Long-term Debt and Other Borrowings, Net

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

Long-term Debt and Other Borrowings, Net

7. LONG-TERM DEBT AND OTHER BORROWINGS, NET

Long-term debt and other borrowings consisted of the following as of:

(In millions)	Maturity Date	Rate as of December 31, 2021		December 31, 2021		December 31, 2020
Credit Facility
Revolving line of credit	February 2024	—	%	$	—	$	—
Term loan	February 2024	1.9	%	1,050		1,080
Other borrowings (a)				8		7
Total debt and other borrowings				1,058		1,087
Less: current maturities				(32)		(1)
Total Long-term debt and other borrowings				$	1,026	$	1,086
Less: unamortized debt discount				(12)		(18)
Total Long-term debt and other borrowings, net				$	1,014	$	1,068

(a) As of December 31, 2021 and 2020, other borrowings include a loan payable of $6 million along with finance lease obligations of $2 million and $1 million, respectively.

Credit Facility

Our Credit Facility is comprised of the following:

(In millions)	Total Amount		Amount Available as of December 31, 2021
Term loan facility	$	1,200	$	1,050
Revolving line of credit (a)	300		298
Total Credit Facility (b)	$	1,500	$	1,348
(a) Letters of credit reduce our borrowing capacity under the revolving line of credit. At December 31, 2021, we had $2 million for letters of credit outstanding against the total $35 million sub-limit available.
(b) For the years ended December 31, 2021, 2020 and 2019, we paid $0 million, $4 million, and $24 million, respectively of debt issuance costs related to the Credit Facilities, respectively. Debt issuance costs is deferred and amortized on an effective yield basis to interest expense.

On February 7, 2019, we entered into a syndicated credit agreement with a five-year term primarily to pay a dividend to our Former Parent, as well as provide funding for working capital and general corporate purposes. In February 2020, the Credit Facility was amended, and the revised terms are reflected below. The term loan facility and revolving line of credit bear interest on a floating rate basis at our option, according to a leverage-based pricing grid and incur fees as follows:

•USD LIBOR (for one-month, two-month, three-month, six-month and potentially nine-month and 12-month tenors) subject to a floor of 0.00%

◦plus, an applicable margin ranging from 1.25% to 2.50% annually based on our leverage ratio at the end of the prior quarter.

•Alternative base rate determined as 1.00% plus the highest of the Prime Rate, Federal Funds Rate plus 0.50%, or one-month USD LIBOR

◦plus, an applicable margin ranging from 0.25% to 1.50% annually based on our leverage ratio at the end of the prior quarter.

•Unused capacity under the revolving line of credit loan incurs a fee ranging from 0.175% to 0.400% per annum based on our leverage ratio at the end of the prior quarter.

•Additionally, customary letter of credit fees, as well as fronting fees, are incurred for letters of credit outstanding.

Over the past two years, regulators, including the Board of Governors of the Federal Reserve System, OCC, FDIC, and the FCA, advocated that companies and financial institutions stop using LIBOR as a borrowing basis. Following December 31, 2021, one-week and two-month USD LIBOR, as well as all non-USD LIBOR tenors, ceased publication immediately, while three-month, six-month, and one-year USD LIBOR will cease publication after June 30, 2023. As a result, in lieu of amending or waiving any term of the Credit Facility, we notified the administrative agent to the Credit Facility that non-USD currencies would not be available to us either as a revolving line of credit or term loan facility borrowing, and further we suspended our rights to borrow at the two-month USD LIBOR tenor until such time as the Credit Facility is amended with an alternative benchmark rate to USD LIBOR.

The applicable margins on USD LIBOR and alternative base rate borrowings fluctuated over the course of 2021 dependent on a pricing grid based on our consolidated net total leverage ratio as defined in the Credit Facility. As of December 31, 2021, the applicable margins on LIBOR and alternative base rate borrowings were 1.75% and 0.75%, respectively, for both the term loan facility and revolving line of credit. The commitment fee for the revolving line of credit as of December 31, 2021 was 0.25%.

Starting March 31, 2020, the term loan facility began amortizing in quarterly installments equal to 5.00% per annum of the initial borrowed amount and requires full payment at maturity of all remaining amounts owed. No amortizing payments are required for the revolving line of credit, however all amounts owed are due at maturity. We have the option to prepay both the term loan facility and revolving line of credit without penalty, subject to certain conditions. If the aggregate balance of loans outstanding exceeds the lender's commitments made to the revolving line of credit at any time, then the amount of such excess is required to be repaid. Mandatory prepayments of the term loan facility are required in an amount equal to the net cash proceeds of, subject to specific conditions, (i) certain assets sales, (ii) certain debt offerings, and (iii) certain insurance recovery and condemnation events.

Additionally, the Credit Facility limits or restricts our ability, subject to certain exceptions, to:

•Incur additional indebtedness

•Make dividends and other restricted payments

•Incur additional liens

•Consolidate, merge, sell, or otherwise dispose of all or substantially all assets

•Make investments

•Transfer or sell assets

•Enter into restrictive agreements

•Change the nature of the business

•Enter certain transactions with affiliates

In December 2021, we prepaid $30 million of our scheduled 2022 term loan facility amortization payments. The next mandatory quarterly principal amortization term loan facility payment of $15 million is due on September 30, 2022.

Compliance and Covenants

Based on the revised schedule contained in the 2020 amendment to our Credit Facilities, we are required to remain compliant with a Credit Facilities-defined leverage covenant that is currently set at 4.50x, which will be reduced to 3.75x as of June 30, 2022 through maturity of the Credit Facilities in February 2024. The decrease in this particular financial covenant and our required compliance may influence our investment decisions.

We continuously monitor our compliance with the terms and conditions of our Credit Facility and take such actions as are necessary to attain and ensure compliance. We were in compliance with all financial covenants as of and for the year ended December 31, 2021.

The Credit Facility is guaranteed by Covetrus, the subsidiary borrower, and its subsidiary guarantors. We have pledged substantially all tangible and intangible assets, as well as our ownership interests in certain subsidiary companies, in support of the Credit Facility.

Long-term debt maturities and Other borrowings

The following table presents the maturities of our long-term debt and other borrowings, net as of December 31, 2021:

(In millions)	Credit Facility		Other Borrowings		Total Repayments
2022	$	30	$	2	$	32
2023	60		6		66
2024	960		—		960
2025	—		—		—
Total debt maturities	$	1,050	$	8	$	1,058