Subsequent events

6 Months Ended

Jul. 31, 2019

Subsequent Events [Abstract]

Subsequent events

Subsequent events

Merger with WageWorks

On August 30, 2019, the Company closed the Merger with WageWorks for $51.35 per share in cash, or approximately $2.0 billion in the aggregate. As a result of the Merger, the Company's investment in the common stock of WageWorks was canceled. In addition, the Company assumed and converted into Company equity awards approximately 0.5 million outstanding equity awards to WageWorks employees. The Company financed the cash transaction through a combination of $805.4 million cash on hand plus net borrowings of approximately $1.22 billion, after deducting lender fees of approximately $30.0 million, under the term loan facility described below.

New Credit Agreement

In connection with the closing of the Merger on August 30, 2019, the Company entered into a new $1.6 billion Credit Agreement, which replaced the Prior Credit Agreement, consisting of (i) a five-year senior secured term loan A facility in the aggregate principal amount of $1.25 billion, the net proceeds of which were used by the Company to finance the Merger and related transactions, and (ii) a five-year senior secured revolving credit facility in an aggregate principal amount of up to $350 million, which may be used for working capital and general corporate purposes, including the financing of acquisitions and other investments.

Subject to the terms and conditions set forth in the Credit Agreement (including obtaining additional commitments from one or more new or existing lenders), the Company may in the future incur additional loans or commitments under the Credit Agreement in an aggregate principal amount of up to $300 million, plus an additional amount so long as the Company's pro forma secured net leverage ratio would not exceed 3.85 to 1.00 as of the date such loans or commitments are incurred.

Borrowings under the Credit Agreement will bear interest at an annual rate equal to, at the option of the Company, either (i) LIBOR (adjusted for reserves) plus a margin ranging from 1.25% to 2.25% or (ii) an alternate base rate plus a margin ranging from 0.25% to 1.25%, with the applicable margin determined by reference to a leverage-based pricing grid set forth in the Credit Agreement.

The loans made under the term loan facility will amortize in equal quarterly installments in an aggregate annual amount equal to the following percentage of the original principal amount of the term loan facility: (i) 2.5% for the year commencing August 30, 2019; (ii) 5.0% for each of the years during the two-year period commencing August 30, 2020; (iii) 7.5% for the year commencing August 30, 2022; and (iv) 10.0% for the year commencing August 30, 2023.

The Credit Agreement contains customary affirmative and negative covenants, including covenants related to the following subjects: mergers, and sales of assets; limitations on the incurrence of certain liens; limitations on certain indebtedness; limitations on the ability to pay dividends; and certain affiliate transactions, in each case, subject to customary exceptions and “baskets.”

In addition, the Credit Agreement contains financial performance covenants, which require the Company to maintain (i) a maximum total net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 5.25 to 1.00, which steps down to (x) 5.00 to 1.00 beginning with the fiscal quarter ending July 31, 2020 and (y) 4.50 to

Note 11. Subsequent events (continued)

1.00 beginning with the fiscal quarter ending July 31, 2021 (subject to a customary “acquisition holiday” provision that allows the maximum total net leverage ratio to increase to 5.00 to 1.00 for the four fiscal quarter period ending on or following the date of a permitted acquisition in excess of $100 million), and (ii) a minimum interest coverage ratio, measured as of the last day of each fiscal quarter, of no less than 3.00 to 1.00.

The obligations of the Company under the Credit Agreement are required to be unconditionally guaranteed by WageWorks and each of the Company's subsequently acquired or organized domestic subsidiaries and are secured by security interests in substantially all assets of the Company and the guarantors, in each case, subject to certain customary exceptions.