Financing Arrangements

12 Months Ended

Jul. 31, 2020

Long-term debt


	July 31,
	2020		2019
Revolving credit loans outstanding	$	399,000	$	43,000
Tranche A term loan outstanding	546,375		190,000
Unamortized debt issuance costs	(11,166)		(2,149)
Total long-term debt, net of unamortized debt issuance costs	934,209		230,851
Current portion of long-term debt	(7,375)		(10,000)
Long-term debt, net of unamortized debt issuance costs and excluding current portion	$	926,834	$	220,851

On June 28, 2018, we entered into a Fourth Amended and Restated Credit Agreement (the “2018 Credit Agreement”). The 2018 Credit Agreement refinanced our credit facility under the Third Amended and Restated Credit Agreement dated March 4, 2011, to include a $200,000 tranche A term loan and a $400,000 revolving credit facility. The 2018 Credit Agreement was set to expire on June 28, 2023.

First Amendment to Credit Agreement

On September 6, 2019, we entered into a First Amendment (the “First Amendment”), amending our Fourth Amended and Restated Credit Agreement. The First Amendment added a $400,000 delayed draw term loan facility (the “Delayed Draw Facility”), in addition to the existing tranche A term loan and existing revolving credit facility. The Delayed Draw Facility and a portion of the revolving credit facility were used to finance a portion of the cash consideration for our acquisition of Hu-Friedy. The remaining proceeds were used to refinance certain existing indebtedness of Cantel and Hu-Friedy, and to pay the fees and expenses incurred in connection therewith, as well as for working capital, capital expenditures and other corporate purposes.

Second Amendment to Credit Agreement

On May 11, 2020, we entered into a Second Amendment (the “Second Amendment”) further amending the Fourth Amended and Restated Credit Agreement (as amended, the “Amended Credit Agreement”). The Second Amendment’s principal changes include (i) increasing the maximum consolidated leverage ratio covenant for the fiscal quarter ended April 30, 2020 from 4.25x to 5.25x, (ii) suspending such financial maintenance covenant until October 31, 2021, (iii) maintaining a minimum liquidity (as defined in the Amended Credit Agreement) of at least $50,000 during the fiscal quarter ended July 31, 2020 and $75,000 during each of the following fiscal quarters ending with the fiscal quarter ending July 31, 2021, (iv) requiring us to maintain minimum consolidated EBITDA (as defined in the Amended Credit Agreement) for each period of four fiscal quarters ending on the last day of the fiscal quarters ended July 31, 2020 through July 31, 2021 and (v) limiting our ability to pay dividends and repurchase shares of our common stock during the period the consolidated leverage ratio and consolidated interest coverage ratio are suspended. We did not pay our semi-annual cash dividend on July 31, 2020.

Pursuant to the Amended Credit Agreement, subject to the satisfaction of certain conditions precedent, including the consent of the lenders, we may from time to time increase our borrowing capacity under the revolving credit facility by, or incur incremental term loans in, an aggregate amount not to exceed the sum of (i) the greater of (x) $300,000 or (y) an amount equal to two times our consolidated EBITDA, calculated on a pro forma basis, plus (ii) the aggregate principal amount of voluntary prepayments of the revolving loans and term loans, minus the aggregate principal amount of certain incremental secured indebtedness otherwise incurred.

The interest rates have been amended so that loans under the Amended Credit Agreement, until the third business day following the date on which a compliance certificate is delivered for the fiscal quarter ending October 31, 2021, bear interest at 2.00% above the base rate for base rate borrowings, or at 3.00% above LIBOR for LIBOR-based borrowings, and also provides for fees on the unused portion of the revolving credit facility at a rate of 0.50%. Thereafter, borrowings bear interest at rates ranging from 0.00% to 1.75% above base rate for base rate borrowings, or at rates ranging from 1.00% to 2.75% above LIBOR for LIBOR-based borrowings, depending on our consolidated leverage ratio, which is the consolidated ratio of total funded debt (minus certain unrestricted cash) to consolidated EBITDA. The Amended Credit Agreement also provides for fees on the unused portion of the revolving credit facility at rates ranging from 0.20% to 0.50%, depending on our consolidated leverage

ratio. Interest rates have also been amended to include a 1.00% floor on all borrowings. As of July 31, 2020, the average interest rate on our outstanding borrowings was approximately 4.00%.

The Amended Credit Agreement contains affirmative and negative covenants reasonably customary for similar credit facilities and is secured by (i) substantially all assets of Cantel and its U.S.-based subsidiaries, (ii) a pledge by Cantel and its U.S.-based subsidiaries that guarantees the obligations under the Amended Credit Agreement of all of the outstanding shares of its U.S.-based subsidiaries and 65% of the outstanding shares of certain of Cantel’s foreign-based subsidiaries and (iii) a guaranty by Cantel’s domestic subsidiaries. As of July 31, 2020, we were in compliance with all financial covenants under the Amended Credit Agreement.

During fiscal 2020, we made term loan A principal payments of $43,625, which includes a prepayment of $31,500 made during the fourth quarter in connection with our Amended Credit Agreement and issuance of convertible debt discussed below. The tranche A term loan is subject to principal amortization, with $7,375 due and payable in fiscal 2021, $29,500 due and payable in each of fiscal 2022, 2023 and 2024, with the remaining $450,500 due and payable at maturity on September 6, 2024. During fiscal 2019, we made term loan A principal payments of $10,000 and also settled $5,207 of debt which was assumed as part of the Omnia acquisition. On September 4, 2020, we repaid $75,000 of the revolving credit facility under the Amended Credit Agreement.

Convertible Debt


	July 31,
	2020		2019
Convertible debt principal amount	$	168,000	$	—
Unamortized original issue discount	(38,919)		—
Unamortized debt issuance costs	(4,246)		—
Total convertible debt, net of unamortized discount and debt issuance costs	$	124,835	$	—

On May 15, 2020, we issued $168,000 aggregate principal amount of 3.25% convertible senior notes due 2025 (the “Notes”) in a private placement, including pursuant to the grant to the initial purchasers of $140,000 aggregate principal amount of the Notes, an option to purchase up to an additional $28,000 aggregate principal amount of Notes. The private placement offering closed on May 15, 2020. The initial conversion price is $41.51 per share of common stock (based on an initial conversion rate of 24.0912 shares of common stock per $1,000 principal amount of Notes) and will be subject to adjustment if certain events occur. The net proceeds from this offering were approximately $162,977 (including net proceeds relating to the issuance of the additional Notes), after deducting the initial purchasers’ discount and before the cost of offering expenses. As required by the Amended Credit Agreement, we were required to apply at least 50% of the amount by which the net proceeds exceed $100,000, or $31,500, to the repayment of debt under our credit facilities in fiscal 2020. We intend to use the remaining proceeds for general corporate purposes.

The Notes are redeemable, in whole or in part, for cash at our option at any time, and from time to time, on or after May 17, 2023, in certain circumstances at a redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. In addition, in certain limited circumstances, note holders may require us to repurchase their Notes for cash for a repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the applicable repurchase date. The Notes indenture does not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of its subsidiaries. The Notes indenture contains customary terms and covenants and events of default.

Due to the cash conversion feature included in the Notes, the carrying value of the Notes is allocated between a liability and an equity component. Upon issuance, the liability component of the convertible debt was $123,346, net of a $40,289 discount and net of debt issuance costs of $4,365. The initial carrying value of the equity component recorded in additional paid-in-capital was $29,184, net of a $10,072 deferred tax liability, $1,377 of debt issuance costs and a $344 deferred tax asset. The $40,289 debt discount and $4,365 of debt issuance costs are amortized as non-cash interest expense over the contractual term of the convertible debt using the effective interest method, at a rate of 9.36%. Cash interest for fiscal 2020 was $1,168.