Debt

6 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

Debt

12. Debt

Long-term debt consisted of the following senior secured credit facility (in thousands):

	December 31,		June 30,		December 31,
	2020		2020		2019
Total debt:
Term B Loan	$	292,500	$	294,000	$	295,500
Revolver		—		—		125,000
Total principal payments due		292,500		294,000		420,500
Deferred debt issuance costs		(5,369)		(4,885)		(5,395)
Total amount outstanding		287,131		289,115		415,105
Less current portion:
Term B Loan		(3,000)		(3,000)		(3,000)
Noncurrent portion	$	284,131	$	286,115	$	412,105

Scheduled future maturities of long-term debt were as follows (in thousands):

	Maturity
Fiscal Year	Payments
2021 (remaining)	$	1,500
2022		3,000
2023		3,000
2024		3,000
2025		282,000
Total	$	292,500

On April 13, 2018, Adtalem entered into a credit agreement (the “Credit Agreement”) that provides for (1) a $300 million revolving facility (“Revolver”) with a maturity date of April 13, 2023 and (2) a $300 million senior secured Term B loan (“Term B Loan”) with a maturity date of April 13, 2025. We refer to the Revolver and Term B Loan collectively as the “Credit Facility.” The Revolver has availability for currencies other than U.S. dollars of up to $200 million and $100 million available for letters of credit. Subject to certain conditions set forth in the Credit Agreement, the Credit Facility may be increased by $250 million.

On December 4, 2020, Adtalem entered into Amendment No. 1 (the “Amendment”) to the Credit Agreement. The Amendment provides for, among other things, certain amendments to the Credit Agreement (i) to permit the issuance of up to $1 billion in debt securities by a newly formed wholly-owned “escrow” subsidiary of Adtalem, the proceeds of which issuance, if any, are expected to be held in escrow and used to finance a portion of the Acquisition and to pay transaction fees and expenses related thereto and (ii) to extend the time period Adtalem has to reinvest proceeds from the disposition of certain Brazilian assets of the Company before the Company is required to prepay the term loans under the Credit Agreement with such proceeds. The Acquisition would satisfy this reinvestment requirement.

Interest on the Term B Loan and the Revolver is set based on LIBOR, which is based on observable market transactions. The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it has commitments from panel banks

to continue to contribute to LIBOR through the end of calendar year 2021, but that it will not use its powers to compel contributions beyond such date. Various parties, including government agencies, are seeking to identify an alternative rate to replace LIBOR. Management is monitoring their efforts, and evaluating the need for an amendment to the Credit Agreement to accommodate a replacement rate. The Credit Agreement does not specify a replacement rate for LIBOR.

Term B Loan

For Eurocurrency rate loans, Term B Loan interest is equal to LIBOR or a LIBOR-equivalent rate plus 3%. For base rate loans, Term B Loan interest is equal to the base rate plus 2%. The Term B Loan amortizes in equal quarterly installments of $750,000, with the balance due at maturity on April 13, 2025. As of December 31, 2020, June 30, 2020, and December 31, 2019, the interest rate for borrowings under the Term B Loan facility was 3.15%, 3.18%, and 4.80%, respectively, which approximated the effective interest rate.

On March 24, 2020, we executed a pay-fixed, receive-variable interest rate swap agreement (the “Swap”) with a multinational financial institution to mitigate risks associated with the variable interest rate on our Term B Loan debt. We pay interest at a fixed rate of 0.946% and receive variable interest of one-month LIBOR (subject to a minimum of 0.00%), on a notional amount equal to the amount outstanding under the Term B Loan. The effective date of the Swap was March 31, 2020 and settlements with the counterparty occur on a monthly basis. The Swap will terminate on February 28, 2025. The Swap does not specify a replacement rate for LIBOR. Various parties, including government agencies, are seeking to identify an alternative rate to replace LIBOR. Management is monitoring their efforts, and evaluating the need for an amendment to the Swap to accommodate a replacement rate.

During the operating term of the Swap, the annual interest rate on the amount of the Term B Loan is fixed at 3.946% (including the impact of our current 3% interest rate margin on LIBOR loans) for the applicable interest rate period.

The Swap is designated as a cash flow hedge and as such, changes in its fair value are recognized in accumulated other comprehensive loss on the Consolidated Balance Sheet and are reclassified into the Consolidated Statements of Income within interest expense in the periods in which the hedged transactions affect earnings.

Revolver

Revolver interest is equal to LIBOR or a LIBOR-equivalent rate for Eurocurrency rate loans or a base rate, plus an applicable rate based on Adtalem’s consolidated leverage ratio, as defined in the Credit Agreement. The applicable rate ranges from 1.75% to 2.75% for Eurocurrency rate loans and from 0.75% to 1.75% for base rate loans. As of December 31, 2019, borrowings under the Revolver were $125 million with a weighted-average interest rate of 3.87%. There were no outstanding borrowings under the Revolver as of each of December 31, 2020 and June 30, 2020.

Adtalem had a letter of credit outstanding of $68.4 million as of each of December 31, 2020, June 30, 2020, and December 31, 2019. This letter of credit was posted in the second quarter of fiscal year 2017 in relation to a settlement with the Federal Trade Commission (“FTC”) and requires the letter of credit to be equal to the greater of 10% of DeVry University’s annual Title IV disbursements or $68.4 million for a five-year period. As of December 31, 2020, Adtalem is charged an annual fee equal to 2.25% of the undrawn face amount of the outstanding letters of credit under the Revolver, payable quarterly. Adtalem continues to post the letter of credit in relation to the settlement with the FTC on behalf of DeVry University and is reimbursed by DeVry University for 2.00% of the outstanding amount of this letter of credit. The Credit Agreement also requires payment of a commitment fee equal to 0.40% as of December 31, 2020, of the undrawn portion of the Revolver. The amount undrawn under the Revolver, which includes the impact of the outstanding letters of credit, was $231.6 million as of December 31, 2020. The letter of credit fees and commitment fees are adjustable quarterly, based upon Adtalem’s achievement of certain financial ratios.

Debt Issuance Costs

Adtalem incurred $9.9 million in fees that were capitalized in relation to the Credit Agreement, $7.1 million of which was related to the Term B Loan facility and $2.7 million of which was related to the Revolver facility. On December 4, 2020, Adtalem entered into Amendment No. 1 to the Credit Agreement and incurred an additional $1.7 million in fees that were capitalized in relation to the Credit Agreement, $1.0 million of which was related to the Term B Loan facility and $0.7 million of which was related to the Revolver facility. The deferred debt issuance costs related to the Term B Loan are

presented as a direct deduction from the face amount of the debt, while the deferred debt issuance costs related to the Revolver are classified as other assets, net on the Consolidated Balance Sheets. The deferred debt issuance costs amortization is recorded in interest expense in the Consolidated Statements of Income. The following table summarizes the total deferred debt issuance costs for the Term B Loan and Revolver, which are being amortized over seven years and five years, respectively (in thousands):

	Term B Loan		Revolver		Total
Deferred debt issuance costs as of June 30, 2020	$	4,885	$	1,516	$	6,401
Deferred debt issuance costs for Credit Agreement		1,015		707		1,722
Amortization of deferred debt issuance costs		(531)		(297)		(828)
Deferred debt issuance costs as of December 31, 2020	$	5,369	$	1,926	$	7,295

Covenants and Guarantees

The Credit Agreement contains customary covenants, including restrictions on our restricted subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interest on assets, make acquisitions, loans, advances or investments, or sell or otherwise transfer assets.

The Credit Agreement contains covenants that, among other things, require maintenance of certain financial ratios. Maintenance of these financial ratios could place restrictions on Adtalem’s ability to pay dividends. Adtalem has not paid a dividend since December 2016. These financial ratios include a consolidated fixed charge coverage ratio, a consolidated leverage ratio, and a U.S. Department of Education financial responsibility ratio based upon a composite score of an equity ratio, a primary reserve ratio, and a net income ratio. Failure to maintain any of these ratios or to comply with other covenants contained in the Credit Agreement would constitute an event of default and could result in termination of the Credit Agreement and require payment of all outstanding borrowings and replacement of outstanding letters of credit. Adtalem was in compliance with the debt covenants as of December 31, 2020.

The Term B Loan requires mandatory prepayments equal to a percentage of excess cash flow or equal to the net cash proceeds in excess of $50 million from a disposition which is not reinvested in assets within one-year from the date of disposition, among other mandatory prepayment terms (see the Credit Agreement, as filed under Form 8-K dated April 13, 2018, for additional information and term definitions). No mandatory prepayments have been required or made since the execution of the Credit Agreement. On December 4, 2020, Adtalem entered into the Amendment of the Credit Agreement, which extended the time period Adtalem has to reinvest proceeds from the disposition of certain Brazilian assets of Adtalem until March 25, 2022 before Adtalem is required to prepay the term loans under the Credit Agreement with such proceeds. The Acquisition would satisfy this reinvestment requirement.

The stock of all U.S. and certain foreign subsidiaries of Adtalem is pledged as collateral for borrowings under the Credit Agreement. Our borrowings under the Credit Facility are guaranteed by us and all of our domestic subsidiaries (subject to certain exceptions) and secured by a first lien on our assets and the assets of our guarantor subsidiaries (excluding real estate), including capital stock of the subsidiaries.