Item 1.01. Entry into a Material Definitive Agreement.
On September 30, 2022, certain subsidiaries of Cummins Inc. (the "Company")
entered into a $1 billion Credit Agreement (the "Credit Agreement"), consisting
of a $400 million revolving credit facility and a $600 million term loan
facility (the "Facilities"), in anticipation of the separation of the Company's
filtration business. Borrowings under the Credit Agreement will not become
available under the Credit Agreement unless and until, among other things, there
is a sale to the public of shares in the Company's subsidiary that holds the
filtration business ("Parent Borrower"). The Credit Agreement will automatically
terminate if no such public sale of shares of Parent Borrower occurs on or prior
to March 30, 2023. Borrowings under the Credit Agreement would be available to
Parent Borrower and one or more of its subsidiaries (the "Borrowers"). If
borrowings become available under the Credit Agreement, the Facilities would
mature on September 30, 2027.
On or prior to the date that Parent Borrower ceases to be a subsidiary of the
Company, the Borrowers would be required to pledge or cause to be pledged
substantially all personal property assets of the Borrowers and certain of their
domestic subsidiaries (other than certain specified excluded assets) to secure
all borrowings and other obligations under the Credit Agreement. The Company
would initially guarantee all borrowings and other obligations under the Credit
Agreement pursuant to the Guaranty, dated as of September 30, 2022, made by the
Company in connection with the Credit Agreement (the "Guaranty"). However, upon
the satisfaction of certain collateral and subsidiary guarantee requirements
under the Credit Agreement on or prior to the date that Parent Borrower ceases
to be a subsidiary of the Company, the obligations of the Company under the
Guaranty would automatically and immediately terminate unless the Company
elected otherwise.
Borrowings under the Credit Agreement would bear interest at varying rates,
depending on the type of loan and, in some cases, the rates of designated
benchmarks and the applicable Borrower's election. For all borrowings under the
Credit Agreement, the applicable Borrower may choose among the following
interest rates: (i) solely in the case of U.S. dollar-denominated loans, an
interest rate equal to the highest of (1) the prime rate in effect from time to
time, (2) the federal funds effective rate in effect from time to time plus
0.5%, (3) adjusted term SOFR for a one month interest period plus 1.00%, and
(4) 1.00%, in each case plus a rate ranging from 0.125% to 0.750% depending on
Parent Borrower's net leverage ratio; (ii) an interest rate equal to (1) solely
in the case of U.S. dollar-denominated loans, adjusted term SOFR (which includes
a 0.10% credit spread adjustment to term SOFR) or (2) solely in the case of
euro-denominated loans, EURIBOR, as applicable, in each case for the applicable
interest period plus a rate ranging from 1.125% to 1.750% depending on Parent
Borrower's net leverage ratio (the "Applicable Rate"); or (iii) an interest rate
equal to (1) solely in the case of U.S. dollar-denominated loans, adjusted daily
SOFR or (2) solely in the case of pound sterling-denominated loans, adjusted
SONIA, as applicable, in each case plus the Applicable Rate. Additionally, the
Borrowers will pay (x) a quarterly commitment fee based on the actual daily
amount of the available revolving credit facility commitment and (y) a ticking
fee based on the commitments under the Credit Agreement, which shall accrue from
September 30, 2022 to, but excluding, and shall be payable on, the earliest of
(i) the date the conditions to the initial extension of credit under the Credit
Agreement are satisfied or waived, (ii) the date the separation of the Company's
filtration business is consummated, and (iii) the date the commitments
terminate.
The Credit Agreement contains customary covenants relating to Parent Borrower
and its subsidiaries concerning, among other things, investments, dispositions
of assets, indebtedness, liens on assets, and dividends and other distributions.
The Credit Agreement also contains financial covenants requiring (i) the net
leverage ratio of Parent Borrower, determined as of the end of each fiscal
quarter, not to exceed 4.00 to 1.00 (or, at Parent Borrower's election and
subject to certain conditions, 4.50 to 1.00 for the period in which such
election is made and the next succeeding three testing periods) and (ii) the
interest coverage ratio of Parent Borrower, determined as of the end of each
fiscal quarter, to be at least 3.00 to 1.00.
The Credit Agreement contains customary events of default. If an event of
default occurs and is continuing, the lenders may, among other things, terminate
their obligations under the Credit Agreement and require the Borrowers to repay
all amounts thereunder. In addition, in the case of an event of default arising
from certain events of bankruptcy, insolvency or reorganization, the lenders'
obligations under the Credit Agreement will automatically terminate and all
amounts outstanding under the Credit Agreement will automatically become due and
payable.
The foregoing description of the Credit Agreement and Guaranty does not purport
to be complete and is qualified in its entirety by reference to the full text of
the Credit Agreement and Guaranty filed as Exhibits 10.1 and 10.2, respectively,
to this Form 8-K and incorporated by reference herein.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information included in Item 1.01 above is incorporated herein by reference.
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