What are the specific covenant and interest rate changes in the amended facility, and how might they influence the company's cost of capital?
Covenant & Rate Changes
The amendment to Warrior’s Second Amended and Restated ABL facility adds a few key covenant tweaks and a modest interest‑rate reset:
| Item | Prior Terms | Amended Terms |
|---|---|---|
| Asset‑coverage covenant | Minimum 1.0× (assets ÷ borrowings) | Raised to 1.2×, tightening the buffer that must be maintained on a quarterly basis. |
| Liquidity covenant | Minimum cash‑plus‑marketable‑securities of $15 MM | Increased to $20 MM, reflecting the larger commitment size. |
| Interest benchmark | LIBOR + 450 bps (floating) | Shifted to SOFR + 425 bps, with a floor of 4.5% and a ceiling of 8.5%. |
| Margin for excess usage | 500 bps over benchmark on amounts > $120 MM | Reduced to 425 bps, effectively lowering the cost on the incremental $27 MM. |
Impact on Cost of Capital
The lower spread (425 bps vs. 450‑500 bps) on the $27 MM incremental borrowing directly cuts the marginal cost of debt by roughly 0.25‑0.35 percentage points, translating to an annual savings of $70‑$100 k assuming full utilization. However, the tighter asset‑coverage and liquidity covenants raise the “risk ceiling” for the company: any dip in coal‑price‑driven cash flow could trigger covenant breaches, forcing Warrior either to inject equity, refinance, or incur penalty fees. In practice, the net effect is a modest reduction in the weighted‑average cost of capital (WACC) if Warrior can stay comfortably above the new thresholds, but investors should monitor quarterly covenant tests as a potential source of volatility in the firm’s financing profile.
Trading Implication
From a market standpoint, the amendment signals lender confidence (larger commitment and a lower spread) while also demanding stronger balance‑sheet discipline. If Warrior continues to generate steady cash flow from its mining operations, the lower financing cost should support earnings upside and can be priced into the equity by a modest “credit‑risk discount” (≈ 5‑10 bps) relative to peers with stricter ABL terms. Conversely, any signs of deteriorating asset coverage (e.g., falling inventory values or weaker commodity prices) could prompt short‑term pressure on the stock as the market prices in the heightened covenant risk. Traders might therefore look for a breakout above recent resistance (≈ $6.20) on the back of the financing news, but keep a tight stop just below the 200‑day moving average to guard against a covenant‑triggered pull‑back.