to extend this facility. Outstanding borrowings under the credit facility totaled €3.1 million ($3,587) and €18.9 million ($22,166) at March 31, 2021 and September 30, 2020, respectively. The weighted-average interest rate on outstanding borrowings under this facility at March 31, 2021 and 2020 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 $4,852 (net of income taxes of $1,575) 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 March 31, 2021 and September 30, 2020, respectively.

As of March 31, 2021 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 March 31, 2021.