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(Mark One) | ||
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ACTUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 2017
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-32384
(Exact Name of Registrant as Specified in Its Charter)
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Delaware | 43-2052503 | |
(Jurisdiction of Incorporation
or Organization) |
(IRS Employer
Identification No.) |
125 West 55
th
Street
New York, New York 10019
(Address of Principal Executive Offices) (Zip Code)
Registrants Telephone Number, Including Area Code: (212) 231-1000
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class: | Name of Exchange on Which Registered: | |
Common stock, par value $0.001 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer x | Accelerated Filer o | |||
Non-accelerated Filer o | Smaller Reporting Company o | Emerging Growth Company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x
The aggregate market value of the outstanding shares of stock held by non-affiliates of Macquarie Infrastructure Corporation at June 30, 2017 was $6,061,193,768 based on the closing price on the New York Stock Exchange on that date. This calculation does not reflect a determination that persons are affiliates for any other purposes.
There were 84,819,268 shares of common stock, with $0.001 par value, outstanding at February 16, 2018.
The definitive proxy statement relating to Macquarie Infrastructure Corporations Annual Meeting of Stockholders for fiscal year ended December 31, 2017, to be held May 16, 2018 is incorporated by reference in Part III to the extent described therein.
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We have included or incorporated by reference into this report, and from time to time may make in our public filings, press releases or other public statements, certain statements that may constitute forward-looking statements. These include without limitation those under Business in Part I, Item 1, Risk Factors in Part I, Item 1A, Legal Proceedings in Part I, Item 3, Managements Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7, and Quantitative and Qualitative Disclosures about Market Risk in Part II, Item 7A. In addition, our management may make forward-looking statements to analysts, investors, representatives of the media and others. These forward-looking statements are not historical facts and represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control. We may, in some cases, use words such as project, believe, anticipate, plan, expect, estimate, intend, should, would, could, potentially, may or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements.
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results to differ materially from those contained in any forward-looking statements made by us. Any such forward-looking statements are qualified by reference to the following cautionary statements.
Forward-looking statements in this report are subject to a number of risks and uncertainties, some of which are beyond our control, including, among other things:
| changes in general economic, business or demographic conditions or trends in the U.S. or changes in the political environment, including changes in GDP, interest rates and inflation; |
| any event or occurrence that may limit our ability to pay or increase our dividend; |
| our ability to conclude a sufficient number of attractive growth projects, deploy growth capital in amounts consistent with our objectives in the prosecution of those and achieve targeted risk-adjusted returns on any growth project; |
| our ability to make, finance and integrate acquisitions and the quality of financial information and systems of acquired entities; |
| changes in patterns of commercial or general aviation air travel, including variations in customer demand; |
| our ability to achieve targeted cost savings through the implementation of a shared services center; |
| the regulatory environment, including U.S. energy policy, and the ability to estimate compliance costs, comply with any changes thereto, rates implemented by regulators, and the relationships and rights under and contracts with governmental agencies and authorities; |
| disruptions or other extraordinary or force majeure events and the ability to insure against losses resulting from such events or disruptions; |
| sudden or extreme volatility in commodity prices; |
| changes in competitive dynamics affecting our businesses; |
| changes in demand for chemical, petroleum and vegetable and tropical oil products, the relative availability of tank storage capacity and the extent to which such products are imported or exported; |
| technological innovations leading to changes in energy production, distribution and consumption patterns; |
| fluctuations in fuel costs, or the costs of supplies upon which our gas processing and distribution business is dependent, and the ability to recover increases in these costs from customers; |
| our ability to service, comply with the terms of and refinance at maturity our indebtedness, including due to dislocation in debt markets; |
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| our ability to make alternate arrangements to account for any disruptions or shutdowns that may affect suppliers facilities or the operation of the barges upon which our gas processing and distribution business is dependent; |
| our ability to implement operating and internal growth strategies; |
| environmental risks, including the impact of climate change and weather conditions; |
| the impact of weather events, including potentially hurricanes, tornadoes and/or seasonal extremes, including the impact these may have on wind and solar resources; |
| changes in electricity or other energy costs, including natural gas pricing; |
| unplanned outages and/or failures of technical and mechanical systems; |
| payment of performance fees, if any, and base management fees to the Manager that could reduce distributable cash if paid in cash or could dilute existing stockholders if satisfied with the issuance of shares; |
| changes in U.S. income tax laws; |
| work interruptions or other labor stoppages; |
| the inability of principal off-takers in the Contracted Power businesses to take and/or pay for the energy supplied; |
| our Managers affiliation with the Macquarie Group or equity market sentiment, which may affect the market price of our shares; |
| our limited ability to remove the Manager for underperformance and the Managers right to resign; |
| unanticipated or unusual behavior of municipalities and states brought about by financial distress; and |
| the extent to which federal spending reduces the U.S. military presence in Hawaii or flight activity at airports at which Atlantic Aviation operates. |
Our actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. A description of risks that could cause our actual results to differ appears under the caption Risk Factors in Part I, Item 1A and elsewhere in this report. It is not possible to predict or identify all risk factors and you should not consider that description to be a complete discussion of all potential risks or uncertainties that could cause our actual results to differ.
In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements. The forward-looking events discussed in this report may not occur. These forward-looking statements are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should, however, consult further disclosures we may make in future filings with the Securities and Exchange Commission (SEC).
Macquarie Infrastructure Corporation is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Infrastructure Corporation.
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Macquarie Infrastructure Corporation (MIC) is the successor to Macquarie Infrastructure Company LLC (MIC LLC) pursuant to the conversion (the Conversion) of MIC LLC from a Delaware limited liability company to a Delaware corporation on May 21, 2015. MIC LLC was formed on April 13, 2004. Except as otherwise specified, all references in this Form 10-K to MIC, we, us and our refer (i) from and after the time of the Conversion, to Macquarie Infrastructure Corporation and its subsidiaries and (ii) prior to the Conversion, to the predecessor MIC LLC and its subsidiaries. Except as otherwise specified, all references in this Form 10-K to common stock or shares refer (i) from and after the time of the Conversion, to common stock and (ii) prior to the Conversion, LLC interests.
We intend to own, efficiently operate and grow a diversified portfolio of infrastructure and infrastructure-like businesses with the aim of producing an attractive risk adjusted total stockholder return. We intend to achieve this by:
| providing optimal service levels while maintaining the highest safety, environmental and governance standards; |
| prudently deploying and/or opportunistically recycling capital in efforts to: |
| grow our existing businesses; and |
| develop and acquire additional businesses; |
| optimizing price, volume and margin; |
| effectively managing expenses; |
| optimizing capital structures and tax planning; and |
| realizing both cross-selling and cost synergies across our businesses. |
We expect these efforts over time, collectively, to produce growth in the amount of cash generated by our businesses and growth in our stockholder dividend.
We currently own and operate a diversified portfolio of businesses that provide services to other businesses, government agencies and individuals primarily in the U.S. The businesses we own and operate are organized into four segments:
| International-Matex Tank Terminals (IMTT) : a business providing bulk liquid terminalling to third parties at 17 terminals in the U.S. and two in Canada; |
| Atlantic Aviation : a provider of fuel, terminal, aircraft hangaring and other services primarily to owners and operators of general aviation (GA) jet aircraft at 70 airports throughout the U.S.; |
| Contracted Power (CP) : comprising electricity generating assets including a gas-fired facility and controlling interests in wind and solar facilities in the U.S.; and |
| MIC Hawaii : comprising an energy company that processes and distributes gas and provides related services (Hawaii Gas) and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii. |
In addition to the businesses we own and operate in these segments, we also invest in the development of new businesses. These new businesses may be added to one of our existing segments or sold (with the resulting capital redeployed into any or all of our existing operations), or may, over time, form the basis of entirely new segments. For example, we have invested in a joint venture with a developer of solar power facilities, Intersect Power, with the expectation that the projects that may result from this will be either sold or added to our portfolio of contracted power facilities. The majority of these activities are being reported as a
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component of the segment to which any new businesses would be added. If an appropriate segment does not exist, the activities are recorded as a component of Corporate and Other.
We buy, develop and invest in the growth of our businesses based on a general assumption that we will own them indefinitely. It is neither our intent nor our expectation that we will divest of a business at a particular point in our ownership or as a result of having achieved certain targets, financial or otherwise. This view of ownership as a long-term relationship does not preclude sales or recycling of assets when we believe that we have either maximized the amount of value in the asset relative to our capability, or the asset is more highly valued by another owner. We may, depending on our ability to access additional debt or equity capital on what we consider attractive terms, sell businesses or assets to generate capital for reinvestment in new or existing businesses at what we believe could be improved returns. With respect to new developments, sales may occur more opportunistically. In general, we have redeployed the proceeds from these asset sales in the development of our remaining businesses either through investment in growth projects or acquisitions of small, bolt-on operations consistent with our view of MIC as a long-term owner.
Deployment of growth capital has been and is expected to continue to be an important part of our strategy and the creation of stockholder value. Our sources of growth capital include the retained capital generated by our businesses but not distributed as a cash dividend to our stockholders, capital generated through the issuance of additional debt and/or equity securities, or the proceeds from the sale of entire or portions of certain businesses. Over time, we expect to deploy growth capital of approximately $350.0 million per year in projects and bolt-on acquisitions across all of our businesses. Importantly, although we find value in diversification and the generally uncorrelated nature of the businesses in our current portfolio, we are not obligated to invest in the growth of any one business or segment or the addition of any new segment.
Equally important, we seek to drive stockholder value by focusing on business performance improvement. These efforts include upgrading systems, implementing data analytics tools, developing cross business efficiencies and deployment of enterprise-wide procurement strategies among others. In 2017, we formed MIC Global Services (MGS), a new entity into which we have begun to consolidate support functions across all of our businesses. We believe that MGS will generate significant savings relative to the cost of maintaining these functions separately in each of our operating companies. A portion of the costs associated with the operation of MGS are allocated to each of our operating companies. Any unallocated MGS costs are reported as a component of our Corporate and Other segment. We expect the implementation of MGS to deliver expense reductions (both Cost of Services/Product Sales and Selling, General and Administrative expenses ) of between $10.0 million and $15.0 million in 2018 relative to a 2016 baseline.
Our businesses, in general, are defined by a combination of the following characteristics:
| ownership of long-lived, high-value physical assets that are difficult to replicate or substitute around; |
| a platform for the deployment of growth capital; |
| broadly consistent demand for their services; |
| scalability, such that relatively small amounts of growth can generate disproportionate increases in earnings before interest, taxes, depreciation and amortization (EBITDA); |
| the provision of basic, often essential services; |
| generally predictable maintenance capital expenditure requirements; and |
| generally favorable competitive positions, largely due to high barriers to entry, including: |
| high initial development and construction costs; |
| difficulty in obtaining suitable land on which to operate; |
| high costs of customer switching long-term concessions, leases or customer contracts; and |
| lack of immediate, cost-effective alternatives for the services provided. |
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The different businesses that comprise our Company exhibit these above characteristics to different degrees at different times. For example, macro-economically correlated businesses like Atlantic Aviation may exhibit more volatility during periods of economic downturn than businesses with substantially contracted revenue streams. While not every business that we own will meet all of the general criteria described above, we seek to own a diversified portfolio of businesses that possesses a balance of these characteristics.
In addition to the benefits associated with these characteristics, net margins generated by most of our businesses tend to keep pace with historically normal rates of inflation. The price escalators built into many customer contracts, and the inflation and cost pass-through adjustments that are typically included as part of pricing terms, serve to insulate our businesses to a significant degree from the negative effects of inflation and commodity price risk.
We are a party to a Management Services Agreement with Macquarie Infrastructure Management (USA) Inc. (Manager). Our Manager is a member of the Macquarie Group, a diversified international provider of financial, advisory and investment services. The Macquarie Group is headquartered in Sydney, Australia and is a global leader in the management of infrastructure investment vehicles on behalf of third-party investors and advising on the acquisition, disposition and financing of infrastructure assets.
We pay our Manager a monthly base management fee based primarily on our market capitalization and holding company net debt and excluding debt in support of specific operating entities. For this, in accordance with the Third Amended and Restated Management Services Agreement (Management Services Agreement), the Manager provides normal ongoing corporate center functions such as facilities, technology, employee benefits and access to services including human resources, legal, finance, tax and accounting among others. Our Manager is responsible for and oversees the management of our operating businesses, subject to the oversight and supervision of our board of directors. Our Manager compensates and has assigned, or seconded, to us employees to serve as our chief executive officer and chief financial officer on a full-time basis. It also compensates and seconds or makes other personnel available as required. MIC has no employees at the holding company level.
Our Manager may also earn a performance fee if the quarterly total return for our stockholders (capital appreciation plus dividends) is positive and exceeds the quarterly total return of a U.S. utilities index benchmark, both in the quarter and cumulatively. If payable, the performance fee is equal to 20% of the difference between the benchmark return and the total return for our stockholders during the quarter. Per the terms of the Management Services Agreement, our Manager currently reinvests its fees, whether base or performance fees, in shares of our common stock. The Manager may elect to receive either base or performance fee, if any, in cash but may only change its election during a 20 trading day window following our earnings release. Any change would apply to fees incurred thereafter.
In addition to our results under U.S. GAAP, we use certain non-GAAP measures to assess the performance and prospects of our businesses. In particular, we use EBITDA excluding non-cash items, Free Cash Flow and certain proportionately combined financial metrics. Proportionately combined financial metrics reflect our proportionate interest in our wind and solar facilities.
We measure EBITDA excluding non-cash items as it reflects our businesses ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses.
In analyzing the financial performance of our businesses, we focus primarily on cash generation and Free Cash Flow in particular. We believe investors use Free Cash Flow as a measure of our ability to sustain and potentially increase our quarterly cash dividend and to fund a portion of our growth.
See Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics in Part II, Item 7, for
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further information on our calculation of EBITDA excluding non-cash items, Free Cash Flow and our proportionately combined metrics and for reconciliations of non-GAAP measures to the most comparable GAAP measures.
Bulk liquid terminals provide an important link in the supply chain for a broad range of liquid commodities (see below). Bulk liquid terminals provide vital logistics services to vertically integrated petroleum product producers and refiners, chemical manufacturers, food processors and commodity traders. Customers typically pay terminal operators such as IMTT on an availability basis to provide tank capacity, loading and unloading access, and pipeline and trans-loading capacity, and also pay additional fees for ancillary services such as heating and blending.
Both domestic and international factors influence demand for bulk liquid terminals in the U.S. Demand for storage rises and falls according to local and regional consumption. In addition, import and export activity accounts for a material portion of the business. Shippers require storage for the staging, aggregation and/or distribution of products before and after transport. The extent of import/export activity depends on macroeconomic trends, such as currency fluctuations, as well as industry-specific conditions, such as supply and demand imbalances in different geographic regions. Demand for storage is also driven by fluctuations in the current and perceived future price and demand for the product being stored and the resulting temporal price arbitrage.
Potential entrants into the bulk liquid terminals business face several barriers. Strict environmental regulations, availability of suitable land with connectivity to pipeline and transport logistics, including marine road and rail infrastructure, local community resistance and initial investment costs may limit the construction of new bulk liquid terminals. These barriers are typically higher around waterways near major urban centers. As a consequence, new tanks are generally built where existing docks, pipelines and other infrastructure can support them. However, restrictions on land use, difficulties in securing environmental permits, and the potential for operational bottlenecks due to constraints on related infrastructure may limit the ability of existing terminals to expand the storage capacity of their facilities.
IMTT is one of the larger independent providers of bulk liquid terminal services in the U.S., based on capacity. IMTT handles products for a diverse range of domestic and foreign markets and end users. IMTT stores or handles primarily refined petroleum products, various commodity and specialty chemicals, renewable fuels and vegetable and tropical oils (collectively liquid commodities). Crude oil constitutes an immaterial portion of IMTTs overall storage and handling operations. The business operates a network of 19 terminals including 17 in the U.S. and two in Canada (one partially owned) with principal operations in the New York Harbor market and on the Lower Mississippi River.
Since our initial investment in IMTT in May 2006, we have deployed capital in the growth and development of additional storage capacity, facilities and related infrastructure (pipes, pumps, docks, etc.) and acquisitions of facilities in Illinois and a portfolio of terminals primarily in the U.S. Southeast (Epic Midstream LLC (Epic)). Consistent with IMTTs strategy below, we expect to be able to continue to deploy capital in the growth and expansion of storage capacity and capabilities provided that they generate attractive risk-adjusted returns.
IMTT also owns OMI Environmental Solutions (OMI), an environmental emergency response, industrial services, waste transportation and disposal business.
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The table below summarizes the breakdown of revenue generated by IMTT for the year ended December 31, 2017:
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Refined Products | Chemical |
Renewable/Vegetable
& Tropical Oil |
Crude Oil | Other | ||||||||||||
55% | 27 | % | 8 | % | 2 | % | 8 | % (1) |
(1) | Includes 5% of revenues from OMI. |
Following is summary financial information for IMTT ($ in millions):
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As of, and for the
Year Ended, December 31, |
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2017 | 2016 | 2015 | ||||||||||
Revenue | $ | 549.4 | $ | 532.5 | $ | 550.0 | ||||||
Net income (1) | 363.0 | 83.1 | 74.7 | |||||||||
EBITDA excluding non-cash items (2) | 326.2 | 321.9 | 302.1 | |||||||||
Total assets | 4,109.4 | 3,978.4 | 4,000.1 |
(1) | Net income for 2017 includes the impact of the Tax Cuts and Jobs Act. See Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations IMTT in Part II, Item 7, for further discussions. |
(2) | See Business Our Businesses in Part I, Item 1 and Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations in Part II, Item 7, for further information and a reconciliation of net income (loss) to EBITDA excluding non-cash items. |
IMTT is pursuing a strategy that has six principal components:
1. | to continuously drive improvements in safety; |
2. | to grow revenue and cash flows by optimizing product mix and attracting and retaining customers who place a premium on quality, reliability of service, connectivity, flexibility, speed and efficiency in storage and handling of bulk liquid products; |
3. | to address changes in customer demand and market dynamics by repurposing tanks and related infrastructure; |
4. | to deploy growth capital in the development of existing and new locations by constructing new terminal assets (for example tanks, docks, rail offloading capacity, pipelines or other logistics infrastructure) when such construction is supported by customer demand and the returns are attractive; |
5. | to optimize the scale and performance of the business through acquisitions, developments, divestitures and partnerships; and |
6. | to improve business processes and systems with particular focus on cost and risk reduction, control of maintenance capital expenditures and revenue optimization. |
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As of December 31, 2017, IMTT comprised the following facilities and storage capacity, not including tanks used in packaging, recovery tanks, and/or other storage capacity not typically leased.
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Facility | Land |
Aggregate Capacity
of Storage Tanks in Service (Millions of Barrels) |
Percent of
Ownership |
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Facilities in the United States:
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Lower Mississippi River Terminals (4) | Owned | 20.8 | 100.0 | % | ||||||||
Bayonne Terminal | Owned | 15.9 | 100.0 | % | ||||||||
Other Terminals (12) | Owned | 6.9 | 100.0 | % | ||||||||
Facilities in Canada:
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Quebec City, Quebec | Leased | 2.0 | 100.0 | % | ||||||||
Placentia Bay, Newfoundland | Leased | 3.0 | 20.1 | % | ||||||||
Total | 48.6 |
IMTT facilities generally operate 24 hours a day providing customers with prompt access to a wide range of logistical services. In each of its two key markets, IMTTs scale ensures availability of sophisticated product capabilities. IMTT continues to improve its facilities speed and flexibility of operations by investing in upgrades of its docks, pipelines and pumping infrastructure and facility management systems.
On the Lower Mississippi River, IMTT currently operates four terminals (St. Rose, Gretna, Avondale and Geismar). With combined storage capacity of 20.8 million barrels, the four sites give IMTT substantial market share in the storage and handling of refined petroleum products, bulk liquid chemicals, vegetable and tropical oils on the strategically important Lower Mississippi River. These terminals serve a predominantly export market.
The Lower Mississippi River facilities also give IMTT a substantial presence in a key domestic transport hub. The Lower Mississippi River serves as a major transshipment point between the central U.S. and the rest of the world for agricultural products (such as vegetable and tropical oils) and commodity chemicals (such as methanol). The region also has substantial traffic related to the petroleum industry. Lower Mississippi River refiners and traders send products to other regions of the U.S. and overseas and use IMTTs Lower Mississippi River facilities to perform some of these functions. These facilities enjoy relatively unencumbered marine and road access when compared to other, more congested waterways such as the Houston Ship Channel. As oil production in North America has increased and refining has shifted to processing of lighter gravity feedstocks, exports of gasoline and distillates from the Lower Mississippi River region have increased.
Located on the Kill Van Kull between New Jersey and Staten Island, New York, the 15.9 million barrel capacity terminal occupies an attractive position in New York Harbor where it has substantial market share. New York Harbor serves as the main petroleum trading hub in the northeast U.S. and a physical settlement site for certain futures contracts traded on the New York Mercantile Exchange. In addition to waterborne shipments, products reach New York Harbor through petroleum product pipelines from the U.S. Gulf region and elsewhere. New York Harbor also serves as the starting point for refined product pipelines linked to inland markets and as a key port for refined petroleum product imports and exports. IMTT-Bayonne has more dock capacity than other terminals in New York Harbor, connections to the Colonial, Buckeye and Harbor refined petroleum product pipelines as well as rail and road connections and blending capabilities. As a result, IMTT-Bayonne provides its customers with logistical flexibility.
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IMTT-Bayonne has the capability to quickly load and unload the largest bulk liquid transport ships entering New York Harbor. The ability to provide scale terminal services to its customers is also an important competitive advantage. The U.S. Army Corp of Engineers has dredged the Kill Van Kull channel passing the IMTT-Bayonne docks to 50 feet (IMTT has dredged two of its docks to 47 feet). Most of IMTTs competitors in New York Harbor have facilities located on the southern portion of the Arthur Kill (water depth of approximately 37 feet) and force large ships to transfer a portion of their cargoes to barges (a process known as lightering) before docking. This technique increases the cost and time associated with loading and unloading.
The competitive environment in which IMTT operates varies by terminal location and product. The principal competition for each of IMTTs facilities comes from other bulk liquid terminals located in the same regional market. Secondary competition for IMTTs facilities comes from bulk liquid terminals located in the same broad geographic region as IMTTs terminals. For example, IMTTs Lower Mississippi River facilities indirectly compete with bulk liquid terminals located on the Houston Ship Channel.
Independent terminal operators generally compete on the basis of the location, connectivity and versatility of facilities, service and price. The services typically provided by the terminal include, among other things, the safe storage of the product at specified temperature, moisture and other conditions, as well as receipt and delivery from the terminal, all of which must be in compliance with applicable environmental regulations. A favorably located terminal will have access to various cost-effective transportation modes, both to and from the terminal. Transportation modes typically include waterways, railroads, roadways and pipelines. A terminal operators ability to obtain attractive prices is often dependent on the quality, versatility and reputation of the facilities owned by the operator.
IMTT faces significant competition from a variety of international, national and regional energy companies, including large, diversified midstream entities, global terminal operators and large multi-national energy companies. We believe that IMTT is favorably positioned to compete in the industry due to the strategic location of terminals on the Gulf Coast and in New York Harbor and certain secondary markets, our reputation, the prices we charge for our services and the connectivity, quality and versatility of our services. In particular, we believe that IMTTs proximity to petroleum and chemical refineries in both of its key markets and to the very substantial end use market in the Northeast are sources of competitive advantage and provide diversity in our revenue drivers.
As noted above, we believe that significant barriers to entry exist in the terminalling business. These barriers include significant capital requirements and execution risk, a lengthy permitting and development cycle, financing challenges, a finite number of sites suitable for development, operating expertise and customer relationships.
IMTT provides bulk liquid terminal services primarily to vertically integrated petroleum product producers and refiners, chemical manufacturers, food processors and commodity traders. These customers, in turn, serve a range of end users in both domestic and foreign markets. Within its terminals, IMTT has the ability to repurpose tanks and related infrastructure for various bulk liquid products both to respond to and to anticipate changes in customer demand. IMTT does not depend on a single customer, the loss of which would have a material adverse effect on IMTT.
For the year ended December 31, 2017, approximately 50% of IMTTs revenue was generated by its top ten customers, of which seven were rated investment grade and three were not rated. Customers typically sign contracts which, among other things, provide for a fixed periodic payment (usually monthly) for access to and use of IMTTs facilities. This payment may be expressed in terms of cents per barrel of capacity, a dollar amount per unit of infrastructure, or a dollar amount per month. These amounts are payable whether the customer uses the facilities and services or not and does not include additional charges for thruput or ancillary services. In 2017, approximately 80% of IMTTs revenues were generated from these availability style payments for terminal capacity.
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IMTT is responsible for ensuring appropriate care of products stored at its facilities and believes it maintains adequate insurance with respect to its exposure. IMTT does not have material exposure to commodity price fluctuations because it typically does not purchase or market the products that it handles. IMTTs customers retain title to products stored and have responsibility for securing insurance or self-insuring against loss or fluctuation in value.
The rates that IMTT charges for its services are not subject to regulation. However, a number of regulatory agencies, including the United States Environmental Protection Agency, New Jersey Department of Environmental Protection, Louisiana Department of Environmental Quality, Department of Transportation, Department of Homeland Security and the United States Coast Guard, regulate IMTTs operations. IMTT must comply with numerous federal, state and local environmental, occupational health and safety, security, tax and planning statutes and regulations. These regulations require IMTT to obtain and maintain permits to operate its facilities and impose standards that govern the way IMTT operates its business. If IMTT does not comply with the relevant regulations, it could lose its operating permits and/or incur fines and increased liability. While changes in environmental, health and safety regulations pose a risk of higher operating costs, such changes are generally phased in over time to manage the impact on both the industry and the business.
Few of IMTTs facilities require significant environmental remediation. Those that do have such efforts are overseen by various state and federal agencies. Remediation efforts entail removal of the free product, groundwater control and treatment, soil treatment, repair/replacement of sewer systems, and the implementation of containment and monitoring systems. These remediation activities are expected to continue for an additional ten to twenty years, or more. See Legal Proceedings in Part I, Item 3, for further discussions.
As of December 31, 2017, IMTT (excluding the Newfoundland terminal) had a total of 1,100 employees, of which 270 employees were unionized. We believe relations with both union and non-union employees at IMTT are good.
The day-to-day operations of IMTT are managed by individual terminal managers who are responsible for most aspects of the operations. IMTTs operations are overseen by senior personnel with significant experience in the bulk liquid terminals industry. Management of the business is headquartered in New Orleans, Louisiana.
Fixed based operations (FBOs) primarily service the GA segment of the air transportation industry. Local airport authorities own the airport properties and grant FBO operators a lease to provide fueling and other services pursuant to long-term ground leases. Fueling services provide the majority of an FBOs revenue and gross margin.
FBOs often operate in environments with high barriers to entry. Airports tend to have limited physical space for additional FBOs and airport authorities generally do not have an incentive to add FBOs unless there is a significant demand for additional services. Securing airport approvals and completing the design and construction of a new FBO can take over a year and require significant capital expenditures. Furthermore, airports typically impose minimum standards with respect to the experience, capital investment and breadth of services provided by the FBO.
The ownership of FBOs in the U.S. is fragmented with the majority of facilities individually owned and operated rather than part of networks. Consolidation has been and is expected to continue to be an important feature of the industry as larger networks are able to achieve economies of scale in fuel and insurance purchasing, marketing and back office operations when acquiring locations from individual owners/operators.
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Demand for FBO services is driven by the level of GA flight activity which is defined as the number of take-offs and landings in a given period. We believe GA flight activity will continue to expand at rates broadly consistent with overall economic activity in the U.S.
At December 31, 2017, Atlantic Aviation operated FBOs at 70 airports in the U.S. Atlantic Aviations FBOs provide fuel, terminal, aircraft hangaring and other services to owners/operators of GA aircraft, but also to commercial, military, freight and government aviation customers.
Atlantic Aviation has been a part of the MIC portfolio since our IPO. In December 2004, the business owned and operated a total of 16 FBOs. Through a roll-up of FBOs, we have increased the size of the network to a total of 70 facilities. Consistent with our strategy of seeking to optimize the portfolio, we have exited markets we believe have limited growth potential in favor of entering those with better prospects. Since our IPO, we have deployed capital in Atlantic Aviation in the acquisition of FBOs and projects including the construction of terminals and aircraft hangars, fuel tank farms, aircraft parking (ramps) and a range of smaller projects.
Following is summary financial information for Atlantic Aviation ($ in millions):
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Year Ended, December 31, |
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2017 | 2016 | 2015 | ||||||||||
Revenue | $ | 846.4 | $ | 740.2 | $ | 738.5 | ||||||
Net income (1) | 124.4 | 59.5 | 22.8 | |||||||||
EBITDA excluding non-cash items (2) | 247.2 | 225.1 | 203.6 | |||||||||
Total assets | 1,710.5 | 1,564.7 | 1,502.5 |
(1) | Net income for 2017 includes the impact of the Tax Cuts and Jobs Act. See Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Atlantic Aviation in Part II, Item 7, for further discussions. |
(2) | See Business Our Businesses in Part I, Item 1 and Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations in Part II, Item 7, for further information and a reconciliation of net income (loss) to EBITDA excluding non-cash items. |
Atlantic Aviation is pursuing a strategy that has five principal components:
1. | to make Atlantic Aviation the preferred FBO provider at all of the airports at which it operates by providing the best service and safety in the industry; |
2. | to prudently deploy capital in equipment and leasehold improvements; |
3. | to optimize the network of FBOs through acquisitions, divestitures and lease extensions; |
4. | to manage the business to optimize its operating expenses; and |
5. | to grow the business by leveraging the size of the Atlantic Aviation network and its information technology capabilities to identify marketing and cross-selling opportunities. |
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Atlantic Aviation operates high-quality facilities and focuses on attracting customers who desire personalized service. Fuel sales generated 63% of gross margin in 2017. Other services, including de-icing, aircraft parking and hangar rental, provided the balance. Fuel is stored in tank farms and each FBO operates refueling vehicles owned or leased by the FBO to move fuel from the tank farms to the aircraft being serviced. The FBO either owns or has access to the fuel storage tanks to support its fueling activities. At some of Atlantic Aviations locations, services are also provided to commercial airlines, freight operators, and military and government users. Services provided to the airlines may include refueling from the airlines own fuel supplies, de-icing and/or ground and ramp handling services.
Atlantic Aviation buys fuel at a wholesale price and sells fuel to customers either at a contracted price, or at a price negotiated at the point of purchase. While wholesale fuel costs can vary, Atlantic Aviation generally passes changes in fuel costs through to customers and seeks to maintain and, when possible, increase its dollar-based margin per gallon. In general, the business has minimal exposure to commodity price fluctuations as it carries a limited inventory of jet fuel.
Atlantic Aviation is focused on managing costs effectively and continuously evaluates opportunities to reduce expenses. Such opportunities may include business reengineering, more efficient purchasing, partnering with service providers and/or capturing synergies in acquisitions.
Atlantic Aviations FBOs operate pursuant to long-term leases from the airport authorities who own or manage the airport. Atlantic Aviation works with these airport authorities to optimize lease lengths through capital improvements or other enhancements to the airport.
Atlantic Aviations EBITDA-weighted average remaining lease length (at Atlantic Aviations discretion) was 20.3 years and 19.6 years at December 31, 2017 and 2016, respectively, notwithstanding the passage of one year. The increase reflects successful lease renewals and acquisition of facilities with leases longer than the current network-wide average. The leases at seven of Atlantic Aviations FBOs, collectively accounting for approximately 9.0% of Atlantic Aviations gross margin, are expected to be renegotiated and extended within the next five years. No individual FBO generated more than 10% of Atlantic Aviations gross margin at December 31, 2017.
The airport authorities have certain termination rights in each of Atlantic Aviations leases. Standard terms allow for termination if Atlantic Aviation defaults on the terms and conditions of the lease, abandons the property or becomes insolvent or bankrupt. Most of the leases allow for termination if liens are filed against the property. Fewer than twenty leases may be terminated for convenience or other similar reasons. In these cases, generally, there are compensation agreements based on amortization schedules or obligations of the airport authority to make best efforts to relocate the FBO.
Atlantic Aviation periodically evaluates its portfolio of FBOs and occasionally concludes that some of its sites do not have sufficient scale or do not serve a market with sufficiently strong growth prospects to warrant continued operations at these locations. In these cases, it may elect to sell the site or not renew the lease upon maturity.
Atlantic Aviation has a number of marketing programs, each utilizing an internally-developed point-of-sale system that tracks GA flight movements. This program supports flight tracking and provides customer relationship management data that facilitates up-selling of fuel and optimization of revenue per customer.
Atlantic Aviation also maintains a loyalty program for pilots known as Atlantic Awards that provides an incentive to purchase fuel from Atlantic Aviation. These awards are recorded as a reduction in revenue in Atlantic Aviations consolidated financial statements.
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Atlantic Aviation competes with other FBO operators at more than half of its locations, and its facilities may also face indirect competition from FBOs located at nearby airports. The FBOs compete on the basis of location of the facility relative to runways and street access, service, safety, value-added features, reliability and price. Each FBO also faces competitive pressure from the fact that aircraft may take on sufficient fuel at one location and not need to refuel at a specific destination.
Atlantic Aviations main competitors are Signature Flight Support, Jet Aviation, Million Air, Sheltair Aviation and TAC Air. To our knowledge, other than the competitors listed, no competitor operated more than 20 FBOs in the U.S. at December 31, 2017.
Atlantic Aviation does not depend on a single customer, the loss of which would have a material adverse effect on the business.
The aviation industry is overseen by a number of regulatory agencies, including the Department of Homeland Security, Department of Transportation and Environmental Protection Agency, but its primary regulator is the Federal Aviation Administration (FAA). In addition, local airport authorities also regulate the FBOs. The business must comply with federal, state and local environmental statutes and regulations associated in part with the operation of fuel storage tank systems and mobile fueling vehicles. These requirements include tank and pipe testing for tightness, soil sampling for evidence of leaking and remediation of detected leaks and spills.
Atlantic Aviations FBOs are subject to regular inspection by federal and local environmental agencies as well as local fire departments and other agencies. The business does not expect that compliance and related remediation work, if any, will have a material negative impact on earnings or the competitive position of Atlantic Aviation. The business has not received notice requiring it to cease operations at any location or of any abatement proceeding by any government agency as a result of failure to comply with applicable environmental laws and regulations.
As of December 31, 2017, the business employed 1,961 people, of which 196 employees were subject to collective bargaining agreements. We believe relations with both union and non-union employees at Atlantic Aviation are good.
The day-to-day operations of Atlantic Aviation are managed by individual site managers who are responsible for most aspects of the operations at their site. Atlantic Aviations operations are overseen by senior personnel with significant experience in the aviation industry.
The power industry represents a large and critical infrastructure market, both in terms of the number and value of facilities as well as their contribution to overall economic activity. In developed economies, capital spending in the sector is driven by aging infrastructure, new technologies, increased legislation regarding emissions, the use of renewable energy and modest demand growth.
The Energy Information Administration, an agency of the U.S. Federal Statistical System, forecasts the demand for electricity in the U.S. to grow at a compound annual rate of approximately 0.9% over the next thirty years. As aging and inefficient generating capacity is retired or replaced, opportunities for deployment of capital in the growth of our CP segment are expected to increase.
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Growth in the electricity generating sector of the industry has been driven by a combination of portfolio optimization and a significant number of renewable power projects being developed as a result of the adoption of Renewable Portfolio Standards (RPS). RPS are state-level regulatory mandates that obligate utilities and other load-serving entities to provide a specific portion of their electricity generation from qualifying renewable technologies by a specified date.
At December 31, 2017, CP consisted of controlling interests in seven solar facilities, two wind facilities and a 100% interest in a gas-fired facility. Our portfolio of solar facilities consists of two facilities in Arizona, two in California, one in Texas, one in Minnesota and one in Utah. These facilities have an aggregate generating capacity of 142 megawatts (MW). Our wind facilities are located in Idaho and New Mexico and have a combined generating capacity of 203 MW. The gas-fired facility, Bayonne Energy Center (BEC), has a generating capacity of 512 MW with a further 130 MW under construction, and is located in Bayonne, New Jersey, adjacent to IMTTs Bayonne terminal.
The renewable facilities utilize arrays of photovoltaic solar panels or wind turbine generators to convert energy from sunlight or wind into electricity. The electricity is aggregated and fed directly into regional power grids. These technologies tend to produce a predictable amount of electricity within the bounds of seasonal and annual variability in insolation and wind. The business also generates Renewable Energy Certificates (RECs) based on the amount of electricity provided to off-takers. These RECs are either bundled with the electricity under the terms of the Power Purchase Agreements (PPA) or sold separately to third-parties. The BEC facility currently comprises eight natural gas turbine power generating sets (installed in 2012) and is being expanded by two additional sets. Power produced by BEC is transmitted via a dedicated cable beneath New York Harbor to a substation in Brooklyn, New York, from where it is distributed into the New York City power market.
The renewable facilities sell electricity to creditworthy off-takers, typically pursuant to multi-year contracts. Existing contracts include either long-term PPAs or subscription agreements whereby a counterparty has contracted with one of our projects for the sale of electricity and related services for a set period of time. These contracts provide a hedge against volatility in revenue from fluctuations in demand or price. The majority of BECs output is contracted with a creditworthy power wholesaler that has entered into tolling agreements with BEC for 62.5% of the facilitys capacity. The weighted average remaining life of the tolling agreements was approximately ten years at December 31, 2017. The tolling agreements generate revenue whether or not the facility is in use for power production. The remaining 37.5% of the facilitys capacity that is currently untolled generates revenue from monthly capacity payments and ancillary services provided to support grid stability whether or not the facility is dispatched, and an energy margin when the facility is dispatched.
In late 2015, we commenced the process of expanding the generating capacity of BEC by two turbines totaling approximately 130 MW in incremental generating capacity. This expansion is expected to reach mechanical completion by the end of the first quarter of 2018 and is anticipated to begin producing revenue in the second quarter of 2018. In addition, we have made two investments in renewable energy development companies that each have a pipeline of either new wind and solar projects. We expect to continue to seek attractive investment opportunities in renewable energy production and distribution projects and to pursue expansion opportunities at our existing facilities.
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The financial results discussed in this Form 10-K reflect 100% of the performance of the wind and solar facilities within the CP segment since our acquisitions, not the contribution based on our economic interest, and the performance of BEC from the date of our acquisition on April 1, 2015, unless specified otherwise.
Following is summary financial information for the Contracted Power segment ($ in millions):
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Year Ended, December 31, |
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2017 | 2016 | 2015 | ||||||||||
Revenue | $ | 145.9 | $ | 150.0 | $ | 123.8 | ||||||
Net income (loss) | 21.2 | 14.1 | (7.2 | ) | ||||||||
EBITDA excluding non-cash items (1) | 103.1 | 98.2 | 68.2 | |||||||||
Total assets | 1,617.7 | 1,516.6 | 1,411.2 |
(1) | See Business Our Businesses in Part I, Item 1 and Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations in Part II, Item 7, for further information and a reconciliation of net income (loss) to EBITDA excluding non-cash items. |
Our CP businesses are pursuing a strategy that has four principal components:
1. | to deliver cost-competitive electricity in a safe and reliable manner; |
2. | to deploy additional capital at attractive risk-adjusted returns by developing or acquiring renewable energy projects across a range of technologies and geographies; |
3. | to improve productivity, reduce costs and increase efficiencies; and |
4. | to opportunistically recycle capital through the sale of selected facilities or assets. |
Operation and maintenance (O&M) of the CP facilities is largely performed by our employees or by third-party service providers. Land for all our facilities is either leased under long-term contracts or owned by the facilities. Other costs such as insurance are based on annual contracts. Accordingly, a significant portion of the operating costs of these facilities is highly predictable. The business regularly evaluates which O&M services are best provided by employees or third-party service providers and has started to perform some of these O&M services itself in order to reduce costs and improve operational performance of its facilities.
The primary customers of the contracted power business are creditworthy counterparties including utilities and a power marketer. These customers have entered into long-term PPAs, subscription agreements or tolling agreements with remaining terms ranging from approximately 10 to 24 years as of December 31, 2017.
Each CP facility has a unique seasonality profile based on factors including weather and energy demand. The solar projects generate a disproportionate amount of their revenue in the summer months when insolation is highest, while wind energy revenues are generally stronger in the winter months. BEC is a peaking power plant that is dispatched when demand for power increases above the base generating capacity in New York City. This means that BEC is dispatched more often in the summer and winter months.
The contracted portion of CPs business is not subject to substantial direct competitive price pressure due to the long-term nature of the PPAs, subscription agreements and tolling agreements. However, our existing BEC facility has incremental generating capacity that is not tolled and is sold into the spot power market. After the expiration of the respective PPAs, subscription agreements or tolling agreements, such facilities may face greater competition. Once completed, the expansion units at BEC will also operate on an untolled basis and will be subject to market competition.
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The power and energy sectors are the subject of substantial and complex laws, rules and regulations. Sector regulators include the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC). The FERC has jurisdiction over the transmission and wholesale sale of electricity in interstate commerce and over the transportation, storage and certain sales of natural gas in interstate commerce, including the rates, charges and other terms and conditions for such services. The NERC serves to establish and enforce reliability standards applicable to all users, owners and operators of the bulk power system. The U.S. Environmental Protection Agency also oversees certain environmental matters related to the construction and operations of CPs electricity generating facilities.
The New York competitive wholesale electricity market in which BEC participates is administered by the New York Independent System Operator (NYISO). NYISO is a not-for-profit agency that serves to ensure regional grid reliability, comprehensive planning, and open and efficient markets. BEC is also subject to certain New York State and New York City regulations and to environmental regulations by the State of New Jerseys Department of Environmental Protection.
Each of the wind and solar facilities comprising CP is subject to regulation and oversight in the jurisdiction in which they operate.
At December 31, 2017, the CP businesses had six employees. We believe relations with employees of our CP businesses are good.
According to the Energy Information Administration, the Hawaii energy market consumes 282 trillion British Thermal Units (BTU) annually, split approximately equally between the transportation market and the industrial/commercial/residential markets. Gas in Hawaii has an approximately 2% share of the total energy market and serves primarily the residential and commercial markets with applications including water heating, drying, cooking, emergency power generation and other select uses.
Beginning in 2008 with the Hawaii Clean Energy Initiative (HCEI), the State of Hawaii embarked on a program to be a leader in the development and deployment of clean energy solutions. The HCEIs goals include energy independence and security, a transition away from imported fuels and the development of a green economic sector.
In 2017, over 25% of Hawaiis electricity was generated from renewable sources, where the primary sources were solar, wind, and biomass. Hawaiis geographic location, the high cost of electricity from oil-fired electric generation, and the States renewable portfolio standard offer the potential to increase the amount renewables-based electric and gas-fired generation. MIC Hawaii has invested in multiple renewable energy projects and expects to pursue further growth opportunities in line with Hawaiis energy goals.
MIC Hawaii comprises Hawaii Gas and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii. From 2006 to 2015, our MIC Hawaii segment consisted solely of Hawaii Gas, a combination of Hawaiis only government-franchised gas utility and an unregulated liquefied petroleum gas (LPG) distribution business. Founded in 1904, Hawaii Gas serves Hawaiis 1.4 million residents and 9.4 million visitors across Oahu, Hawaii, Maui, Kauai, Molokai and Lanai (the main islands).
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Hawaii Gas comprises a regulated gas utility and an unregulated LPG distribution business. The utility business includes the processing, distribution and sale of synthetic natural gas (SNG) and renewable natural gas (RNG) and the distribution and sale of re-gasified liquefied natural gas (LNG) on the island of Oahu and the distribution and sale of LPG via pipeline on all of the main islands. The unregulated business distributes LPG by truck to individual tanks located on customer sites or distributes LPG in cylinders filled at central locations to customers on all the main islands. The gas distributed by Hawaii Gas has a wide range of commercial and residential applications and LPG is also used as a fuel for specialty vehicles such as forklifts. Users include residential customers and a wide variety of commercial, hospitality, military, public sector and wholesale customers.
In 2016, MIC Hawaii expanded its presence in the Hawaiian energy complex with the development of the 7 MW Waihonu Solar facilities on Oahu and an acquisition of a design-build mechanical contractor. In 2017, we expanded our investments, adding two distributed generation projects serving commercial users under long-term contracts.
Hawaii Gas primary products consist of:
Synthetic Natural Gas (SNG) : The business converts a light hydrocarbon feedstock (naphtha) into SNG which has a similar heating value to natural gas. Hawaii Gas operates the only SNG processing capability in Hawaii at its plant located on the island of Oahu. SNG is delivered by underground pipelines to utility customers throughout Oahu.
Liquefied Petroleum Gas (LPG) : LPG is a generic name for a mixture of hydrocarbon gases, typically propane and butane. LPG liquefies at a relatively low pressure under normal temperature conditions and can be efficiently transported in a range of quantities. LPG is typically stored in cylinders or tanks and Hawaii Gas maintains the largest network of LPG storage throughout Hawaii. Domestic and commercial applications of LPG are similar to those of natural gas and SNG.
Liquefied Natural Gas (LNG) : LNG is transported to Hawaii in conventional intermodal cryogenic containers from the U.S. mainland. Hawaii Gas utilizes LNG to offset up to 30% of the naphtha used to produce SNG and to supply customers of the regulated utility on Oahu.
Renewable Natural Gas (RNG) : In August 2016, the City and County of Honolulu awarded Hawaii Gas a contract for offtake of approximately 800,000 BTUs per year of biogas from the Honouliuli Wastewater Treatment Plant commencing in late 2018. The business continues to evaluate a range of additional renewable feedstock sources including other waste water treatment plants, landfills and locally produced biomass.
Following is summary financial information for MIC Hawaii ($ in millions):
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2017 | 2016 | 2015 | ||||||||||
Revenue | $ | 277.9 | $ | 233.9 | $ | 227.0 | ||||||
Net income | 25.4 | 35.7 | 24.0 | |||||||||
EBITDA excluding non-cash items (1) | 60.6 | 62.8 | 60.1 | |||||||||
Total assets | 532.1 | 501.7 | 386.1 |
(1) | See Business Our Businesses in Part I, Item 1 and Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations in Part II, Item 7, for further information and a reconciliation of net income (loss) to EBITDA excluding non-cash items. |
Our MIC Hawaii businesses are pursuing a strategy that has four principal components:
1. | to lower the cost of energy in Hawaii in a safe and environmentally sustainable manner; |
2. | to deploy capital to improve the security and reliability of energy in Hawaii; |
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3. | to increase and diversify the customers served by the businesses of MIC Hawaii; and |
4. | to maintain positive relationships with regulators, government agencies, customers, the communities MIC Hawaii serves and other stakeholders. |
The businesses of MIC Hawaii provide services to commercial, residential and governmental customers. MIC Hawaii does not depend on any single customer, the loss of which would have a material adverse effect on the business.
Hawaii Gas utility business is regulated by the Hawaii Public Utilities Commission (HPUC). The HPUC exercises broad regulatory oversight and investigative authority over all public utilities in Hawaii.
Rate Regulation . The HPUC establishes the rates that Hawaii Gas can charge its utility customers via cost of service regulation. Although the HPUC sets the base rate for the gas sold by Hawaii Gas utility business, Hawaii Gas is permitted to pass through changes in its fuel costs by means of a monthly fuel adjustment charge.
Hawaii Gas utility rates are established by the HPUC in periodic rate cases typically initiated by Hawaii Gas. The business initiates a rate case by submitting a request to the HPUC for an increase in rates based upon, for example, increased costs related to providing services. Following initiation of the rate increase request and submissions by other intervening parties of their positions on the rate request, and potentially an evidentiary hearing, the HPUC issues a decision establishing the revenue requirements and the resulting rates that Hawaii Gas will be allowed to charge. On August 1, 2017, Hawaii Gas filed a general rate case application with the HPUC requesting an annual increase in regulated revenues of $15.0 million. To the extent that new rates are approved by regulators, we expect that interim rate increases, if any, could take effect in mid-2018.
Other Regulations . In addition to regulating utility rates, the HPUC acts on requests for the acquisition, sale, disposition or other exchange of utility properties, including mergers and consolidations; acts on requests for financings; and approves material supply contracts.
Depending upon the end-use, Hawaii Gas competes with conventional and renewable electric generators as well as other gas providers. Electricity in Hawaii is generated by four electric utilities and various independent power producers. In addition, residential and some commercial customers in Hawaii have increased the rate at which they are installing distributed solar photovoltaic generating capacity.
Hawaii Gas Utility Business . Hawaii Gas holds the only government franchise for utility gas services in Hawaii. This enables Hawaii Gas to utilize public easements for its pipeline distribution systems. This franchise also provides for the exclusive use of extensive below-ground distribution infrastructure that Hawaii Gas owns and maintains. Hawaii Gas competes on the basis of price, reliability and the energy preferences of its customers.
Hawaii Gas Non-Utility Business . Hawaii Gas sells LPG in an unregulated market on the main islands of Hawaii. There are several other wholesale and small retail distributors that compete in the LPG market. Hawaii Gas believes it has a competitive advantage because of its established customer base, storage facilities, distribution network and reputation for reliable service.
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Hawaii Gas sources naphtha feedstock for its SNG plant from Par Hawaii Refining, LLC pursuant to a feedstock supply agreement in place through December 31, 2020. The majority of Hawaii Gas LPG is purchased from an off-island supplier with the remainder purchased from the local refineries. Hawaii Gas sources LNG from a U.S. West Coast supplier pursuant to a contract through July 2021. RNG is purchased from the City and County of Honolulu under a fixed rate contract through December 31, 2024.
Hawaii Gas processes and distributes SNG from a plant located west of the Honolulu business district. The life of the plant continues to be extended through routine maintenance and additional capital investments. A 22-mile transmission pipeline links the SNG plant to a distribution system at Pier 38 in south Oahu. From Pier 38, a pipeline distribution system consisting of approximately 900 miles of distribution and service pipelines transports gas to customers. On islands other than Oahu, LPG is distributed by direct deliveries from an off-island supplier by ship and by barge from Oahu to holding facilities or base-yards on those islands. It is then distributed via pipelines to utility customers. Approximately 90% of the Hawaii Gas pipeline system is on Oahu.
The non-utility business of Hawaii Gas provides LPG to customers on each of the main islands who are not connected to Hawaii Gas utility pipeline system. The majority of Hawaii Gas non-utility customers are on islands other than Oahu. LPG is transported to these islands by direct deliveries from an off-island supplier by ship and by barge from Oahu. Hawaii Gas also owns the infrastructure by which it distributes LPG to its customers, including harbor pipelines, trucks, several holding facilities and storage base-yards on Kauai, Maui and Hawaii.
The businesses of MIC Hawaii require environmental operating permits, the most significant of which are air and wastewater permits required for the Hawaii Gas SNG plant.
As of December 31, 2017, MIC Hawaii had 599 employees, of which 417 are subject to the terms of various collective bargaining agreements. We believe relationships with both union and non-union employees are good.
As of December 31, 2017, our consolidated businesses employed approximately 3,800 people, of which approximately 23% of these were subject to collective bargaining agreements. The MIC holding company does not have any employees.
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We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file with the SEC at the SECs public reference room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the operations of the public reference room. The SEC maintains a website that contains annual, quarterly and current reports, proxy and information statements and other information that issuers (including Macquarie Infrastructure Corporation) file electronically with the SEC. The SECs website is www.sec.gov .
Our website is www.macquarie.com/mic . You can access our Investor Center through this website. We make available free of charge, on or through our Investor Center, our proxy statements, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, as amended, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. We also make available through our Investor Center statements of beneficial ownership of the shares filed by our Manager, our directors and officers, any holders of 10% or more of our shares outstanding and others under Section 16 of the Exchange Act.
You can also find information on the Governance page on our website where we post documents including:
| Amended and Restated Bylaws of Macquarie Infrastructure Corporation; |
| Third Amended and Restated Management Services Agreement; |
| Corporate Governance Guidelines; |
| Code of Business Conduct; |
| Charters for our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee; |
| Policy for Stockholder Nomination of Candidates to Become Directors of Macquarie Infrastructure Corporation; and |
| Information for Stockholder Communication with our Board of Directors, our Audit Committee and our Lead Independent Director. |
Our Code of Business Conduct applies to all of our directors, officers and employees as well as all directors, officers and employees of our Manager involved in the management of the Company and its businesses. We will post any amendments to the Code of Business Conduct, and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange (NYSE), on our website. The information on our website is not incorporated by reference into this report.
You can request a copy of these documents at no cost, excluding exhibits, by contacting Investor Relations at 125 West 55 th Street, New York, NY 10019 (212-231-1825).
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An investment in our shares involves a number of risks. The occurrence of any of these risks could have a significant or material adverse effect on our results of operations, cash flows or financial condition and could cause a corresponding decline in the market price of our shares.
Should the economic, equity and credit market conditions, collectively or individually, become disrupted, our ability to raise equity or obtain capital, to repay or refinance credit facilities at maturity, pay significant capital expenditures, pay, maintain or grow dividends or fund growth may be costly and/or impaired. Our access to debt financing in particular will depend on a variety of factors such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit history and credit capacity, as well as the historical performance of our businesses and lender perceptions of their and our financial prospects. In the event that we are unable to obtain debt financing, particularly as significant credit facilities mature, our internal sources of liquidity may not be sufficient.
Economic conditions may also increase our counterparty risk, particularly in those businesses whose revenues are determined under multi-year contracts, such as IMTT, and our renewables businesses. Should conditions deteriorate, we would expect to see increases in counterparty defaults and/or bankruptcies, which could result in an increase in bad debt expense and may cause our operating results to decline.
The volatility in the financial markets makes projections regarding future obligations under pension plans difficult. Two of our businesses, Hawaii Gas and IMTT, have defined benefit retirement plans. Future funding obligations under those plans depend in large part on the future performance of plan assets and the mix of investment assets. Our defined benefit plans hold a significant amount of equity securities as well as fixed income securities. If the market values of these securities decline or if interest rates decline, our pension expense and cash funding requirements would increase and, as a result, could materially adversely affect the results and liquidity of these businesses and our Company.
Our senior secured revolving credit facilities impose, and future debt agreements may impose, operational and financial restrictions on us. These restrictions limit or prohibit, among other things, our ability to:
| incur additional indebtedness; |
| pay dividends, redeem subordinated debt or make other restricted payments; |
| make certain investments or acquisitions; |
| grant or permit certain liens on our assets; |
| enter into certain transactions with affiliates; |
| merge, consolidate or transfer substantially all of our assets; and |
| transfer or sell assets, including capital stock of our subsidiaries. |
These covenants could adversely affect our ability to finance our future operations or capital needs, withstand a future downturn in our business or the economy in general, engage in business activities, including future opportunities that may be in our interest, and plan for or react to market conditions or otherwise execute our business strategies. A breach of any of these covenants could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders or holders of such indebtedness could elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness. Acceleration of our other indebtedness could result in a default under the terms of the senior secured revolving credit facility or our convertible senior notes. There is no guarantee that we would be able to satisfy our obligations if any of our indebtedness is accelerated.
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Although our businesses tend to benefit from fundamental drivers of growth which are stable over time, we will attempt to augment that growth by finding, acquiring or developing, and integrating additional businesses. We anticipate that a significant portion of our future projected growth will be derived from inorganic sources which are contingent on our ability to successfully find and execute opportunities to deploy incremental capital. We may not find or acquire such opportunities on economically sensible terms. In addition, we may acquire businesses with financial reporting and control systems that are less sophisticated than ours. If we do make an acquisition, we may not be successful in integrating it into our portfolio and/or achieving the expected level of returns. If we invest capital in a development project, we may not be successful in the execution of the full project or in integrating it into our portfolio and/or achieving the expected level of performance. Failure to do any of these could result in higher indebtedness or expenses and/or in generating less cash flows than expected or generating growing amounts of cash flows at a slower than anticipated rate, either of which could result in a reduction in our share price.
We have formed and staffed a shared service center that is providing common administrative functions, including payroll processing, health and benefit plan administration, information technology, procurement, tax, legal and certain finance and accounting functions to the businesses in our portfolio. If any of these shared service functions do not perform effectively, or if we fail to adequately monitor their performance, we may not be able to achieve expected cost savings or we may have to incur additional costs to correct errors made by such shared service functions and our reputation could be harmed. Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, effects on financial reporting, litigation or remediation costs. In addition, the concentration of processes in one shared service center means that any disruption at this facility could impact all or a substantial portion of our businesses. Any of these potential effects could have an adverse effect on our results of operations, cash flows and financial condition.
With the exception of our airport services business, our businesses generally possess characteristics including generally stable demand, long-term contracts, regulated operations and inflation linked revenue. Our airport services business generates revenue and cash flows in a way that is broadly reflective of the economic health of the country. To the extent we invest in or acquire or develop businesses with revenue and cash generating capacity that is similarly GDP sensitive or businesses that do not possess these characteristics, our financial results could become more volatile and our share price could decline as a result of an increase in the real or perceived risk.
The majority of our indebtedness matures within three to seven years. Refinancing this debt may result in substantially higher interest rates or credit margins or substantially more restrictive covenants. Each of these could limit operational flexibility or reduce dividends and/or distributions from our operating businesses to us, which would have an adverse impact on our ability to freely deploy capital and continue to pay, maintain or grow dividends to our stockholders. We cannot provide assurance that we or the other owners of any of our businesses will be willing or able to make capital contributions to repay some or all of the debt if required.
At December 31, 2017, we had outstanding $752.5 million of convertible senior notes and had available a $410.0 million senior secured revolving credit facility (upsized to $600.0 million in January 2018), of which
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$143.5 million was drawn. These holding company level debt instruments increase our interest payments and could have significant adverse effects on our business, including:
| we may be required to use a significant portion of our cash flow to pay interest on our indebtedness which will reduce the funds available for dividends to stockholders, additional acquisitions, pursuit of business opportunities or other business purposes; |
| our ability to obtain additional financing may be impaired; |
| it may be more difficult for us to satisfy our financial obligations under our contractual and commercial commitments; |
| our increased level of indebtedness could place us at a competitive disadvantage compared with firms that may have proportionately less debt; |
| exposing us to risk of increased interest rates because any borrowings under the senior secured revolving credit facility are at variable rates of interest; |
| our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited; and |
| our indebtedness may make us more vulnerable to economic downturns and adverse developments in our businesses. |
We expect to obtain the funds to pay our operating expenses, pay dividends and to repay our indebtedness primarily from our operating businesses. Our ability to meet our expenses and make these payments therefore depends on the future performance of our businesses, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our businesses may not generate sufficient cash flow from operations in the future, which could result in our inability to repay indebtedness, pay, maintain or grow dividends or to fund other liquidity needs. As a holding company with no operations, we are dependent on the ability of our businesses to make distributions to us to pay our expenses, pay dividends and repay our indebtedness. In addition, the senior secured revolving credit facility is guaranteed by MIC Ohana Corporation, our direct, wholly owned subsidiary. MIC Ohana Corporation is a holding company whose only material asset is the capital stock of our other subsidiaries. If we do not have enough funds, we may be required to refinance all or part of our then existing debt, sell assets or borrow more funds, which we may not be able to accomplish on terms acceptable to us, or at all. In addition, the terms of existing or future debt agreements may restrict us from pursuing any of these alternatives.
We and any of our existing and future subsidiaries may incur substantial additional indebtedness in the future. Although the terms of our senior secured revolving credit facility contain limitations on our ability to incur additional indebtedness, these restrictions are subject to a number of qualifications and exceptions. If we incur any additional indebtedness that ranks equally with the indebtedness under our senior secured revolving credit facility, the holders of that additional debt will be entitled to share ratably with the lenders or holders of the indebtedness under the senior secured revolving credit facility in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of our Company. If new debt is added to our or any of our subsidiaries current debt levels, the related risks that we now face could be exacerbated.
The development, construction, operation and maintenance of our businesses involve various operational risks, which can include mechanical and structural failure, accidents, labor issues or the failure of technology to perform as anticipated. Events outside our control, such as economic developments, changes in fuel prices or the price of other feedstocks, governmental policy changes, demand for energy and the like, could materially reduce the revenues generated or increase the expenses of constructing, operating or maintaining our businesses. Degradation of the performance of our facilities may reduce our revenues. Unanticipated
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capital expenditures associated with maintaining, upgrading or repairing our facilities may reduce profitability. We may also choose or be required to decommission a project or other asset. The decommissioning process could be protracted and result in the incurrence of significant financial and/or regulatory obligations or other uncertainties.
Our businesses may also face construction risks typical for infrastructure businesses, including, without limitation:
| labor disputes, work stoppages or shortages of skilled labor; |
| shortages of fuels or materials; |
| slower than projected construction progress and the unavailability or late delivery of necessary equipment; |
| delays caused by or in obtaining the necessary regulatory approvals or permits; |
| adverse weather conditions and unexpected construction conditions; |
| accidents or the breakdown or failure of construction equipment or processes; |
| difficulties in obtaining suitable or sufficient financing; and |
| force majeure or catastrophic events such as explosions, fires and terrorist activities and other similar events beyond our control. |
Such developments could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of construction activities once undertaken. Construction costs may exceed estimates for various reasons, including inaccurate engineering and planning, labor and building material costs in excess of expectations and unanticipated problems with project start-up. Such unexpected increases may result in increased debt service costs and funds being insufficient to complete construction. Our facilities under development may receive little or no cash flow through the date of completion of development and may experience operating deficits after the date of completion. In addition, market conditions may change during the course of development that make such development less attractive than at the time it was commenced. Any events of this nature could severely delay or prevent the completion of, or significantly increase the cost of, the construction. In addition, there are risks inherent in the construction work which may give rise to claims or demands against us from time to time. Delays in the completion of any project may result in lost revenues or increased expenses.
We source engines, boilers, chillers, cogeneration systems, photovoltaic modules and other complex components from third-party suppliers and engage third-party contractors for the construction of power projects. We typically enter into contracts with our suppliers and contractors on a project-by-project basis and do not maintain long-term contracts with our suppliers or contractors. Therefore, we are generally exposed to price fluctuations and availability of products and components sourced from our suppliers and construction services procured from our contractors. In light of changing market dynamics and government policies, the price and availability of certain products have been subject to significant volatility in recent years. Increases in the prices of products and components, decreases in their availability, fluctuations in construction, labor and installation costs, or changes in the terms of our relationships with our suppliers and contractors may increase the cost of procuring equipment and engaging contractors and hence materially adversely affect our results of operations, cash flows and financial condition.
Furthermore, the delivery of defective products or construction services by our suppliers or contractors which are otherwise not in compliance with contract specifications, or the late supply of products or construction services, may cause construction delays or projects that fail to adhere to our quality and safety standards, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
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Finally, we rely on third party contractors to help us develop new projects. If these contractors do not fulfill their contractual obligations we could incur additional expenses or lose part of the capital we invested in these new facilities.
We expect to benefit from various warranties, including product quality and performance warranties, provided by our suppliers and contractors. These suppliers and contractors, however, may file for bankruptcy, cease operations or otherwise become unable or unwilling to fulfill their warranty obligations. Even if a supplier fulfills its warranty obligations, the warranty may not be sufficient to compensate us for all of our losses. In addition, the warranty period generally expires several years after the date that the equipment is delivered or commissioned and is subject to liability limits. Where damages are caused by defective products provided by our suppliers or construction services delivered by our contractors, our suppliers or contractors may be unable or unwilling to perform their warranty obligations as a result of their financial condition or otherwise, or if the warranty period has expired or a liability limit has been reached, there may be a reduction or loss of warranty protection for the affected projects, which could have a material adverse effect on our business result of operations, cash flows and financial condition.
We operate our consolidated businesses on a stand-alone basis, relying on existing management teams for day-to-day operations. Consequently, our operational success, as well as the success of our internal growth strategy, will be dependent on the continued efforts of the management teams of our consolidating businesses, who have extensive experience in the day-to-day operations of these businesses. Furthermore, we will likely be dependent on the operating management teams of businesses that we may acquire in the future. The loss of key personnel, or the inability to retain or replace qualified employees, could have an adverse effect on our business, results of operations, cash flows and financial condition.
As of December 31, 2017, approximately 23% of our businesses employees were covered by collective bargaining agreements. These agreements have staggered expirations over the next several years. Although we believe our employee relations to be generally good, a prolonged work stoppage, strike or other slowdown at any facility with union employees could significantly disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows or financial condition. In addition, we cannot ensure that upon the expiration of existing collective bargaining agreements, new agreements will be reached without union action or that any such new agreements will be on terms satisfactory to us. Any renegotiation of labor agreements could significantly increase our costs for wages, healthcare and other benefits.
While it is our preference to own or control our businesses or to be able to exercise significant influence over our investments, including with respect to the timing and amount of distributions to us from those businesses, we may in some cases find the potential economic benefits of owning less than a controlling interest to be compelling. In such cases, we will attempt to co-invest with like-minded individuals/organizations. However, there can be no certainty that our interests with such co-investor(s) will always be aligned or that we will always be in a position to determine the amount and timing of distributions from such investments.
Our ability to influence a joint venture business is typically governed by (and may be limited to) our rights under a stockholders agreement. We may not directly manage the day-to-day operations of a joint venture, and we may not be provided with notice of material events with respect to such joint venture
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businesses (including, without limitation, potential liabilities for environmental, health and safety matters) in as timely a manner and with the same level of detail as we would if we were in such a day-to-day management role.
If we do not manage the day-to-day operations of a joint venture, we may not have complete visibility into operational and financial systems, controls or processes, including among others, as they relate to environmental, health and safety measures. We may not be able to evaluate whether such financial, operational, or environmental, health and safety systems or controls are sufficiently robust or executed appropriately.
Our businesses (including businesses in which we invest) are subject to numerous statutes, rules and regulations relating to environmental protection. Atlantic Aviation is subject to environmental protection requirements relating to the storage, transport, pumping and transfer of jet fuel. Hawaii Gas is subject to risks and hazards associated with the refining, handling, storage and transportation of combustible products. The occurrence of any or all of these risks could result in substantial losses due to personal injury, loss of life, damage or destruction of property and equipment and environmental damage. Any losses we face could be greater than insurance levels maintained by our businesses, and could have an adverse effect on their and our financial results. In addition, disruptions to physical assets could reduce our ability to serve customers and adversely affect sales and cash flows.
IMTTs and BECs operations in particular are subject to complex, stringent and expensive environmental regulations, including compliance with emission limitations and/or air permits, and future compliance costs are difficult to estimate with certainty. IMTT also faces risks relating to the handling and transportation of significant amounts of hazardous materials. Failure to comply with regulations or other claims may give rise to interruptions in operations and civil or criminal penalties and liabilities that could adversely affect the profitability of this business and the distributions it makes to us, as could significant unexpected compliance costs. Further, these rules and regulations are subject to change and compliance with any changes could result in a restriction of the activities of our businesses, significant capital expenditures and/or increased ongoing operating costs.
IMTT owns a number of properties that have been subject to environmental contamination in the past and require remediation for which IMTT is liable. These remediation obligations exist principally at IMTTs Bayonne and Lemont facilities and could cost more than anticipated or could be incurred earlier than anticipated, or both. In addition, IMTT may discover additional environmental contamination at its Bayonne, Lemont or other facilities that may require remediation at significant cost to IMTT. Further, the past contamination of the properties owned by IMTT, including by former owners or operators of such properties, could result in remediation obligations, personal injury, property damage, environmental damage or similar claims by third parties.
We may also be required to address other prior or future environmental contamination, including soil and groundwater contamination that results from the spillage of fuel, hazardous materials or other pollutants. Under various federal, state, local and foreign environmental statutes, rules and regulations, a current or previous owner or operator of real property may be liable for noncompliance with applicable environmental and health and safety requirements and for the costs of investigation, monitoring, removal or remediation of hazardous materials. These laws often impose liability, whether or not the owner or operator knew of, or was responsible for, the presence of hazardous materials. Persons who arrange for the disposal or treatment of hazardous materials may also be liable for the costs of removal or remediation of those materials at the disposal or treatment facility, whether or not that facility is or ever was owned or operated by that person and whether or not the original disposal or treatment activity accorded with all regulatory requirements. The presence of hazardous materials on a property could result in personal injury, loss of life, damage or destruction of property and equipment, environmental damage and/or claims by third parties that could have a material adverse effect on our result of operations, cash flows and financial condition.
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Our businesses are subject to federal, state and local safety, health and environmental laws and regulations. These laws and regulations affect all aspects of their operations and are frequently modified. There is a risk that any one of our businesses may not be able to comply with some aspect of these laws and regulations, resulting in fines or penalties. Additionally, if new laws and regulations are adopted or if interpretations of existing laws and regulations change, we could be required to increase capital spending and/or incur increased operating expenses in order to comply. Because the regulatory environment frequently changes, we cannot predict when or how we may be affected by such changes. Environmental emissions and other compliance testing technologies continue to improve, which may result in more stringent, targeted environmental regulations and compliance obligations in the future, for example at IMTT, the costs of which could be material and adversely affect our results of operations, cash flows and financial condition.
Our businesses generally are, and will continue to be, subject to substantial regulation by governmental agencies. In addition, our businesses rely on obtaining and maintaining government permits, licenses, concessions, leases or contracts. Government entities, due to the wide-ranging scope of their authority, have significant leverage over us in their contractual and regulatory relationships with us that they may exercise in a manner that causes us delays in the operation of our businesses or pursuit of our strategy, or increased administrative expense. Furthermore, government permits, licenses, concessions, leases and contracts are generally very complex, which may result in periods of non-compliance, or disputes over interpretation or enforceability. If we fail to comply with these regulations or contractual obligations, we could be subject to monetary penalties or we may lose our rights to operate the affected business, or both. Where our ability to operate a business is subject to a concession or lease from government entities, the concession or lease may restrict our ability to operate the business in a way that maximizes cash flows and profitability. Further, our ability to grow our current and future businesses will often require consent of numerous government regulators. Increased regulation restricting the ownership or management of U.S. assets by non-U.S. persons, given the non-U.S. ultimate ownership of our Manager, may limit our ability to pursue acquisitions. Any such regulation may also limit our Managers ability to continue to manage our operations, which could cause disruption to our businesses and a decline in our performance. In addition, any required government consents may be costly to seek and we may not be able to obtain them. Failure to obtain any required consents could limit our ability to achieve our growth strategy.
Our contracts with government entities may also contain clauses more favorable to the government counterparty than a typical commercial contract. For instance, a lease, concession or general service contract may enable the government to terminate the agreement without adequate compensation. In addition, government counterparties also may have the discretion to change or increase regulation of our operations, or implement laws or regulations affecting our operations, separate from any contractual rights they may have. Governments have considerable discretion in implementing regulations that could impact these businesses. Governments may be influenced by political considerations to take actions that may hinder the efficient and profitable operation of our businesses.
Many of our contracts, especially those with government entities or quasi-governmental entities are long-term contracts. These long-term contracts may be difficult to replace if terminated. In addition, buy-out or other early termination provisions could adversely affect our results of operations, cash flows and financial condition if exercised before the end of the contract.
Where our businesses are sole or predominant service providers in their respective service areas and provide services that are essential to the community, they are likely to be subject to rate regulation by governmental agencies that will determine the prices they may charge. We may also face fees or other charges
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imposed by government agencies that increase our costs and over which we have no control. We may be subject to increases in fees or unfavorable price determinations that may be final with no right of appeal or that, despite a right of appeal, could result in our profits being negatively affected. In addition, we may have very little negotiating leverage in establishing contracts with government entities, which may decrease the prices that we otherwise might be able to charge or the terms upon which we provide products or services. Businesses we acquire in the future may also be subject to rate regulation or similar negotiating limitations.
We enter into government contracts, from time to time, which are subject to various uncertainties, restrictions and regulations, which could result in withholding or delay of payments. In addition, government contracts are subject to specific regulations as well as various statutes related to employment practices, environmental protection, recordkeeping and accounting. These laws impact how we transact business with governmental clients and, in some instances, impose significant costs on business operations. If we fail to comply with any of these regulations, requirements or statutes, our existing government contracts could be terminated, and we could be temporarily suspended or even barred from government contracting or subcontracting. If one or more of our government contracts are terminated or if we are suspended or barred from government contract work, or if payment of our cost is disallowed, we could suffer a significant reduction in expected revenue and profits.
Accidents and incidents involving the aviation industry, particularly those involving the airports and heliport at which we operate, whether or not directly related to our Companys services, and the media coverage thereof, can adversely impact our Companys reputation and the demand for our services. Similarly, negative publicity or public perception of the energy-related industries in which we operate, including through media coverage of environmental contamination and climate change concerns, could reduce demand for our services and harm our reputation. Any reduction in demand for the services our businesses provide or damage to our reputation could have a material adverse effect on our results of operations, cash flows and financial condition and business prospects.
A significant and sustained increase in the price of oil could have a negative impact on the profitability of a number of our businesses. Higher prices for jet fuel could result in reduction in the use of aircraft by GA customers, which would have a negative impact on the profitability of Atlantic Aviation. Higher fuel prices could increase the cost of power to our businesses generally and they may not be able to fully pass the increase through to customers.
A period of low energy prices, or what has been characterized as an oil or energy glut, may not drive an increase in economic activity and capital investment. If instead it constrains growth in economic activity and capital investment, and/or results in an economic slow down, demand for products and services provided by our airport services and/or bulk liquid terminal businesses may flatten or decline. A decline in the performance of these businesses could result in a decline in the value of our shares.
Revenue at our Atlantic Aviation and Hawaii Gas businesses is generated primarily from the re-sale of a commodity. Accordingly, we may not be able to pass through all or any of the fluctuations to customers on a real time basis.
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The trends toward increased conservation, as well as technological advances including installation of improved insulation, the development of more efficient heating and cooling devices and advances in energy generation technology, may reduce demand for certain of our products and services. During periods of high energy commodity costs, the prices of certain of our products and services generally increase, which may lead to increased conservation. In addition, federal and/or state regulation may require mandatory conservation measures, which would also reduce demand.
The discovery and development of new and unconventional energy sources in the U.S. may drive changes in related energy product logistics chains. The location and exploitation of these new energy sources could result in the dislocation of certain portions of some of our businesses. Either or both of these changes in energy supply chain logistics or trends toward increased conservation could reduce demand for our products and services and could adversely affect our results of operations, cash flows and financial condition.
Although our businesses tend to produce stable financial results owing to a preponderance of contracted/concession based revenues and the provision of generally essential services, each operates in an environment which can generate seasonal variations in results. Our bulk liquid terminals business may generate incrementally more cash during cold weather months as a result of increased heating, thruput of certain products such as heating oil or the reduction in maintenance expenses. Our aviation services business may generate relatively more cash during cold weather months as a result of increased GA traffic into bases in Florida and intermountain West. Our BEC gas power facility generates more cash during periods of extreme temperature. Our solar facilities may generate incrementally more cash during summer months when the number of daylight hours increases. Our gas production and distribution business may generate incrementally more cash during the peak tourism periods in Hawaii between mid-December and the end of March and from mid-June through mid-September. To the extent that our businesses collectively appear to generate more cash flows in the first quarter of the year, such performance, if annualized, could result in an overly optimistic estimate of the value of our shares.
We rely on information technology networks and systems to process, transmit and store electronic information used to operate our businesses, make operational decisions and manage inventory. We also share certain information technology networks with our Manager and we use third party information technology service providers. The information technology we use, as well as the information technology systems used by our Manager and third party providers, could be vulnerable to security breach, damage or interruption from computer viruses, cyber-attacks, cyber terrorism, natural disasters or telecommunications failures. If our technology systems, or those of the Manager or third party providers, were to fail or be breached and we were unable to recover in a timely manner, we may be unable to fulfill critical business functions and confidential data could be compromised, we may incur substantial repair or replacement costs, and our reputation could be damaged, any of which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
We transmit confidential credit card information by way of secure private retail networks and rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission and storage of confidential information, such as customer credit card information. Any material failure by us to achieve or maintain compliance with the Payment Card Industry security requirements or to rectify a security issue may result in fines and the imposition of restrictions on our ability to accept credit cards as a form of payment. Any loss, disclosure or misappropriation of, or access to, customers, employees or business partners information or other breach of our information security can result in legal claims or legal proceedings, including regulatory investigations and actions, may have a negative impact on our reputation, could result in loss of customers, could lead to regulator enforcement actions against us, and could materially adversely affect our business, results of operations, cash flows and financial condition.
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Climate change is receiving increased attention and the outcome of federal and state actions to address global climate change could result in significant new regulations, additional changes to fund energy efficiency activities or other regulatory actions. These actions could increase the costs of operating our businesses, reduce the demand for our products and services and impact the prices we charge our customers, any or all of which could adversely affect our results of operations. In addition, climate change could make severe weather events more frequent, which would increase the likelihood of capital expenditures to replace damaged physical property at our businesses.
Hazards customary to the power production industry include the potential for unusual weather conditions, which could affect fuel pricing and availability, as well as route to market or access to customers through transmission and distribution lines or to critical plant assets. To the extent that climate change contributes to the frequency or intensity of weather-related events, our operations could be affected.
Restrictions on emissions of methane or carbon dioxide that may be imposed could adversely impact the demand for, price of, and value of our products and reserves. As our operations also emit greenhouse gases directly, current and future laws or regulations limiting such emissions could increase our own costs. Future laws or regulations addressing greenhouse gas emissions could adversely impact our businesses.
CP operates generating units in New Jersey that are not subject to the Regional Greenhouse Gas Initiative (RGGI), which is a regional cap and trade system. Future state-level legislative changes may result in generating units in New Jersey being subject to RGGI. These new rules could adversely impact CPs results of operations, cash flows and financial condition.
Financial accounting standards are promulgated by the Financial Accounting Standards Board (FASB), and interpreted by the SEC and various regulatory bodies formed to interpret, modify and/or create new accounting policies. Changes in those policies can have a significant effect on our reported results of operations, cash flows and financial condition and may affect our reporting, in particular our reporting related to transactions completed prior to implementation of policy.
Our businesses may face greater risk of terrorist attack than other businesses, particularly our operations within the immediate vicinity of metropolitan and suburban areas. Because our businesses provide basic or essential services relied on by many people, our facilities may be at greater risk for terrorism attacks than other businesses, which could affect our operations significantly. Any terrorist attacks that occur at or near our business locations would be likely to cause significant harm to our employees and assets. In recent years, insurers have significantly reduced the amount of insurance coverage available for liability to persons other than employees or passengers for claims resulting from acts of terrorism, war or similar events. A terrorist attack that makes use of our property, or property under our control, may result in liability far in excess of available insurance coverage. In addition, any terrorist attack, regardless of location, could cause a disruption to our business and a decline in earnings. Furthermore, such an attack would likely result in an increase in insurance premiums and a reduction in coverage and could reduce profitability.
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Demand for IMTTs bulk liquid terminal services is largely a function of demand for chemical, petroleum and vegetable and tropical oil products and the extent to which such products are imported into and/or exported out of the U.S. Demand for chemical, petroleum and vegetable and tropical oil products is influenced by a number of factors, including economic conditions, growth in the economy, the absolute and relative pricing of chemical, petroleum and vegetable and tropical oil products and their substitutes. Import and export volumes of these products to and from the U.S. are influenced by demand and supply imbalances in the U.S. and overseas, the cost of producing chemical, petroleum and vegetable and tropical oil products domestically versus overseas and the cost of transporting the products between the U.S. and overseas destinations.
Global demand for heavy oils has declined in recent years, and the demand for light transportation fuels, tropical oils and vegetable oils has increased. In addition, recent backwardation (meaning the futures prices for commodities are below the current, or spot, prices) has reduced the demand for storage by commodities traders. These trends have had, and are expected to continue to have, an adverse impact on the demand for IMTT's services. If IMTT is unable to successfully repurpose some of its capacity to accommodate the products for which demand is high, increase supply chain efficiencies and upgrade certain other capabilities to enhance service, the demand for IMTT's services may materially decrease and IMTT's results of operations, cash flows and financial condition may be materially adversely affected.
In addition, changes in government regulations that affect imports and exports of bulk chemical, petroleum, renewable fuels and vegetable and tropical oil products, including the imposition of surcharges or taxes on imported or exported products, could adversely affect import and export volumes to and from the U.S. A reduction in demand for bulk liquid terminals, particularly in New York Harbor or the Lower Mississippi River, as a consequence of lower demand for, or imports/exports of, chemical, petroleum or vegetable and tropical oil products, could lead to a decline in storage rates and tankage volumes leased out by IMTT and adversely affect IMTTs revenue and profitability and the distributions it makes to us.
An increase in available bulk liquid terminal capacity in excess of growth in demand for such storage in the key locations in which IMTT operates, such as New York Harbor and the Lower Mississippi River, or in Houston or other parts of the Gulf Coast could result in overcapacity and a decline in storage rates and tankage volumes leased out by IMTT. This could adversely affect IMTTs revenue and profitability and the distributions it makes to us.
Demand for products at IMTTs terminal locations may also drive pricing and utilization. Demand may be influenced by a range of factors including changes in petroleum product supply for demand patterns, forward-price structure, financial market conditions, regulations or other factors.
The interplay and proximity of terminal capacity, refining and end user demand is critical for the commercial viability of a terminal. Shifts in any of these factors may cause a decline in demand for our terminals or make other terminals more attractive, which could adversely affect IMTTs revenue and profitability and the distributions it makes to us.
A portion of IMTTs historical growth has been dependent on the deployment of growth capital. IMTT faces significant uncertainties and competition in the pursuit of growth opportunities. For example, decisions regarding new growth projects rely on numerous estimates, including among other factors, predictions of future demand for IMTTs services, future supply shifts, crude oil production estimates, commodity price environments, economic conditions and potential changes in the financial condition of IMTTs customers. IMTTs predictions of such factors could cause it to forego certain investments or to lose opportunities to
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competitors who make investments based on more aggressive predictions. If IMTT cannot find projects with economically acceptable terms, future growth of this business may be limited.
A decrease in oil prices over a long period of time may result in reduced demand for the services IMTT provides. Uncertainty in the oil markets may also result in IMTTs customers entering into shorter term contracts for storage than they have previously. This would increase the frequency of customer contract renewals and negotiations and may result in more volatility in earnings.
Lower oil prices may negatively impact certain IMTT customers and cause them to seek to renegotiate contract pricing or storage capacity in order to reduce operating costs. Low oil prices may also result in a lower level of growth capital deployment by IMTT as its customers may not require additional storage or logistics assets and this may limit IMTTs future growth. IMTTs customer base includes large, multinational oil companies. If oil prices remain low or decline further, one or more of these companies could cease operations or be consolidated. This could result in a loss of customers and/or a consolidation among customers and may reduce IMTTs revenue or concentrate counterparties to the point where the loss of any one could be material to the performance or prospects of the business.
Upon expiration, agreements can generally be terminated by either party, though some agreements require the giving of requisite notice. Changing market conditions, including changes in petroleum product supply or demand patterns, forward-price structure, financial market conditions, regulations, accounting rules or other factors could cause IMTTs customers to be unwilling to renew their storage agreements when those agreements terminate, or make them willing to renew only at lower rates or for shorter periods. If any of IMTTs agreements are terminated or expire and IMTT is unable to secure comparable alternative arrangements, IMTT may not be able to generate sufficient additional revenue from third parties to replace any shortfall. Additionally, IMTT may incur substantial costs if modifications to its terminals are required by a new or renegotiated agreement.
Recent trends in the demand for certain products stored at IMTTs facilities, as well as recent pricing trends in the commodities futures markets, have had, and are expected to continue to have, an adverse impact on the demand for IMTT's services. See risk factor IMTT's business is dependent on the demand for bulk liquid terminals capacity in the locations where it operates above. If IMTT is unable to successfully repurpose some of its capacity and upgrade certain of its other capabilities to address these trends, the level of contract renewals by IMTT customers may materially decrease, which may have a material adverse effect on IMTT's results of operations, cash flows and financial condition.
There is risk of incurring significant environmental costs and liabilities in IMTTs operations due to its handling of petroleum chemicals, hazardous substances and wastes, because of air emissions, water discharges and waste practices related to its operations, and as a result of historical operations and waste disposal practices of prior owners of IMTTs facilities. IMTTs pipeline and terminals have been used for transportation, storage and distribution of crude oil, refined petroleum products and chemicals for several decades. Although IMTT has utilized operating and disposal practices that were standard in the industry at the time, refined petroleum products or crude oil, chemicals, hazardous substances and wastes from time to time have been spilled or released on or under the terminal properties.
In addition, the terminal properties that were previously owned and operated by other parties and those parties from time to time also may have spilled or released refined petroleum products or crude oil, chemicals, hazardous substances or wastes. The terminal properties are subject to federal, state and local laws that impose
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investigatory, corrective action and remedial obligations, some of which are joint and several or strict liability obligations without regard to fault, to address and prevent environmental contamination. IMTT may incur significant costs and liabilities in responding to any soil and groundwater contamination that occurs on its properties, even if the contamination was caused by prior owners and operators of its facilities. IMTT may not be able to recover some or any of these costs from insurance or other sources of contractual indemnity. To the extent that the costs associated with meeting any or all of these requirements are substantial and not adequately provided for, there could be a material adverse effect on IMTTs business, results of operations, cash flows and financial condition.
IMTTs operations involve the transportation and storage of petroleum, chemical and vegetable and tropical oil products which are subject to federal, state, and local laws and regulations governing release of materials and vapors into the environment, occupational health and safety aspects of our operations, and otherwise relating to the protection of the environment. Compliance with this array of federal, state, and local laws and regulations is difficult and may require significant capital expenditures and operating costs to mitigate or prevent pollution. Moreover, IMTTs business is subject to spills, discharges or other releases of petroleum or chemical products or other hazardous substances or wastes into the environment and neighboring areas, in which events joint and several, strict liability may be imposed against us under certain environmental laws for costs required to remediate and restore affected properties, for claims made by neighboring landowners and other third parties for personal injury, natural resource and property damages, and for costs required to conduct health studies. Failure to comply with applicable environmental, health, and safety laws and regulations may result in the assessment of sanctions, including fines, administrative, civil or criminal penalties, and permit revocations, the imposition of investigatory, corrective action, or remedial obligations and the issuance of injunctions limiting or prohibiting some or all of IMTTs operations.
New laws and regulations, amendment of existing laws and regulations, increased government enforcement or other developments could require IMTT to make additional expenditures. Many of these laws and regulations are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time. IMTT is not able to predict the impact of new or changed laws or regulations or how such legal requirements are interpreted or enforced, but any such expenditures or costs for environmental and occupational health and safety compliance could have a material adverse effect on its results of operations, cash flows and financial condition.
The transportation, handling and storage of petroleum, chemical and vegetable and tropical oil products are subject to the risk of spills, leakage, contamination, fires and explosions. Any of these events may result in loss of revenue, loss of reputation or goodwill, fines, penalties and other liabilities. In certain circumstances, such events could also require IMTT to halt or significantly alter operations at all or part of the facility at which the event occurred. IMTT carries insurance to protect against most of the accident-related risks involved in the conduct of the business; however, the limits of IMTTs coverage mean IMTT cannot insure against all risks. Losses from terrorism or acts of war, which results in significant damage to one or more of IMTTs major facilities, may have a negative impact on IMTTs future cash flow and profitability and the distributions it makes to us. Further, future losses sustained by insurers during hurricanes and storms in the U.S. Gulf and Northeast regions may result in lower insurance coverage and/or increased insurance premiums for IMTTs properties.
IMTTs terminals are generally long-lived assets. Some of those assets have been in service for several decades. The age and condition of these terminals could result in increased maintenance or remediation expenditures and an increased risk of product releases and associated costs and liabilities. Any significant
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increase in these expenditures, costs or liabilities could materially adversely affect IMTTs results of operations, cash flows and financial condition.
Petroleum and other products that IMTT stores and handles are consumed in various end markets. Various federal, state and local agencies have the authority to prescribe specific product quality specifications for commodities sold into the public market. Changes in product quality specifications or blending requirements could reduce IMTTs revenue, require IMTT to incur additional costs or require capital expenditures. If IMTT is unable to recover these costs through increased revenue, its cash flows could be adversely affected.
As of December 31, 2017, IMTTs ten largest customers by revenue generated approximately 50% of its revenue. The loss of one or more of these customers for any reason, including, but not limited to, insolvency, industry consolidation or deconsolidation or changes in market conditions, could result in a reduction in storage capacity utilization in the event such capacity is not leased to other customers and may adversely affect IMTTs revenue and profitability and the distributions it makes to us.
A large part of the business revenue is derived from fueling and other services provided to GA customers and, to a lesser extent, commercial, freight and military flights. An economic downturn could reduce the level of air travel, adversely affecting Atlantic Aviation as GA travel is primarily a function of economic activity. Consequently, during periods of financial market dislocation, FBO customers may be more likely to curtail air travel.
Air travel and air traffic volume can also be affected by events that have nationwide and industry-wide implications. Events such as wars, outbreaks of disease, severe weather and terrorist activities in the U.S. or overseas may reduce air travel. Local circumstances include downturns in the general economic conditions of the area where an airport is located or other situations in which the business major FBO customers relocate their home base or preferred fueling stop to alternative locations.
In addition, changes to regulations governing the tax treatment relating to GA travel, either for businesses or individuals, may cause a reduction in GA travel. Increased environmental regulation restricting or increasing the cost of aviation activities could also cause the business revenue to decline.
Atlantic Aviation may experience negative impacts to its results of operations due to a deterioration in the level of domestic and international financial markets activity. A deterioration in either equity or credit markets and its impact on the volume or value of debt or equity issuances and/or merger and acquisition activity may cause GA activity to decline and consequently impact our results of operations, cash flows and financial condition.
FBO operators at a particular airport compete based on a number of factors, including location of the facility relative to runways and street access, service, value added features, reliability and price. Many of Atlantic Aviations FBOs compete with one or more FBOs at their respective airports and with FBOs at nearby airports. Furthermore, leases related to FBO operations may be subject to competitive bidding at the
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end of their term. Some present and potential competitors may have or may obtain greater financial and marketing resources than Atlantic Aviation, which may negatively impact Atlantic Aviations ability to compete at each airport or for lease renewal. Some competitors may aggressively or irrationally price their bids for airport leases, which may limit the business ability to grow or renew its portfolio. Excessive price discounting may cause fuel volume and market share decline, potential decline in hangar rentals and de-icing and may result in increased margin pressure, adversely affecting the profitability of this business.
Atlantic Aviations FBOs do not have the right to be the sole provider of FBO services at any airport. The authority responsible for each airport has the ability to grant other leases to other operators and new competitors could be established at those airports. The addition of new competitors may reduce or impair Atlantic Aviations ability to grow or improve its financial performance.
Atlantic Aviation generates revenue pursuant to leases granted by airport authorities. Airport authorities may choose at the expiration of the current lease to not renew the lease at all or to only renew the lease on terms which are economically unfavorable to Atlantic Aviation. In addition, airport authorities may require Atlantic Aviation to participate in a bidding process to renew a lease, which could require unanticipated capital spending and could divert managements attention during the pendency of the process. The loss or modification of any of Atlantic Aviations airport leases could adversely impact its results of operations, cash flows and financial condition.
Atlantic Aviations revenue is derived from long-term leases granted by airport authorities on 70 airports in the U.S. If Atlantic Aviation defaults on the terms and conditions of its leases, including upon insolvency, the relevant authority may terminate the lease without compensation. In this case, Atlantic Aviation would then lose the income from that location and potentially the expected returns from prior capital expenditures. Such an event could have a material adverse effect on Atlantic Aviations results of operations, cash flows and financial condition.
Aviation fuel is generally stored on site in fuel farms. In some instances these fuel farms are owned by the FBO operator and in other instances they are owned by a third party, usually the airport or a third party fuel provider. Extreme and sudden movements in underlying commodity prices may impact the value of an FBO operators fuel inventory as well as the margin the FBO operator earns on fuel. In addition, extreme and sudden movements in commodity prices may impact overall GA activity levels.
FBO operators compete in part on the basis of the overall quality and attractiveness as well as the safety of their operations. Inadequate maintenance of any of the hangars, terminals, ramps or other assets comprising Atlantic Aviations FBOs could result in customers electing not to utilize Atlantic Aviation where another provider operates or to elect not to use a particular airport where an alternative in the same market exists. The resulting decline in customer visits or negative impact on reputation could adversely impact revenue from fuel sales, hangar/office rental, ramp and/or ramp services fees and could impact more than one facility.
Aircraft owners and operators rely on FBOs to control the quality of the fuel they sell. Failure to maintain the integrity of supplies as a result of inadequate or inappropriate maintenance of fuel farms (storage facilities), fuel trucks, or related equipment could result in the introduction of contaminants and could lead to damage or failure of aircraft and could adversely impact the reputation, revenue and/or profitability of the business.
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Completing acquisitions, expansions or developments are subject to a number of conditions, and we may not complete such transactions on a timely basis or at all, which could have an adverse effect on the business and results of operations, cash flows and financial condition.
FBO industry participants are often smaller, private companies with less sophisticated information systems and financial reporting and control capabilities. If we complete the acquisitions, we may be unable to integrate the assets into our existing operations on a timely basis or to achieve expected efficiencies. The integration could be expensive and could be time consuming for our management.
We may not be able to achieve anticipated levels of financial performance at the acquired FBO within our expected time frames or at all. Atlantic Aviation may incur additional indebtedness to fund future acquisitions, expansions or developments. This increased level of indebtedness will increase interest expense and could reduce funds available for reinvestment or distribution to us.
As of December 31, 2017, Atlantic Aviation had total long-term debt outstanding of $648.0 million, consisting of $390.0 million in term loan debt and $258.0 million drawn on its senior secured revolving credit facility. The terms of these debt arrangements require compliance with certain operating and financial covenants. The ability of Atlantic Aviation to meet its respective debt service obligations and to refinance or repay their outstanding indebtedness will depend primarily upon cash flows generated by this business.
The U.S. military operates aircraft that are serviced at Atlantic Aviation FBOs. Cuts in U.S. military spending, to the extent they result in a reduction in the number of flights by military aircraft, could reduce revenue and gross margin at Atlantic Aviation.
FBOs are subject to extensive regulatory requirements that could result in significant costs. For example, the FAA, from time to time, issues directives and other regulations relating to the management, maintenance and operation of facilities. Compliance with those requirements may cause Atlantic Aviation to incur significant expenditures. The proposal and enactment of additional laws and regulations, as well as any charges that Atlantic Aviation has not complied with any such laws and regulations, could significantly increase the cost of Atlantic Aviations operations and reduce overall revenue. In addition, new regulations, if implemented, could decrease the convenience and attractiveness of GA travel relative to commercial air travel and, therefore, may adversely impact demand for Atlantic Aviations services.
The business uses industry and airport-specific GA traffic data published by the FAA to identify trends in the FBO industry. The business also uses this traffic data as a key input to decision-making in strategic planning, mergers and acquisitions and macro pricing matters. However, as noted by the FAA on their website, the data has several limitations and challenges. As a result, the use of the FAA traffic data may result in conclusions in strategic planning, mergers and acquisitions or macro pricing decisions that are ultimately sub-optimal.
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The power and energy sectors are the subject of substantial and complex laws, rules and regulations. These regulators include the FERC, which has jurisdiction over the transmission and wholesale sale of electricity in interstate commerce and over the transportation, storage and certain sales of natural gas in interstate commerce, including the rates, charges and other terms and conditions for such services and the NERC, the purpose of which is to establish and enforce reliability standards applicable to all users, owners and operators of the bulk power system. The wholesale power markets are also subject to regulation by independent system operators, such as the NYISO, regional transmission operators and various state and local authorities. Changes in generation capacity requirements or other components of wholesale market design or other changes in regulation by these governmental agencies could adversely impact demand for the services provided by our CP businesses, and could adversely affect the prices our CP businesses are able to receive for such services. Significant changes in demand or price could adversely affect the results of operations, cash flows and financial condition at our CP businesses.
Market prices for electricity, capacity and ancillary services are unpredictable and may fluctuate substantially. Unlike most other commodities, power can only be stored on a very limited basis and generally must be produced concurrently with its use. As a result, power prices are subject to significant volatility due to supply and demand imbalances, especially in the day-ahead and spot markets. Similarly, capacity market pricing is impacted by a variety of factors including supply and demand imbalances and administratively set parameters which can drive period to period volatility. CPs results of operations, cash flows and financial condition may be negatively affected by lower prices for wholesale electricity, capacity and related products.
Four solar projects and one wind project have minimum production clauses included in their respective PPAs or subscription agreements. These minimum production levels are specified in each respective contract. Failure to meet these minimum production levels, could result in liquidated damages, other financial penalties, or contract termination.
BEC participates in the NYISO Installed Capacity Market, directly realizing capacity payments associated with the 37.5% untolled portion of BECs plant capacity. Failure to perform when called upon to do so by the system operator could result in penalties and other obligations as determined by the NYISO.
These liquidated damages or penalties could have a negative impact on the result of operations, cash flows and financial condition of the projects and their ability to comply with their respective debt covenant obligations.
BEC connects to a 6.5 mile, 345-kilovolt submarine power line under the New York Harbor connecting with a Consolidated Edison substation in Brooklyn, New York.
In addition to natural risks such as earthquake, flood, lightning, hurricane and wind, the generation of power by BEC and its transmission of power from Bayonne to Brooklyn via the submarine cable, and its supply of fuel via natural gas laterals and tank-stored fuel oil exposes us to other hazards such as fire, explosion, structural collapse, equipment failure and other unplanned outages both in respect of BEC and our adjacent Bayonne operations at IMTT. The occurrence of any of these events may result in our being named as a defendant in lawsuits asserting claims for substantial damages, including for environmental cleanup costs,
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personal injury and property damage and fines and/or penalties. At a minimum, the occurrence of any of these events may result in a significant interruption to business operations, potentially for extended periods, which could have a material adverse effect on CPs result of operations, cash flows and financial condition.
While we maintain an amount of insurance protection that we consider adequate, we cannot provide any assurance that this insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject to. A successful claim for which our Company is not fully insured could hurt our financial results and materially harm our financial condition. Further, due to rising insurance costs and changes in the insurance markets, we cannot provide any assurance that this insurance coverage will continue to be available at all or at rates or on terms similar to those presently available. Any losses not covered by insurance could have a material adverse effect on our results of operations, cash flows and financial condition.
As part of our acquisition of BEC, we announced our intention to add incremental generating capacity on land owned by our IMTT business adjacent to the existing facility. While we have received reports indicating that the existing submarine cable is capable of transmitting both the existing and incremental electricity to Brooklyn, BEC has not historically operated at this capacity. If we are not able to transmit some or all of the expected incremental power via the existing cable, it could have a material adverse effect on CPs results of operations, cash flows and financial condition.
CP depends on electric interconnection and transmission facilities owned and operated by others to deliver the power it generates. Certain off-taker contracts include limited provisions that allow for occasional curtailment of electricity generated by CP due to the limitations of the transmission system or electricity grid. Any constraints on, or the failure of, interconnections or transmission facilities could prevent CP from selling power and could adversely affect CPs results of operations, cash flows and financial condition.
Counterparties to long-term agreements within CP may not perform their obligations in accordance with such agreements. Should they fail to perform, due to financial difficulty or otherwise, CP may be required to seek alternative O&M providers or purchasers of the power produced. The failure of any of the parties to perform in accordance with these agreements could adversely affect CPs results of operations, cash flows and financial condition.
For certain of CPs current and future generating facilities, including BEC, we may be responsible for the purchase of fuel and face the risks of supply interruptions and fuel price volatility, as fuel deliveries may not exactly match those required for energy sales. CPs fuel supply arrangements must be coordinated with transportation agreements, storage services, financial hedging transactions and other contracts so that the fuel is delivered to our facilities at the times, in the quantities and otherwise in a manner that meets CPs needs. In addition, CP faces risks with regard to the delivery to and the use of fuel including the following:
| transportation may be unavailable if pipeline infrastructure is damaged or disabled; |
| pipeline tariff changes may adversely affect our ability to, or cost to, deliver fuel supply; |
| third-party suppliers may default on supply obligations, and we may be unable to replace supplies currently under contract; |
| market liquidity for fuel or availability of storage services may be insufficient or available only at unfavorable prices; and |
| fuel quality variation may adversely affect our operations. |
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CPs wind and solar facilities are dependent on the available wind and solar resources. Historical solar insolation and wind speed data, combined with computer modeling, is used to project expected power generation. Actual conditions are beyond our control and may vary substantially from our projections. If actual conditions cause material underperformance, CPs result of operations, cash flows and financial condition may be materially adversely affected. This may cause a default under some or all of CPs debt facilities and/or limit CPs ability to pay distributions to MIC.
We may not be able to replace an expiring PPA or tolling arrangement with a contract on equivalent terms and conditions, including at prices that permit operation of the related facility on a profitable basis. If we are unable to replace an expiring contract, the affected site may temporarily or permanently cease operations. In the case of a facility that ceases operations, the operating lease agreement may require that we remove the assets, including fixing or reimbursing the site owner for any damages caused by the assets or the removal of such assets. Alternatively, we may agree to sell the assets to the site owner, but we can offer no assurances as to the terms and conditions, including price, that we would receive in any sale, and the sale price may not be sufficient to replace the revenue previously generated by the project.
As managing member, CP is obligated to perform certain actions, including providing certain reporting items to its co-investor and the filing of correct and timely tax returns. As managing member, CP is also obligated to refrain from performing certain actions, including selling its interest to certain entities that would result in adverse economic outcomes to CP and its co-investor due to tax regulations. If CP were to cause an adverse tax outcome for its co-investor, CP could be liable. CPs failure to perform its obligations or to take any actions contrary to its obligations under any or all operating LLC agreements could adversely affect CPs results of operations, cash flows and financial condition.
Renewable assets currently benefit from various federal, state and local governmental incentives. In the U.S., these incentives include investment tax credits (ITC) or production tax credits (PTC), loan guarantees, RPS programs, modified accelerated cost-recovery system of depreciation and bonus depreciation. In addition, many U.S. states have adopted RPS programs mandating that a specified percentage of electricity sales come from eligible sources of renewable energy. If these government incentives or RPS requirements are reduced or eliminated, it could lead to fewer future power contracts or lead to lower prices for the sale of power in future power contracts, which could have a material adverse effect on future projects.
CP is subject to the environmental laws of U.S., federal, state and local authorities. CP must comply with numerous environmental laws and obtain numerous governmental permits and approvals to build and operate CPs plants. Should CP fail to comply with any environmental requirements that apply to its operations, CP could be subject to administrative, civil and/or criminal liability and fines, and regulatory agencies could take other actions seeking to curtail operations. In addition, conventional power facilities, such as BEC, are subject
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to federal, state and local regulations which require certain permits to be obtained for their operations. Certain of these permits may restrict CPs power facilities from operating under certain conditions or for more than a set number of hours per year. These regulatory limitations could adversely affect CPs results of operations, cash flows and financial condition.
Hazards customary to the power production industry include the potential for unusual weather conditions, which could affect fuel pricing and availability, as well as route to market or access to customers through transmission and distribution lines or to critical plant assets. To the extent that climate change contributes to the frequency or intensity of weather-related events, CPs operations could be affected.
CP operates generating units in New Jersey that are not subject to the Regional Greenhouse Gas Initiative (RGGI), which is a regional cap and trade system. Future state-level legislative changes may result in generating units in New Jersey being subject to RGGI. These new rules could adversely impact CPs results of operations, cash flows and financial condition.
CP faces competition from both conventional and renewable energy providers. Other energy sources may benefit from innovations that reduce costs, increase safety or otherwise improve their competitiveness. New natural resources may be discovered, or global economic, business or political developments may disproportionately benefit certain energy sources.
Other companies with which CP competes may have greater liquidity, greater access to credit and other financial resources, lower cost structures, more effective risk management policies and procedures, greater ability to incur losses, longer-standing relationships with customers, greater potential for profitability from ancillary services or greater flexibility in the timing of their sale of generation capacity and ancillary services than CP does.
CPs competitors may be able to respond more quickly to new laws or regulations or emerging technologies, or to devote greater resources to the construction, expansion or refurbishment of their power generation facilities than CP can. In addition, current and potential competitors may make strategic acquisitions or establish cooperative relationships among current and new competitors and rapidly gain significant market share. There can be no assurance that CP will be able to compete successfully against current and future competitors, and any failure to do so could have a material adverse effect on CPs results of operations, cash flows and financial condition.
See Risks Related to CP for risks related to our solar facilities within the MIC Hawaii segment.
The profitability of Hawaii Gas is based on the margin of sales prices over costs. Since LPG and feedstock for the SNG plant are commodities, changes in global supply of and demand for these products can have a significant impact on costs. Hawaii Gas has no control over these costs, and, to the extent that these costs cannot be hedged or passed on to customers, the business results of operations, cash flows and financial condition could be adversely affected.
Other fuel sources such as electricity, diesel, solar energy, geo-thermal, wind, other gas providers and alternative energy sources may be substituted for certain gas end-use applications, particularly if the price of
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gas increases relative to other fuel sources, whether due to higher costs or otherwise. Customers could, for a number of reasons, including increased gas prices, lower costs of alternative energy or convenience, meet their energy needs through alternative sources. This could have an adverse effect on the business revenues and cash flows.
Disruptions at the SNG plant resulting from mechanical or operational issues or power failures could affect the ability of Hawaii Gas to produce SNG. Most of the utility sales on Oahu are of SNG and all SNG is produced at the Oahu plant. Hawaii Gas has redundant production systems in place, however, disruptions to both the primary and redundant production systems could have a significant adverse effect on Hawaii Gas revenues and cash flows.
Hawaii Gas processes SNG and distributes SNG, regasified LNG and LPG. SNG feedstock or LPG supply disruptions could increase Hawaii Gas costs as a result of an inability to source any of these at rates comparable to those being paid currently. The extended unavailability of one or both of the refineries that supply a portion of Hawaii Gas SNG feedstock and LPG, both of which have experienced ownership changes in the past five years, or a disruption in crude oil supplies or feedstock to Hawaii could also result in an increased reliance on off-island sources. An inability to purchase LPG from off-island sources could adversely affect operations. The business has a limited ability to store LPG, and any disruption in supply may cause a depletion of LPG stocks. All supply disruptions of SNG or LPG, if occurring for an extended period, could adversely impact the business gross margin and cash flows.
Hawaiis economy, and demand for our business products, is heavily influenced by economic conditions in the U.S. and Asia and their impact on tourism, as well as by government spending. If the local economy deteriorates, the volume of gas sold at Hawaii Gas could be negatively affected by business closures or lower usage which could adversely impact the business financial performance. Additionally, a lack of growth in the Hawaiian economy could adversely impact gas volumes from new customers and reduce the level of new commercial construction. A reduction in government activity, particularly military activity could also have a negative impact on the MIC Hawaii businesses.
Depending on the terms of our contracts with suppliers, as well as the extent and success of our use of financial instruments to reduce our exposure related to volatility in the cost of LPG, changes in the market price of Hawaii Gas fuel supplies could create payment obligations that expose the business to increased liquidity risk.
The HPUC regulates all franchised or certificated public service companies operating in Hawaii; prescribes rates, tariffs, charges and fees; determines the allowable rate of earnings in establishing rates; issues guidelines concerning the general management of franchised or certificated utility businesses; and acts on requests for the acquisition, sale, disposition or other exchange of utility properties, including mergers and consolidations.
Any adverse decision by the HPUC concerning the level or method of determining utility rates, the items and amounts that may be included in the rate base, the returns on equity or rate base found to be reasonable, the potential consequences of exceeding or not meeting such returns, or any prolonged delay in rendering a decision in a rate or other proceeding, could have an adverse effect on our business.
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As part of our acquisition, the business agreed to 14 regulatory conditions with the HPUC that address a variety of matters including: a requirement that Hawaii Gas and HGCs ratio of consolidated debt to total capital does not exceed 65%; and a requirement to maintain $20.0 million in readily-available cash resources at Hawaii Gas, HGC or MIC. The business is currently in compliance with these conditions, however, future non-compliance with these or other HPUC regulatory conditions, could adversely impact the business.
Hawaii Gas continues to advance a range of renewable resources for conversion into pipeline quality gas in scalable quantities. These initiatives include ongoing commercial negotiations to source biogas from waste water treatment plants, landfills and biomass producers. Blending of RNG with existing fuels and integrating RNG into the Hawaii Gas pipeline network could present technical challenges resulting in project delays, cost overruns or pipeline disruptions. Use of RNG also has the risk of supply fluctuations due to the organic digestion processes inherent in its production. Hawaii Gas must report annually to the HPUC the percentage of feedstock and quantity of gas produced from non-petroleum feedstock. The Hawaii legislature could impose a RPS on the business, resulting in significantly increased energy costs to the business and its customers.
Hawaii Gas has invested in the evaluation and planning for a scalable statewide LNG import, storage and distribution program to supply various end markets including transportation. In August 2015, Hawaiis Governor announced that his administration is opposed to LNG for electricity generation, the largest potential LNG customer. This project is subject to ongoing implementation risks including but not limited to: the timely issuance of necessary permits; licenses and approvals by governmental agencies and third parties; unanticipated changes in market demand or supply; site difficulties; environmental conditions; delays of critical equipment and materials; and commercial arrangements to transport and distribute LNG. If the project is delayed or cancelled, the actual cost of planning and implementation may increase beyond the amounts currently estimated in our capital and operating budgets.
Hawaii is subject to earthquakes and certain weather risks, such as hurricanes, floods, heavy and sustained rains and tidal waves. Because MIC Hawaiis business properties, such as the SNG plant, SNG transmission line and several storage facilities, are close to the ocean, weather-related disruptions to operations are possible. In addition, earthquakes may cause disruptions. These events could damage the business assets or could result in wide-spread damage to its customers, thereby reducing the volumes of gas sold and, to the extent such damages are not covered by insurance, the business revenues and cash flows.
The U.S. military has a significant presence in Hawaii, and Hawaiis economy has benefitted over recent decades as the military has pivoted towards Asia. To the extent that federal spending cuts, including voluntary or mandatory cuts in U.S. military spending, or a strategic shift away from Asia, resulted in a reduced military presence in Hawaii, such reductions could reduce the demand for gas and new construction in Hawaii.
The changing nature of the Hawaiian energy complex has had an impact on our staffing requirements. Volatility in feedstock prices, together with the impact of the State of Hawaiis goals to reduce dependency on imported petroleum, requires staff with specialized knowledge of the energy sector. Because the resident labor pool in Hawaii is both small, and oriented mainly to Hawaiis basic industries, it is difficult to find individuals with these specialized skill sets. Unemployment rates in Hawaii are traditionally lower than those in the U.S. Mainland. Moreover, relocation to Hawaii is costly and often requires employees to make cultural and family adjustments not normally required for a change of employment. Despite the asset intensity of the Companys businesses in Hawaii, the inability to source and retain staff with appropriate skill sets could adversely impact their performance. In addition, dependence on skilled labor trades could result in constraints on growth and profitability as a result of competition for a limited labor pool.
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The Jones Act requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships and that they meet certain other requirements. The business has time charter agreements allowing the use of two barges that currently have a cargo capacity of approximately 420,000 gallons and 490,000 gallons of LPG, respectively. The barges used by the business are the only two Jones Act qualified barges available in Hawaii capable of carrying large volumes of LPG. If the barges are unable to transport LPG from Oahu and the business is not able to secure off-island sources of LPG or obtain an exemption to the Jones Act that would permit importation of a sufficient quantity of LPG from the mainland U.S., the profitability of the business could be adversely affected. If the barges require refurbishment or repair at a greater frequency than forecast, cash outflows for capital costs could adversely impact Hawaii Gas results of operations, cash flows and financial condition.
The project backlog at our mechanical contractor consists of projects for which we have an executed contract or commitment with a client and reflects expected revenue from the contract or commitment, which is often subject to revision over time. We cannot guarantee that the revenue projected in our backlog will be realized or profitable. Project cancellations, scope adjustments or deferrals may occur with respect to contracts reflected in our backlog and could reduce the dollar amount of our backlog and the revenue and profits that we actually earn. In addition, projects may remain in our backlog for an extended period of time. Finally, poor project or contract performance could also impact our backlog and profits. Such developments could have a material adverse effect on our business and our profits.
MIC Hawaiis mechanical contracting business involves professional judgments regarding the planning, design, development, and construction of facilities and infrastructure. While we do not generally accept liability for consequential damages, and although we have adopted a range of insurance, risk management and risk avoidance programs designed to reduce potential liabilities, an adverse event at one of our project sites or completed projects resulting from the services we have performed could result in significant liability, warranty or other claims against us as well as reputational harm. These liabilities could result is a material impact to our business. In addition, clients, subcontractors or suppliers who have agreed to indemnify us against any such liabilities or losses might refuse or be unable to pay us. An uninsured claim, either in part or in whole, if successful and of a material magnitude, could have a substantial impact on our operations.
We cannot unilaterally amend the Management Services Agreement between us and our Manager. Changes in the compensation of our Manager, certain rights held by our Manager or other components of the Management Services Agreement require the approval of our Manager and limit our ability to make changes without the consent of the Manager that could be beneficial to stockholders generally.
Our Manager, in its sole discretion, determines whether to reinvest base management and performance fees in shares of our common stock and whether to hold or sell those securities. Reinvestment of base management and performance fees in additional common stock would increase our Managers ownership stake in our Company. At December 31, 2017, our Manager owned 6.41% of our outstanding shares. Our Manager
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has sold, and is expected to continue to sell from time to time, our common shares that it acquires upon reinvestment of fees. If our Manager decides to reduce its position in our Company, such sales may be interpreted by some market participants as a lack of confidence in our Company and put downward pressure on the market price of our common stock. Sales of shares of common stock by our Manager would increase the available supply and could decrease the price if demand is insufficient to absorb such sales.
In addition to the limited circumstances in which our Manager can be terminated under the terms of the Management Services Agreement, the Management Services Agreement provides that in circumstances where our common stock ceases to be listed on a recognized U.S. exchange as a result of the acquisition of our common stock by third parties in an amount that results in our common stock ceasing to meet the distribution and trading criteria on such exchange or market, our Manager has the option to either propose an alternate fee structure and remain our Manager or resign, terminate the Management Services Agreement upon 30 days written notice and be paid a substantial termination fee. The termination fee payable on our Managers exercise of its right to resign as our Manager subsequent to a delisting of our common stock could delay or prevent a change in control that may favor our stockholders. Furthermore, in the event of such a delisting, any proceeds from the sale, lease or exchange of a significant amount of assets must be reinvested in new assets of our Company, subject to debt repayment obligations. We would also be prohibited from incurring any new indebtedness or engaging in any transactions with stockholders or our affiliates without the prior written approval of our Manager. These provisions could deprive stockholders of opportunities to realize a premium on the common stock owned by them.
Our certificate of incorporation and bylaws contain a number of provisions that could have the effect of making it more difficult for a third-party to acquire, or discouraging a third-party from acquiring, control of our Company. These provisions include:
| restrictions on our ability to enter into certain transactions with our major stockholders, with the exception of our Manager; similar restrictions are also contained in Section 203 of the Delaware General Corporation Law; |
| allowing only our board of directors to fill vacancies, including newly created directorships and requiring that directors may be removed with or without cause by a stockholder vote of 66 2/3%; |
| requiring that only the chairman or board of directors may call a special meeting of our stockholders; |
| prohibiting stockholders from taking any action by written consent; |
| establishing advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted upon by our stockholders at a stockholders meeting; and |
| having a substantial number of additional shares of common stock authorized but unissued. |
Our Manager is paid a management fee based on our market capitalization and potentially performance fees based on the total return generated on behalf of equity holders relative to a U.S. utilities index benchmark. Our Manager, in its sole discretion, may elect to retain base management fees and performance fees, if applicable, paid in cash or to reinvest such payments in additional common stock. In the event our Manager chooses not to reinvest the fees to which it is entitled in additional shares of common stock, the amount paid will reduce the cash that may otherwise be distributed as a dividend to all stockholders or used in our Companys operations. In the event our Manager chooses to reinvest the fees to which it is entitled in additional common stock, effectively returning the cash to us, such reinvestment and the issuance of new shares of common stock will dilute existing stockholders by the increase in the percentage of common stock owned by our Manager. Either option may adversely impact the market for our shares.
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In addition, our Manager has typically elected to invest its fees in shares of common stock, and, unless otherwise agreed with us, can only change this election during a 20-trading day window following our earnings release. Any change would apply to fees incurred thereafter. Accordingly, stockholders would generally have notice of our Managers intent to receive fees in cash rather than reinvest before the change was effective.
Under our Management Services Agreement, we are obligated to pay performance fees to our Manager if we outperform a benchmark index that reflects broader utility industry components. The amount of the performance fees can be substantial, and could adversely affect the price of our common stock and our ability to pay dividends. For example, if our absolute performance (as described in the Management Services Agreement) increases slightly and the benchmark index substantially decreases, we could be obligated to pay a significant performance fee. As a result, we may be obligated to pay our Manager a performance fee, which could be substantial, even when there has not been a substantial increase in the performance of our common stock. The benchmark index comprises numerous utility stocks, the performance of which may or may not correlate to our actual performance. Moreover, the benchmark index is unpredictable and variable. The Manager is entitled to select whether a performance fee will be settled in cash, shares of our common stock or a combination thereof, which could result in a material cash expense or dilution of our shares.
Pursuant to our Management Services Agreement, we have first priority ahead of all current and future funds, investment vehicles, separate accounts and other entities managed by our Manager or by members of the Macquarie Group within the Macquarie Infrastructure and Real Assets division only with respect to four specific types of acquisition opportunities within the United States. The four specific type of acquisition opportunities where we have first priority include airport FBOs, airport parking, district energy and user pays, contracted and regulated assets that represent an investment of greater than AUD $40.0 million. Other than these four specific types of opportunities, our Manager does not have an obligation to offer to us any particular acquisition opportunities, even if they meet our investment objectives, and the Manager and its affiliates can offer any or all other acquisition opportunities on a priority basis or otherwise to current and future funds, investment vehicles and accounts sponsored by the Manager or its affiliates. Our businesses may compete with these entities for investment opportunities, and there can be no assurance that we will prevail with respect to such investments.
In addition, our management may determine not to pursue investment opportunities presented to us by our Manager, including those presented on a priority basis. If our management waives any such opportunity, our Manager and its affiliates may offer such opportunity to any other entity, including any entities sponsored or advised by members of the Macquarie Infrastructure and Real Assets division of the Macquarie Group. As such, every acquisition opportunity presented to us by our Manager may not be pursued by us, and may ultimately be presented to entities with whom we compete for investments.
Our Manager has the right, under the Management Services Agreement, to resign at any time with 90 days notice, whether we have found a replacement manager or not. In addition, our Manager could re-assign or remove the CEO and/or the CFO from their positions and responsibilities at our Company without our board of directors approval and with little or no notice. If our Manager resigns or our CEO/CFO are removed, we may not be able to find a new external manager or hire internal management with similar expertise within 90 days to provide the same or equivalent services on acceptable terms, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial results could be adversely affected, perhaps materially, and the market price of our common stock may decline substantially. In
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addition, the coordination of our internal management, acquisition activities and supervision of our businesses are likely to suffer if we were unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by our Manager and its affiliates.
Furthermore, if our Manager resigns, we and our subsidiaries will be required to cease use of the Macquarie brand entirely, and change their names to remove any reference to Macquarie. This may cause the value of our Company and the market price of our common stock to decline.
We are externally managed by a member of the Macquarie Group. Our Manager receives a fee for its services that provides for a number of corporate center functions including the compensation of our management team and those who provide services to us on a shared basis, health and welfare benefits, the provision of facilities, technology and insurance (other than directors and officers). The fee is based on our market capitalization and thus increases as we grow. The size of the fee may bear no direct correlation with the actual cost of providing the agreed upon services and may be higher than the cost of managing our Company internally. Per the terms of the Management Services Agreement with our Manager, the current default election for satisfying any base management or performance fees to which our Manager may be entitled is the issuance of additional shares of common stock. To the extent the fees continue to be satisfied by reinvestment in our common stock, all stockholders will be diluted and our hurdle for growing distributable cash on a per share basis will be higher.
Our Manager is an affiliate of Macquarie Group Limited and a member of the Macquarie Group. From time to time, we have entered into, and in the future we may enter into, transactions and relationships involving Macquarie Group Limited, its affiliates, or other members of the Macquarie Group. Such transactions have included and may include, among other things, the entry into debt facilities and derivative instruments with members of the Macquarie Group serving as lender or counterparty, and financial advisory or equity and debt underwriting services provided to us by the Macquarie Group.
Although our audit committee, all of the members of which are independent directors, is required to review and approve in advance of any related party transactions, including those involving members of the Macquarie Group or its affiliates, the relationship of our Manager to the Macquarie Group may result in conflicts of interest.
In addition, as a result of our Managers being a member of the Macquarie Group, negative market perceptions of Macquarie Group Limited generally or of Macquaries infrastructure management model, or Macquarie Group statements or actions with respect to other managed vehicles, may affect market perceptions of us and cause a decline in the price of our common stock unrelated to our financial performance and prospects.
Under the terms of the Management Services Agreement, our Manager must significantly underperform in order for the Management Services Agreement to be terminated. Our board of directors cannot remove our Manager unless:
| our common stock underperforms a weighted average of two benchmark indices by more than 30% in relative terms and more than 2.5% in absolute terms in 16 out of 20 consecutive quarters prior to and including the most recent full quarter, and the holders of a minimum of 66.67% of the outstanding shares of our common stock (excluding any shares owned by our Manager or any affiliate of the Manager) vote to remove our Manager; |
| our Manager materially breaches the terms of the Management Services Agreement and such breach has been unremedied within 60 days after notice; |
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| our Manager acts with gross negligence, willful misconduct, bad faith or reckless disregard of its duties in carrying out its obligations under the Management Services Agreement, or engages in fraudulent or dishonest acts; or |
| our Manager experiences certain bankruptcy events. |
Our board of directors cannot remove our Manager unless the market performance of our common stock also significantly underperforms the benchmark index. If we were unable to remove our Manager in circumstances where the absolute market performance of our common stock does not meet expectations, the market price of our common stock could be negatively affected.
Our Company is a holding company with no operations. Therefore, we are dependent upon the ability of our businesses to make distributions to our Company to enable it to meet its expenses, and to pay, maintain or grow dividends to stockholders in the future. The ability of our operating subsidiaries and the businesses we own to make distributions to our Company is subject to limitations based on their operating performance, the terms of their debt agreements and the applicable laws of their respective jurisdictions. In addition, the ability of each business to reduce its outstanding debt will be similarly limited by its operating performance, as discussed in Part II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.
We periodically disclose our expected annual cash dividend growth rate and other financial metrics. This reflects our judgment at the time, but as with any estimate, it may be affected by known and unknown risks and uncertainties and inaccurate assumptions, many of which are beyond our control. See Forward-Looking Statements. If the payment of dividends at the anticipated level would leave us with insufficient cash to take timely advantage of growth opportunities (including through acquisitions), to meet any large unanticipated liquidity requirements, to fund our operations, or otherwise to address properly our business prospects, our board of directors, which determines our business strategy and our dividend policy, might have to choose between addressing those matters or reducing our anticipated dividends, and the board could determine to reduce our dividends. If dividends are reduced below anticipated levels, our stock price could be adversely affected.
The market price of our common stock may fluctuate significantly. Many factors that are beyond our control may significantly affect the market price and marketability of our common stock and may adversely affect our ability to raise capital through equity financings. These factors include, but are not limited to:
| significant volatility in the market price and trading volume of securities of Macquarie Group Limited and/or vehicles managed by the Macquarie Group or branded under the Macquarie name or logo; |
| significant volatility in the market price and trading volume of securities of registered investment companies, business development companies or companies in our sectors; |
| changes in our earnings or variations in operating results; |
| changes in our ratings from any of the ratings agencies; |
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| any shortfall in EBITDA excluding non-cash items or Free Cash Flow from levels expected by securities analysts; |
| changes in regulatory policies or tax law; |
| operating performance of companies comparable to us; |
| loss of funding sources; and |
| substantial sales of our common stock by our Manager or other significant stockholders. |
Our common stock has been the subject of short selling efforts by certain market participants. Short sales are transactions in which a market participant borrows, then sells a security that it does not own. The market participant is obligated to replace the security borrowed by purchasing the security at or before the time the security is recalled. If the price at the time of recall is lower than the price at which the security was originally sold by the market participant, then the market participant will realize a gain on the transaction. Thus, it is in the market participants interest for the price of the security to decline during the period up to the time of recall.
Previous short selling efforts have had an impact on, and may in the future impact, the value of our stock in an extreme and volatile manner to our detriment and the detriment of our stockholders. In addition, market participants have published, and may in the future publish, negative, inaccurate or misleading information regarding our company and our management team. We believe that the publication of such information has led, and may in the future lead to, significant downward pressure on the price of our stock to our detriment and the further detriment of our stockholders. These and other efforts by certain market participants to unduly influence the price of our common stock for financial gain may cause value of our stockholders investments to decline, may make it more difficult for us to raise equity capital when needed without significantly diluting existing stockholders, and may reduce demand from new investors to purchase our shares.
We may issue shares of preferred stock in one or more financing transactions. We may also use the authorized preferred stock for funding transactions, including, among other things, acquisitions, strategic partnerships, joint ventures, restructurings, business combinations and investments, although we have no immediate plans to do so. We cannot provide assurances that any such transaction will be consummated on favorable terms or at all, that they will enhance stockholder value, or that it will not adversely affect our business or the trading price of our common stock. Any shares of preferred stock could be issued with rights, preferences and privileges that may be superior to those of our common stock. In addition, preferred stock could be issued for capital raising, financing and acquisition needs or opportunities that have the effect of making an acquisition of our Company more difficult or costly, as could also be the case if the board of directors were to issue additional common stock.
Our businesses own and invest in high-value, long-lived assets that generate large amounts of depreciation and amortization. Depreciation and amortization are non-cash expenses that serve to reduce reported EPS. We pay our Manager base management fees and may pay performance fees both of which may be reinvested in additional shares thereby rendering them a non-cash expense. Whether the fees are settled in cash or reinvested in additional shares, they have the effect of reducing EPS. As a result, our financial performance may appear to be substantially worse compared with other businesses. To the extent that our results appear to be worse, we may have relatively greater difficulty attracting investors in our stock.
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We may make investments in certain businesses which we will be required to account for using the equity method rather than consolidate with the results of our other businesses. The equity method requires us to include the portion of the net income, as determined in accordance with GAAP, equal to our equity interest in the business in our consolidated statement of operations. The physical asset backed nature of the businesses in which we invest (and the higher levels of non-cash expenses including depreciation and amortization) may mean that the performance of these investments have relatively little impact on our consolidated statement of operations even where they generate positive cash flow and this cash flow may not be reflected in the valuation of our stock.
Our total assets reflect a substantial amount of goodwill and other intangible assets. At December 31, 2017, goodwill and other intangible assets, net, represented 37.2% of our total assets. Goodwill and other intangible assets were primarily recognized as a result of the acquisitions of our businesses. Other intangible assets consist primarily of airport operating rights, customer relationships and trade names. On at least an annual basis we assess whether there has been any impairment in the value of goodwill and other intangible assets when there are triggering events or circumstances. If the carrying value of the tested asset exceeds its estimated fair value, impairment is deemed to have occurred. In this event, the intangible is written down to fair value. Under current accounting rules, this would result in a charge to reported earnings. We have recognized significant impairments in the past, and any future determination requiring the write-off of a significant portion of goodwill or other intangible assets would negatively affect our reported earnings and total capitalization, and could be material.
The high level of intangible and physical assets written up to fair value upon acquisition of our businesses generates substantial amounts of depreciation and amortization. These non-cash items serve to lower net income as reported in our consolidated statement of operations as well as our taxable income. The generation of net losses or relatively small net income may contribute to a net operating loss (NOL) carryforward that can be used to offset current taxable income in future periods. However, the continued reporting of little or negative net income may adversely affect the attractiveness of our Company among some potential investors and may reduce the market for our common stock.
We may, without the acquisition of businesses with NOLs, incurring performance fees, investing in growth capital expenditures that qualify for 100% bonus depreciation, or implementing other strategies that provide us with additional tax shield, fully utilize our existing NOLs before we anticipate or have previously indicated. At that point we may be subject to federal income taxes in consolidation and any liability could be material. Any liability will reduce distributable Free Cash Flow and could prevent the growth or reduce the rate of growth of our dividends.
Under current law, qualified dividend income and long-term capital gains are taxed to non-corporate investors at a maximum U.S. federal income tax rate of 20%. In addition, certain holders that are individuals, estates or trusts are subject to 3.8% surtax on all or a portion of their net investment income, which may
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include all or a portion of their dividend income and net gains from the disposition of our shares. This tax treatment may be adversely affected, changed or repealed by future changes in tax laws at any time, which may affect market perceptions of our Company and the market price of our shares could be negatively affected.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation (or other entity taxable as a corporation, such as the Company) that undergoes an ownership change is subject to limitations on its ability to utilize its pre-change NOLs and certain other tax attributes to offset future taxable income. Generally speaking, an ownership change occurs if the aggregate percentage ownership of the stock of the corporation held by one or more five-percent stockholders (as defined in the Code) increases by more than fifty percentage points over such stockholders lowest percentage ownership during the testing period, which is generally the three year-period ending on the transaction date. If we undergo an ownership change, our ability to utilize NOLs and certain other tax attributes could be limited.
We have $347.3 million in federal NOL carryforwards at December 31, 2017. While we have concluded that all of the NOLs will more likely than not be realized, there can be no assurance that we will utilize the NOLs generated to date or any NOLs we might generate in the future. In addition, we have incurred state NOLs and have provided a valuation allowance against a portion of those. As with our federal NOLs, there is also no assurance that we will utilize those state losses or future losses that may be generated. Further, the State of Louisiana has imposed limitations on the ability of NOL carryforwards to offset current year income. There can be no assurance that other states will not suspend or limit the use of NOL carryforwards.
The Tax Cut and Jobs Act makes significant changes to U.S. tax laws and includes numerous provisions that affect businesses, including ours. For instance, as a result of lower corporate tax rates, the Tax Cut and Jobs Act tends to reduce both the value of deferred tax assets and the amount of deferred tax liabilities. It also limits interest rate deductions and the amount of NOLs that can be used each year and alters the expensing of capital expenditures. The Tax Cut and Jobs Act is unclear in certain respects and will require interpretations and implementing regulations by the IRS, as well as state tax authorities, and the Tax Cut and Jobs Act could be subject to amendments and technical corrections, any of which could lessen or increase the adverse (and positive) impacts of the Tax Cut and Jobs Act. The accounting treatment of these tax law changes is complex, and some of the changes may affect both current and future periods.
Under current law, certain capital expenditures are eligible for accelerated depreciation, including 100% bonus depreciation for qualifying assets purchased and placed in service after September 27, 2017 and prior to January 1, 2023, for U.S. federal income tax purposes. In addition, certain other expenses are eligible to be deducted for U.S. federal income tax purposes. This tax treatment may be adversely affected, changed or repealed by future changes in tax laws at any time, which may affect market perceptions of our Company and the market price of our shares could be negatively affected.
We are subject to various taxing regimes, including federal, state, local and foreign taxes such as income, excise, sales/use, payroll, franchise, property, gross receipts, withholding and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations or the interpretation thereof are continuously being enacted or proposed and could result in increased expenditures for tax in the future and could have a material adverse effect on our Companys results of operations, cash flows and financial condition.
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Periodic examinations or audits by taxing authorities could increase our tax liabilities and result in the imposition of interest and penalties. If challenges arising from such examinations and audits are not resolved in our Companys favor, they could have a material adverse effect on our Companys results of operations, cash flows and financial condition.
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None.
In general, the assets of our businesses, including real property, are pledged to secure the financing arrangements of each business on a stand-alone basis. See Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources in Part II, Item 7, for a further discussion of these financing arrangements.
IMTT operates 17 wholly-owned bulk liquid terminals in the U.S., one in Canada and has a minority interest in a company that owns a single bulk liquid terminal, also in Canada. The land on which the facilities are located is either owned or leased by IMTT with leased land comprising a small proportion of the total land in use. IMTT also owns the storage tanks, piping and transportation infrastructure such as truck and rail loading equipment located at the facilities and the majority of any related ship docks. Ship docks at facilities in Quebec and Geismar, L.A. are leased. Management believes the aforementioned equipment is generally well maintained and adequate for the present operations. For further details, see Our Businesses IMTT Locations in Part I, Item 1.
Atlantic Aviation does not own any real property. Its operations are carried out under various long-term leases. The business leases office space for its head office in Plano, Texas. For more information regarding Atlantic Aviations FBO locations, see Our Businesses Atlantic Aviation Locations in Part I, Item 1.
Atlantic Aviation owns or leases a number of vehicles, including fuel trucks and other equipment needed to provide service to customers. Routine maintenance is performed on this equipment and a portion is replaced in accordance with a pre-determined schedule. Management believes the equipment is generally well maintained and adequate for present operations. Changes in market conditions allowed Atlantic Aviation to move to purchasing or procuring capital leases for larger equipment. Atlantic Aviation believes that these assets are a core part of the business and have long useful lives making ownership desirable if conditions permit.
At December 31, 2017, the CP business owned seven operating solar facilities, two wind facilities and a gas-fired power facility. The business owns the solar panels and wind turbines and leases or owns the land. Both the plant and the land beneath the gas-fired facility is owned. For further details, see Our Businesses Contracted Power Business Overview in Part I, Item 1.
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Project Name | Facility | Location | Ownership or Lease Information | |||
Picture Rocks | Solar | Pima County, AZ | Long-term property lease until 2032. | |||
Bryan | Solar | Presidio County, TX | Long-term property leases until 2039 and 2040. | |||
Davis Monthan Air Force Base | Solar | Pima County, AZ | Long-term property lease until 2039. | |||
Valley Center | Solar | San Diego County, CA | Long-term property lease until 2038. | |||
Ramona | Solar | San Diego County, CA | Long-term property lease until 2037. | |||
Red Hills | Solar | Iron County, UT | Long-term property lease until 2039. | |||
Brahms | Wind | Curry County, NM | Five long-term property leases until 2044. | |||
Idaho Wind Partners 1 | Wind | Cassia County, Twin Falls County and Elmore County/Jerome, ID | Eighteen long-term property leases until from 2038 to 2051. | |||
Bayonne Energy Center | Gas-fired power generation | Hudson County, NJ | Long-term property lease with IMTT until 2045. | |||
Equuleus | Solar | Dakota Country, MN | Land ownership. |
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Hawaii Gas owns real property and equipment including: its SNG plant on Oahu and the land on which it sits; several LPG storage yards on other major islands; approximately 1,000 miles of underground piping, of which approximately 900 miles are on Oahu; and a 22-mile transmission pipeline from the SNG plant to Pier 38 in Honolulu. In addition, MIC Hawaii has controlling interests in operating solar facilities and distributed energy products and a design-build mechanical contractor.
A summary of selected properties follows for the MIC Hawaii businesses. For more information regarding MIC Hawaiis operations, see Our Businesses MIC Hawaii Fuel Supply, SNG Plant and Distribution System in Part I, Item 1.
The following represents the properties owned or leased by the Hawaii Gas business.
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Island | Description | Use | Own/Lease | |||
Oahu | SNG plant and land | Production of SNG | Own | |||
Oahu | Kamakee Street buildings and maintenance yard | Engineering, maintenance facility, warehouse | Own | |||
Oahu | LPG baseyard | Storage facility for tanks and cylinders | Lease | |||
Oahu | Topa Fort Street Tower | Executive offices | Lease | |||
Oahu | Various holding tanks | Store and supply LPG to utility customers | Lease | |||
Maui | Office, tank storage facilities and baseyard | Island-wide operations | Lease | |||
Kauai | Office | Island-wide operations | Own | |||
Kauai | Tank storage facility and baseyard | Island-wide operations | Lease | |||
Hawaii | Office, tank storage facilities and baseyard | Island-wide operations | Own |
The following represents the properties leased by the other businesses within MIC Hawaii.
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Project Name | Facility | Location | Ownership or Lease Information | |||
Waihonu | Solar | Oahu, HI | Long-term property lease until 2036. | |||
GWE Solar-Storage | Solar with Battery Storage | Hawaii, HI | Long-term site leases until 2037. | |||
CPI | Design-Build Mechanical Contractor | Oahu, HI | Long-term property lease until 2024. |
There are no legal proceedings pending that we believe will have a material adverse effect on us. We are involved in ordinary course legal, regulatory, administrative and environmental proceedings that are incidental to our businesses. Typically, expenses associated with these proceedings are covered by insurance.
The Bayonne, New Jersey terminal, portions of which have been acquired over a 30-year period, contain pervasive remediation requirements that were assumed at the time of purchase from the various former owners. One former owner retained environmental remediation responsibilities for a purchased site and shares in other remediation costs. These remediation requirements are documented in two memoranda of agreement and an administrative consent order with the State of New Jersey. Remediation efforts entail removal of free product, soil treatment, repair/replacement of sewer systems, and the implementation of containment and monitoring systems. These remediation activities are estimated to span a period of ten to twenty or more years and cost from $30.0 million to $65.0 million. The cost of the remediation activities at the terminal are estimated based on currently available information, in undiscounted U.S. dollars and is inherently subject to relatively large fluctuation.
We received a letter, dated December 21, 2017, from the United States Department of Transportation Pipeline and Hazardous Materials Safety Administration concerning an investigation involving a pipeline within a small municipal park in Bayonne, New Jersey. The investigation, which occurred in 2016, relates to a release of ultra low sulfur diesel from an IMTT pipeline that was penetrated by subsurface steel. The relief sought included a penalty in the amount of $144,000 and the development and documentation of procedures to comply with federal requirements concerning clearance between pipelines and subsurface structures. We paid the penalty in February 2018.
Not applicable.
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Our shares are traded on the NYSE under the symbol MIC. The following table sets forth, for the fiscal periods indicated, the high and low sales prices per share on the NYSE:
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High | Low | |||||||
Fiscal 2016
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First Quarter | $ | 71.82 | $ | 51.83 | ||||
Second Quarter | 75.00 | 65.00 | ||||||
Third Quarter | 84.51 | 71.79 | ||||||
Fourth Quarter | 85.45 | 77.18 | ||||||
Fiscal 2017
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First Quarter | $ | 83.48 | $ | 73.24 | ||||
Second Quarter | 81.74 | 75.79 | ||||||
Third Quarter | 79.30 | 71.23 | ||||||
Fourth Quarter | 73.63 | 63.08 | ||||||
Fiscal 2018
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First Quarter (through February 16, 2018) | $ | 67.84 | $ | 61.55 |
As of February 16, 2018, we had 84,819,268 shares issued and outstanding that we believe were held by approximately 410 holders of record.
The following represents the Companys relative share price performance from January 1, 2013 through December 31, 2017.
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MIC has been structured to provide investors with an opportunity to generate an attractive total return and we intend to distribute the majority of the cash generated from operations by our businesses as a quarterly dividend.
Our board of directors regularly reviews our dividend policy and payout ratio. In determining whether to adjust the amount of our quarterly dividend, our board will take into account such matters as the state of the capital markets and general business and economic conditions, the Companys financial condition, results of operations, indebtedness levels, capital requirements, capital opportunities and any contractual, legal and regulatory restrictions on the payment of dividends by the Company to its stockholders or by its subsidiaries to the Company, and any other factors that it deems relevant, subject to maintaining a prudent level of reserves and without creating undue volatility in the amount of such dividends where possible. Moreover, the Companys senior secured credit facility and the debt commitments at our businesses contain restrictions that may limit the Companys ability to pay dividends. Although historically we have declared cash dividends on our shares, any or all of these or other factors could result in the modification of our dividend policy, or the reduction, modification or elimination of our dividend in the future.
Since January 1, 2016, MIC has paid or declared the following dividends:
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Declared | Period Covered | $ per Share | Record Date | Payable Date | ||||||||||||
February 19, 2018
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Fourth quarter 2017 | $ | 1.44 | March 5, 2018 | March 8, 2018 | |||||||||||
October 30, 2017
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Third quarter 2017 | 1.42 | November 13, 2017 | November 16, 2017 | ||||||||||||
August 1, 2017
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Second quarter 2017 | 1.38 | August 14, 2017 | August 17, 2017 | ||||||||||||
May 2, 2017
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First quarter 2017 | 1.32 | May 15, 2017 | May 18, 2017 | ||||||||||||
February 17, 2017
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Fourth quarter 2016 | 1.31 | March 3, 2017 | March 8, 2017 | ||||||||||||
October 27, 2016
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Third quarter 2016 | 1.29 | November 10, 2016 | November 15, 2016 | ||||||||||||
July 28, 2016
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Second quarter 2016 | 1.25 | August 11, 2016 | August 16, 2016 | ||||||||||||
April 28, 2016
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First quarter 2016 | 1.20 | May 12, 2016 | May 17, 2016 | ||||||||||||
February 18, 2016
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Fourth quarter 2015 | 1.15 | March 3, 2016 | March 8, 2016 |
The MIC Board has authorized a quarterly cash dividend of $1.44 per share for the quarter ended December 31, 2017, or a 1.4% increase over the dividend for the quarter ended September 30, 2017 and 9.9% increase over the dividend for the quarter ended December 31, 2016. Together with the dividends for the first three quarters for 2017, this represents a cumulative 2017 dividend of $5.56 per share compared with $5.05 per share for the year ended December 31, 2016, or an increase of 10.1%.
The Company has determined that 38.4% of the dividends paid in the year ended December 31, 2017 were characterized as a dividend for U.S. federal income tax purposes. The remaining 61.6% of dividends paid were characterized as returns of capital.
Future dividends, if any, may be characterized as dividends or returns of capital depending on the earnings and profits of the Company as determined in accordance with the Internal Revenue Code. Holders of MIC shares are encouraged to seek their own tax advice with regard to their investment in MIC.
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The selected financial data includes the results of operations, cash flows and balance sheet data for the years ended, and as of, December 31, 2017, 2016, 2015, 2014 and 2013 for our consolidated group, with the results of businesses acquired during those five years being included from the date of each acquisition. The selected financial data for each of the five years in the period ended December 31, 2017 have been derived from the consolidated financial statements of the Company, which financial statements have been audited by KPMG LLP. The information below should be read in conjunction with the consolidated financial statements (and notes thereto) and Managements Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7.
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Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
($ In Thousands, Except Share and Per Share Data) | ||||||||||||||||||||
Statement of operations data:
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Revenue
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Service revenue | $ | 1,445,832 | $ | 1,288,562 | $ | 1,288,501 | $ | 1,064,682 | $ | 770,360 | ||||||||||
Product revenue | 368,881 | 363,169 | 350,749 | 284,400 | 267,096 | |||||||||||||||
Financing and equipment lease income | | | | 1,836 | 3,563 | |||||||||||||||
Total revenue | 1,814,713 | 1,651,731 | 1,639,250 | 1,350,918 | 1,041,019 | |||||||||||||||
Cost and expenses
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Cost of services | 624,214 | 524,423 | 551,029 | 546,609 | 434,177 | |||||||||||||||
Cost of product sales | 164,311 | 142,731 | 168,954 | 192,881 | 185,843 | |||||||||||||||
Selling, general and administrative expenses | 331,345 | 303,033 | 304,862 | 265,254 | 210,060 | |||||||||||||||
Fees to Manager related party | 71,388 | 68,486 | 354,959 | 168,182 | 85,367 | |||||||||||||||
Depreciation | 234,164 | 226,492 | 215,243 | 98,442 | 39,150 | |||||||||||||||
Amortization of intangibles | 68,253 | 65,425 | 101,435 | 42,695 | 34,651 | |||||||||||||||
Total operating expenses | 1,493,675 | 1,330,590 | 1,696,482 | 1,314,063 | 989,248 | |||||||||||||||
Operating income (loss) | 321,038 | 321,141 | (57,232 | ) | 36,855 | 51,771 | ||||||||||||||
Interest income | 199 | 132 | 55 | 112 | 204 | |||||||||||||||
Interest expense | (110,602 | ) | (116,933 | ) | (123,079 | ) | (73,196 | ) | (37,044 | ) | ||||||||||
Equity in earnings and amortization charges of investee | | | | 26,391 | 39,115 | |||||||||||||||
Gain from acquisition/divestiture of businesses (1) | | | | 1,027,054 | | |||||||||||||||
Other income (expense), net | 11,323 | 21,786 | 1,288 | (2,307 | ) | (7,923 | ) | |||||||||||||
Net income (loss) before income taxes | 221,958 | 226,126 | (178,968 | ) | 1,014,909 | 46,123 | ||||||||||||||
Benefit (provision) for income taxes | 234,154 | (71,257 | ) | 65,161 | 24,374 | (18,043 | ) | |||||||||||||
Net income (loss) | $ | 456,112 | $ | 154,869 | $ | (113,807 | ) | $ | 1,039,283 | $ | 28,080 | |||||||||
Less: net income (loss) attributable to noncontrolling interests | 4,910 | (1,512 | ) | (5,270 | ) | (2,745 | ) | (3,174 | ) | |||||||||||
Net income (loss) attributable to MIC | $ | 451,202 | $ | 156,381 | $ | (108,537 | ) | $ | 1,042,028 | $ | 31,254 | |||||||||
Basic income (loss) per share attributable to MIC | $ | 5.42 | $ | 1.93 | $ | (1.39 | ) | $ | 16.54 | $ | 0.61 | |||||||||
Weighted average number of shares outstanding: basic | 83,204,404 | 80,892,654 | 77,997,826 | 62,990,312 | 51,381,003 | |||||||||||||||
Diluted income (loss) per share attributable to MIC | $ | 5.13 | $ | 1.85 | $ | (1.39 | ) | $ | 16.10 | $ | 0.61 | |||||||||
Weighted average number of shares outstanding: diluted | 91,073,362 | 82,218,627 | 77,997,826 | 64,925,565 | 51,396,146 | |||||||||||||||
Cash dividends declared per share | $ | 5.56 | $ | 5.05 | $ | 4.46 | $ | 3.8875 | $ | 3.35 |
(1) | Includes the gain of $948.1 million from the acquisition of the remaining 50% interest in IMTT from the remeasuring to fair value of the Companys previous 50% ownership interest and the gain of $78.9 million from the sale of the Company's interest in the district energy business. |
56
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Year Ended December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
($ In Thousands) | ||||||||||||||||||||
Statement of cash flows data:
|
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Cash provided by operating activities | $ | 529,459 | $ | 560,320 | $ | 381,156 | $ | 251,615 | $ | 155,117 | ||||||||||
Cash used in investing activities | (566,116 | ) | (376,845 | ) | (448,816 | ) | (1,068,806 | ) | (139,636 | ) | ||||||||||
Cash provided by (used in) financing activities | 38,500 | (161,313 | ) | 42,896 | 632,422 | 76,516 | ||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 511 | 211 | (856 | ) | (590 | ) | | |||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 2,354 | $ | 22,373 | $ | (25,620 | ) | $ | (185,359 | ) | $ | 91,997 |
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As of December 31, | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
($ In Thousands) | ||||||||||||||||||||
Balance sheet data:
|
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Total current assets | $ | 307,645 | $ | 244,668 | $ | 216,569 | $ | 231,478 | $ | 400,353 | ||||||||||
Property, equipment, land and leasehold improvements, net | 4,659,614 | 4,346,536 | 4,116,163 | 3,362,585 | 854,169 | |||||||||||||||
Total assets | $ | 8,008,951 | $ | 7,559,253 | $ | 7,308,804 | $ | 6,567,739 | $ | 2,471,928 | ||||||||||
Total current liabilities | $ | 255,965 | $ | 251,009 | $ | 308,790 | $ | 224,332 | $ | 271,452 | ||||||||||
Long-term debt, net of current portion | 3,530,311 | 3,039,966 | 2,746,525 | 2,332,829 | 808,287 | |||||||||||||||
Total liabilities | $ | 4,658,248 | $ | 4,411,719 | $ | 4,106,362 | $ | 3,597,571 | $ | 1,318,660 | ||||||||||
Stockholders' equity | $ | 3,153,692 | $ | 2,952,894 | $ | 3,030,190 | $ | 2,787,163 | $ | 1,042,228 |
57
The following discussion of the financial condition and results of operations of Macquarie Infrastructure Corporation should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere herein.
We are undertaking a review of strategic options available to us with respect to BEC and certain other, smaller businesses in our portfolio. We may, as a result of this review, undertake to sell, or otherwise divest of these businesses, although we cannot assure you as to whether, or on what terms, any such transaction will occur. We currently anticipate that proceeds, if any, from such sales would be available to support investment in any of the businesses or segments in which we currently operate or in any new line of business that we and our board of directors may deem appropriate.
Our consolidated results of operations for the full year 2017 demonstrate the importance of maintaining a balance between driving performance improvement and investing prudently in the growth of our businesses. Our Atlantic Aviation business performed well versus our expectations as a result of increased GA flight activity, acquisitions of additional FBOs and the operational leverage inherent in the business. Effective cost control and the acquisition of Epic Midstream at IMTT offset weaker than anticipated revenue growth, particularly in the fourth quarter, and a negative contribution for the full year from OMI.
Full year results for Contracted Power were in line with our expectations. Unfavorable weather conditions and operational issues in the renewable portion of the portfolio, and mild weather and lower capacity prices affecting the thermal portion of the portfolio, were offset by contributions from an acquisition in 2016 and profit share from development of a renewable facility. MIC Hawaii generated results that were below expectations primarily driven by underperformance by our design-build mechanical contractor.
Cost increases related to the implementation of our shared services initiative and evaluation of various investment and acquisition opportunities offset reductions in procurement (cost of goods sold) and general and administrative expenses. We expect the cost savings associated with our shared services initiative to be visible in our consolidated results in 2018 as we do not anticipate incurring additional implementation costs.
Capital deployment in 2017, including various acquisitions, had a limited impact on our consolidated results. The majority of these were made late in the year and/or involved development projects that are not yet in operation. The acquired businesses were performing in line with expectations at year end.
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Year Ended December 31, |
Change
(From 2016 to 2017) Favorable/(Unfavorable) |
Change
(From 2015 to 2016) Favorable/(Unfavorable) |
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2017 | 2016 | 2015 | $ | % | $ | % | ||||||||||||||||||||||
($ In Thousands, Except Share and Per Share Data) (Unaudited) | ||||||||||||||||||||||||||||
Revenue
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Service revenue | $ | 1,445,832 | $ | 1,288,562 | $ | 1,288,501 | 157,270 | 12.2 | 61 | | ||||||||||||||||||
Product revenue | 368,881 | 363,169 | 350,749 | 5,712 | 1.6 | 12,420 | 3.5 | |||||||||||||||||||||
Total revenue | 1,814,713 | 1,651,731 | 1,639,250 | 162,982 | 9.9 | 12,481 | 0.8 | |||||||||||||||||||||
Costs and expenses
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Cost of services | 624,214 | 524,423 | 551,029 | (99,791 | ) | (19.0 | ) | 26,606 | 4.8 | |||||||||||||||||||
Cost of product sales | 164,311 | 142,731 | 168,954 | (21,580 | ) | (15.1 | ) | 26,223 | 15.5 | |||||||||||||||||||
Selling, general and administrative | 331,345 | 303,033 | 304,862 | (28,312 | ) | (9.3 | ) | 1,829 | 0.6 | |||||||||||||||||||
Fees to Manager related party | 71,388 | 68,486 | 354,959 | (2,902 | ) | (4.2 | ) | 286,473 | 80.7 | |||||||||||||||||||
Depreciation | 234,164 | 226,492 | 215,243 | (7,672 | ) | (3.4 | ) | (11,249 | ) | (5.2 | ) | |||||||||||||||||
Amortization of intangibles | 68,253 | 65,425 | 101,435 | (2,828 | ) | (4.3 | ) | 36,010 | 35.5 | |||||||||||||||||||
Total operating expenses | 1,493,675 | 1,330,590 | 1,696,482 | (163,085 | ) | (12.3 | ) | 365,892 | 21.6 | |||||||||||||||||||
Operating income (loss) | 321,038 | 321,141 | (57,232 | ) | (103 | ) | | 378,373 | NM | |||||||||||||||||||
Other income (expense)
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Interest income | 199 | 132 | 55 | 67 | 50.8 | 77 | 140.0 | |||||||||||||||||||||
Interest expense (1) | (110,602 | ) | (116,933 | ) | (123,079 | ) | 6,331 | 5.4 | 6,146 | 5.0 | ||||||||||||||||||
Other income, net | 11,323 | 21,786 | 1,288 | (10,463 | ) | (48.0 | ) | 20,498 | NM | |||||||||||||||||||
Net income (loss) before income taxes | 221,958 | 226,126 | (178,968 | ) | (4,168 | ) | (1.8 | ) | 405,094 | NM | ||||||||||||||||||
Benefit (provision) for income taxes | 234,154 | (71,257 | ) | 65,161 | 305,411 | NM | (136,418 | ) | NM | |||||||||||||||||||
Net income (loss) | $ | 456,112 | $ | 154,869 | $ | (113,807 | ) | 301,243 | 194.5 | 268,676 | NM | |||||||||||||||||
Less: net income (loss) attributable to noncontrolling interests | 4,910 | (1,512 | ) | (5,270 | ) | (6,422 | ) | NM | (3,758 | ) | (71.3 | ) | ||||||||||||||||
Net income (loss) attributable to MIC | $ | 451,202 | $ | 156,381 | $ | (108,537 | ) | 294,821 | 188.5 | 264,918 | NM | |||||||||||||||||
Basic income (loss) per share attributable to MIC | $ | 5.42 | $ | 1.93 | $ | (1.39 | ) | 3.49 | 180.8 | 3.32 | NM | |||||||||||||||||
Weighted average number of shares outstanding: basic | 83,204,404 | 80,892,654 | 77,997,826 | 2,311,750 | 2.9 | 2,894,828 | 3.7 |
NM Not meaningful
(1) | Interest expense includes gains on derivative instruments of $3.0 million and losses on derivative instruments of $5.0 million and $28.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. |
Consolidated revenues increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily as a result of an increase in the wholesale cost and the volume of jet fuel sold at Atlantic Aviation, contributions from acquisitions and an increase in the wholesale cost and volume of gas sold at MIC Hawaii. The increase in the consolidated revenue for the year ended December 31, 2017 also includes a contribution from IMTT from the recognition of deferred revenue resulting from termination of a construction project by a customer. These increases were partially offset by reduced revenue from BEC as a result of lower capacity prices and lower energy margins.
Consolidated cost of services and product sales increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to an increase in the wholesale cost of jet fuel at Atlantic Aviation, the wholesale cost of gas at MIC Hawaii and contributions from acquisitions. The changes in consolidated cost of services and product sales were also attributable to unrealized losses on commodity hedges at Hawaii Gas in 2017 compared with unrealized gains in 2016 (see Results of Operations MIC Hawaii below).
59
Selling, general and administrative expenses increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to (i) $9.3 million of costs incurred in connection with the evaluation of various investment and acquisition opportunities; (ii) $8.5 million of costs incurred in connection with the implementation of our shared services initiative; and (iii) incremental costs associated with acquired businesses.
Our Manager is entitled to a monthly base management fee based primarily on our market capitalization and potentially a quarterly performance fee based on total stockholder returns relative to a U.S. utilities index. For the years ended December 31, 2017 and 2016, we incurred base management fees of $71.4 million and $68.5 million, respectively. No performance fees were generated in any of the above periods. The unpaid portion of base management fees and performance fees, if any, at the end of each reporting period is included in the line item Due to Manager-related party in our consolidated balance sheets.
In all of the periods shown below, our Manager elected to reinvest any fees to which it was entitled in additional shares, except as noted. In accordance with the Third Amended and Restated Management Services Agreement, our Manager has currently elected to reinvest future base management fees and performance fees, if any, in additional shares.
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Period |
Base Management
Fee Amount ($ in Thousands) |
Performance
Fee Amount ($ in Thousands) |
Shares
Issued |
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2017 Activities:
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Fourth quarter 2017 | $ | 16,778 | $ | | 248,162 | (1) | ||||||
Third quarter 2017 | 17,954 | | 240,674 | |||||||||
Second quarter 2017 | 18,433 | | 233,394 | |||||||||
First quarter 2017 | 18,223 | | 232,398 | |||||||||
2016 Activities:
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Fourth quarter 2016 | $ | 18,916 | $ | | 230,773 | |||||||
Third quarter 2016 | 18,382 | | 232,488 | |||||||||
Second quarter 2016 | 16,392 | | 232,835 | |||||||||
First quarter 2016 | 14,796 | | 234,179 | |||||||||
2015 Activities:
|
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Fourth quarter 2015 | $ | 17,009 | $ | | 227,733 | |||||||
Third quarter 2015 | 18,118 | | 226,914 | |||||||||
Second quarter 2015 | 18,918 | 135,641 | 1,167,873 | (2) | ||||||||
First quarter 2015 | 16,545 | 148,728 | 2,068,038 |
(1) | Our Manager elected to reinvest all of the monthly base management fees for the fourth quarter of 2017 in shares. We issued 248,162 shares for the quarter ended December 31, 2017, including 83,395 shares that were issued in January 2018 for the December 2017 monthly base management fee. |
(2) | In July 2015, our board requested, and our Manager agreed, that $67.8 million of the performance fee for the quarter ended June 30, 2015 be settled in cash in July 2015 to minimize dilution. The remaining $67.8 million obligation was settled and reinvested in 944,046 shares by our Manager on August 1, 2016 using the June 2016 volume weighted average share price of $71.84. |
Depreciation expense increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to contributions from acquisitions, partially offset by the write-off of tanks and docks in 2016 at IMTT.
60
Amortization of intangibles increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to contributions from acquisitions.
Interest expense includes gains on derivative instruments of $3.0 million and losses on derivative instruments of $5.0 million for the years ended December 31, 2017 and 2016, respectively. Gains and losses on derivatives recorded in interest expense are attributable to the change in fair value of interest rate hedging instruments. For the year ended December 31, 2016, interest expense also included the non-cash write-off of deferred financing costs at Atlantic Aviation related to the October 2016 refinancing of its term loan and revolving credit facility and at Hawaii Gas related to the February 2016 refinancing of its $80.0 million term loan and its $60.0 million revolving credit facility. Excluding the derivative adjustments and deferred financing cost write-offs, interest expense decreased slightly for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to a reduction in the weighted average interest rate, partially offset by a higher average debt balance. Cash interest expense was $107.5 million and $107.9 million for the years ended December 31, 2017 and 2016, respectively. See discussions of interest expense for each of our operating businesses below.
As part of the refinancing of the Atlantic Aviation debt in October 2016, Atlantic Aviation paid $17.8 million in interest rate swap breakage fees associated with the termination of out-of-the-money interest rate swap contracts related to prior debt facilities. In addition, the business entered into $400.0 million of interest rate caps with a strike price of 1.0% to hedge the one month LIBOR floating rate interest exposure on the new Atlantic Aviation term loan facility. The business paid $8.6 million in upfront premiums to enter into the caps.
Other income, net, decreased for the year ended December 31, 2017 compared with year ended December 31, 2016 as 2016 included insurance recoveries associated with damage docks to IMTTs facilities and escrow proceeds related to the acquisition of BEC. This decrease was partially offset by our share of the development profit on the sale of certain renewable project assets by a developer and financing income from a credit facility provided to that developer in 2017.
We file a consolidated federal income tax return that includes the financial results for IMTT, Atlantic Aviation, BEC, MIC Hawaii and our allocable share of the taxable income (loss) from our wind and solar facilities. The wind and solar facilities where we do not own 100% are held by limited liability companies treated as partnerships for tax purposes. Pursuant to a tax sharing agreement, the businesses included in our consolidated federal income tax return, pay MIC an amount equal to the federal income tax each would have paid on a standalone basis as if they were not part of the consolidated federal income tax return.
The change from income tax expense for the year ended December 31, 2016 to income tax benefit for the year ended December 31, 2017 is primarily due to the Tax Cut and Jobs Act (see further discussions below). The effects of the change in the corporate tax rate requires us to revalue the net deferred tax liability balances on the consolidated balance sheet. The effect of revaluing the Company's net deferred tax liabilities to the new rate of 21% resulted in recording a tax benefit of $312.3 million, primarily at IMTT and Atlantic Aviation, in the consolidated statement of operations.
For the year ended December 31, 2017, any consolidated federal income tax liabilities our businesses generated are expected to be fully offset by net operating loss (NOL) carryforwards. Our federal NOL balance at December 31, 2017 was $347.3 million. We believe that we will be able to utilize all of our federal prior year NOLs and, together with planned tax strategies, we do not expect to make material regular federal income tax payments any earlier than 2020.
61
For the year ended December 31, 2017, current year taxable income is expected to be approximately $63.0 million. For the year ended December 31, 2017, we expect that our available investment tax credits will offset any Alternative Minimum Tax liability.
For the year ended December 31, 2017, we expect our businesses collectively to pay state income taxes of approximately $11.2 million. In calculating our consolidated state income tax provision, we have provided a valuation allowance for certain state income tax NOLs, the use of which is uncertain.
Valuation allowance:
At December 31, 2017 and 2016, we did not have a valuation allowance for our consolidated federal NOL carryforwards. In calculating our consolidated income tax provision, we have provided a valuation allowance of $1.1 million for certain foreign tax credits and state income tax NOL carryforwards, the utilization of which is not assured beyond a reasonable doubt.
The Tax Cuts and Jobs Act was signed into law on December 22, 2017 and includes provisions that will have an impact on our federal taxable income. The most significant of these are 100% bonus depreciation on qualifying assets (which is scheduled to phase down ratably to 0% between 2023 and 2027) and a reduction in the federal corporate tax rate from 35% to 21%.
The Tax Cuts and Jobs Act also includes a new limitation on the deductibility of net interest expense that generally limits the deduction to 30% of adjusted taxable income. For years before 2022, adjusted taxable income is defined as taxable income computed without regard to certain items, including net business interest expense, the amount of any NOL deduction, tax depreciation and tax amortization. We do not expect to incur net interest expense that is greater than adjusted taxable income prior to 2022.
Consolidated revenues increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily reflecting improved results at CP, principally our renewables business, and contribution from acquisitions at Atlantic Aviation and within MIC Hawaii. In addition, consolidated revenues increased for the year ended December 31, 2016 due to the full year contribution from BEC. These increases were partially offset by a decrease in revenue from IMTT and a decline in the wholesale cost of fuel at Atlantic Aviation and wholesale cost of gas at MIC Hawaii.
Consolidated cost of services and product sales decreased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to a decline in the wholesale cost of fuel at Atlantic Aviation, lower costs at IMTT and unrealized gains on commodity hedges and a decline in wholesale cost of gas at Hawaii Gas. These decreases were partially offset by the full year contribution from BEC and acquisitions at Atlantic Aviation and within MIC Hawaii.
Selling, general and administrative expenses decreased slightly for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to absence of transaction costs related to the BEC acquisition, costs associated with the Conversion and a decrease in costs at IMTT. The decrease was partially offset by incremental expenses associated with BEC for the first quarter of 2016, transactional and incremental costs from new acquisitions at both Atlantic Aviation and MIC Hawaii and professional fees associated with the implementation of a shared service center.
62
For the years ended December 31, 2016 and 2015, we incurred base management fees of $68.5 million and $70.6 million, respectively, and performance fees of $284.4 million for the year ended December 31, 2015. No performance fees were incurred for the year ended December 31, 2016.
Depreciation expense increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to the full year depreciation at BEC, the write-off of damaged tanks and docks at IMTT and the depreciation associated with FBOs acquired at Atlantic Aviation. The increase in depreciation expense was partially offset by the absence of non-cash impairments at Atlantic Aviation.
Amortization of intangibles decreased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to the absence of non-cash impairments at Atlantic Aviation.
Interest expense includes losses on derivative instruments of $5.0 million and $28.5 million for the years ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2016, interest expense also included the non-cash write-off of deferred financing costs at Atlantic Aviation related to the October 2016 refinancing of its term loan and revolving credit facility and at Hawaii Gas related to the February 2016 refinancing of its $80.0 million term loan and its $60.0 million revolving credit facility. For the year ended December 31, 2015, interest expense also included the non-cash write-off of deferred financing costs at IMTT related to the May 2015 refinancing.
Excluding the derivative adjustments and deferred financing cost write-offs, interest expense decreased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to an overall lower weighted average interest rate, partially offset by a higher average debt balance. Cash interest expense was $107.9 million and $112.4 million for the years ended December 31, 2016 and 2015, respectively.
As part of the refinancing of IMTTs debt in May 2015, IMTT paid $31.4 million in interest rate swap breakage fees related to the termination of out-of-the-money interest rate swap contracts related to prior debt facilities. In July 2015, the Company fully repaid the outstanding debt balance at BEC and paid $19.2 million in interest rate swap breakage fees.
Other income, net, increased for the year ended December 31, 2016 compared with year ended December 31, 2015 primarily due to insurance recoveries on damaged docks at IMTT and escrow proceeds received during the year related to our acquisition of BEC.
The change from income tax benefit for the year ended December 31, 2015 to income tax expense for the year ended December 31, 2016 is primarily due to the absence of any tax benefit associated with the performance fees incurred during the first half of 2015. For the years ended December 31, 2016 and 2015, we did not have any Federal Alternative Minimum Tax liability.
Valuation allowance:
At December 31, 2016 and 2015, we did not have a valuation allowance for our consolidated federal NOL carryforwards. In calculating our consolidated state income tax provision, we provided a valuation allowance for certain state income tax NOL carryforwards, the utilization of which is not assured beyond a reasonable doubt. During the year ended December 31, 2016, a significant portion of the state valuation allowance was reversed primarily due to the change in New York State tax law regarding consolidated filing requirements. As such, we decreased the valuation allowance by $14.7 million.
63
In addition to our results under U.S. GAAP, we use certain non-GAAP measures to assess the performance and prospects of our businesses. In particular, we use EBITDA excluding non-cash items, Free Cash Flow and certain proportionately combined financial metrics. Proportionately combined financial metrics reflect our proportionate interest in our wind and solar facilities.
We measure EBITDA excluding non-cash items as it reflects our businesses ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of those businesses. We believe investors use EBITDA excluding non-cash items primarily as a measure of the operating performance of MICs businesses and to make comparisons with the operating performance of other businesses whose depreciation and amortization expense may vary widely from ours, particularly where acquisitions and other non-operating factors are involved. We define EBITDA excluding non-cash items as net income (loss) or earnings the most comparable GAAP measure before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense reflected in the statements of operations. EBITDA excluding non-cash items also excludes base management fees and performance fees, if any, whether paid in cash or stock.
Given our varied ownership levels in our CP and MIC Hawaii segments, together with our obligations to report the results of these businesses on a consolidated basis, GAAP measures such as net income (loss) do not fully reflect all of the items we consider in assessing the amount of cash generated based on our proportionate interest in our wind and solar facilities. We note that the proportionately combined metrics used may be calculated in a different manner by other companies and may limit their usefulness as a comparative measure. Therefore, proportionately combined metrics should be used as a supplemental measure and not in lieu of our financial results reported under GAAP.
Our businesses are characteristically owners of high-value, long-lived assets capable of generating substantial Free Cash Flow. We define Free Cash Flow as cash from operating activities the most comparable GAAP measure which includes cash paid for interest, taxes and pension contributions, less maintenance capital expenditures, which includes principal repayments on capital lease obligations used to fund maintenance capital expenditures, and excluding changes in working capital.
We use Free Cash Flow as a measure of our ability to provide investors with an attractive risk-adjusted total return by sustaining and potentially increasing our quarterly cash dividend and funding a portion of our growth. GAAP metrics such as net income (loss) do not provide us with the same level of visibility into the performance and prospects of the business as a result of: (i) the capital intensive nature of our businesses and the generation of non-cash depreciation and amortization; (ii) shares issued to our external Manager under the Management Services Agreement; (iii) our ability to defer all or a portion of current federal income taxes; (iv) non-cash unrealized gains or losses on derivative instruments; (v) amortization of tolling liabilities; (vi) gains (losses) on disposal of assets; and (vii) pension expenses. Pension expenses primarily consist of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. Any cash contributions to pension plans are reflected as a reduction to Free Cash Flow. We believe that external consumers of our financial statements, including investors and research analysts, use Free Cash Flow both to assess MICs performance and as an indicator of its success in generating an attractive risk-adjusted total return.
In this Annual Report on Form 10-K, we have disclosed Free Cash Flow on a consolidated basis and for each of our operating segments and MIC Corporate. We believe that both EBITDA excluding non-cash items and Free Cash Flow support a more complete and accurate understanding of the financial and operating performance of our businesses than would otherwise be achieved using GAAP results alone.
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Free Cash Flow does not take into consideration required payments on indebtedness and other fixed obligations or other cash items that are excluded from our definition of Free Cash Flow. We note that Free Cash Flow may be calculated differently by other companies thereby limiting its usefulness as a comparative measure. Free Cash Flow should be used as a supplemental measure and not in lieu of our financial results reported under GAAP.
We categorize capital expenditures as either maintenance capital expenditures or growth capital expenditures. As neither maintenance capital expenditure nor growth capital expenditure is a GAAP term, we have adopted a framework to categorize specific capital expenditures. In broad terms, maintenance capital expenditures primarily maintain our businesses at current levels of operations, capability, profitability or cash flow, while growth capital expenditures primarily provide new or enhanced levels of operations, capability, profitability or cash flows. We consider a number of factors in determining whether a specific capital expenditure will be classified as maintenance or growth.
We do not bifurcate specific capital expenditures into maintenance and growth components. Each discrete capital expenditure is considered within the above framework and the entire capital expenditure is classified as either maintenance or growth.
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A reconciliation of net income (loss) to EBITDA excluding non-cash items and a reconciliation from cash provided by operating activities to Free Cash Flow, on a consolidated basis, is provided below. Similar reconciliations for each of our operating businesses and MIC Corporate follow.
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Year Ended December 31, |
Change
(From 2016 to 2017) Favorable/(Unfavorable) |
Change
(From 2015 to 2016) Favorable/(Unfavorable) |
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2017 | 2016 | 2015 | $ | % | $ | % | ||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||
Net income (loss) | $ | 456,112 | $ | 154,869 | $ | (113,807 | ) | |||||||||||||||||||||
Interest expense, net (1) | 110,403 | 116,801 | 123,024 | |||||||||||||||||||||||||
(Benefit) provision for income taxes | (234,154 | ) | 71,257 | (65,161 | ) | |||||||||||||||||||||||
Depreciation | 234,164 | 226,492 | 215,243 | |||||||||||||||||||||||||
Amortization of intangibles | 68,253 | 65,425 | 101,435 | |||||||||||||||||||||||||
Fees to Manager-related party (2) | 71,388 | 68,486 | 354,959 | |||||||||||||||||||||||||
Pension expense (3) | 8,106 | 8,601 | 7,300 | |||||||||||||||||||||||||
Other non-cash (income) expense, net (4) | (2,369 | ) | (16,343 | ) | 792 | |||||||||||||||||||||||
EBITDA excluding non-cash items (5) | $ | 711,903 | $ | 695,588 | $ | 623,785 | 16,315 | 2.3 | 71,803 | 11.5 | ||||||||||||||||||
EBITDA excluding non-cash items (5) | $ | 711,903 | $ | 695,588 | $ | 623,785 | ||||||||||||||||||||||
Interest expense, net (1) | (110,403 | ) | (116,801 | ) | (123,024 | ) | ||||||||||||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | (9,104 | ) | (13,177 | ) | 1,509 | |||||||||||||||||||||||
Amortization of debt financing costs (1) | 8,700 | 21,041 | 9,075 | |||||||||||||||||||||||||
Amortization of debt discount (1) | 3,266 | 1,007 | | |||||||||||||||||||||||||
Interest rate swap breakage fees | | (17,770 | ) | (50,556 | ) | |||||||||||||||||||||||
Interest rate cap premium | | (8,629 | ) | | ||||||||||||||||||||||||
(Provision) benefit for current income taxes (6) | (11,160 | ) | (7,310 | ) | 6,427 | |||||||||||||||||||||||
Pension contribution | | (3,500 | ) | | ||||||||||||||||||||||||
Changes in working capital (2) | (63,743 | ) | 9,871 | (86,060 | ) | |||||||||||||||||||||||
Cash provided by operating activities | 529,459 | 560,320 | 381,156 | |||||||||||||||||||||||||
Changes in working capital (2) | 63,743 | (9,871 | ) | 86,060 | ||||||||||||||||||||||||
Maintenance capital expenditures (7) | (35,202 | ) | (58,203 | ) | (68,596 | ) | ||||||||||||||||||||||
Free cash flow | $ | 558,000 | $ | 492,246 | $ | 398,620 | 65,754 | 13.4 | 93,626 | 23.5 |
(1) | Interest expense, net, includes adjustments to derivative instruments, non-cash amortization of deferred financing fees and non-cash amortization of debt discount related to the 2.00% Convertible Senior Notes due October 2023. Interest expense, net, also included a non-cash write-off of deferred financing fees related to the February 2016 refinancing at Hawaii Gas, the October 2016 refinancing at Atlantic Aviation and the May 2015 refinancing at IMTT. |
(2) | Fees to Manager-related party includes base management fees and performance fees, if any. In July 2015, our board requested, and our Manager agreed, that $67.8 million of the performance fee for the quarter ended June 30, 2015 be settled in cash in July 2015 to minimize dilution. The remaining $67.8 million obligation was settled and reinvested in 944,046 shares by our Manager on August 1, 2016 using the June 2016 volume weighted average share price of $71.84. |
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(3) | Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. Any cash contributions to pension plans are not included in pension expense, but rather reflected as a reduction to Free Cash Flow, as noted in the table above. |
(4) | Other non-cash (income) expense, net, primarily includes non-cash amortization of tolling liabilities, unrealized gains (losses) on commodity hedges, adjustments to asset retirement obligations and non-cash gains (losses) related to disposal of assets. See Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics above for further discussion. |
(5) | For the year ended December 31, 2016, EBITDA excluding non-cash items included $16.5 million of insurance recoveries related to damaged docks at IMTT. |
(6) | Includes $6.9 million of tax refund received in the fourth quarter of 2015 relating to the election of bonus depreciation for the year ended December 31, 2014. |
(7) | For the year ended December 31, 2016, maintenance capital expenditures included $13.9 million associated with the rebuilding of damaged docks, the majority of which were insured losses, at IMTT. |
See Results of Operations Consolidated above for a reconciliation of Free Cash Flow Consolidated basis to cash provided by operating activities, the most comparable GAAP measure. The following table is a reconciliation from Free Cash Flow on a consolidated basis to Free Cash Flow on a proportionately combined basis (our proportionate interest in our wind and solar facilities). See Results of Operations below for a reconciliation of Free Cash Flow for each of our segments to cash provided by (used in) operating activities for such segment.
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Year Ended December 31, |
Change
(From 2016 to 2017) Favorable/(Unfavorable) |
Change
(From 2015 to 2016) Favorable/(Unfavorable) |
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2017 | 2016 | 2015 | $ | % | $ | % | ||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||
Free Cash Flow-Consolidated basis | $ | 558,000 | $ | 492,246 | $ | 398,620 | 65,754 | 13.4 | 93,626 | 23.5 | ||||||||||||||||||
100% of CP Free Cash Flow included in consolidated Free Cash Flow | (75,134 | ) | (72,631 | ) | (21,989 | ) | ||||||||||||||||||||||
MIC's share of CP Free Cash Flow | 67,342 | 64,234 | 16,005 | |||||||||||||||||||||||||
100% of MIC Hawaii Free Cash Flow included in consolidated Free Cash Flow | (38,715 | ) | (36,311 | ) | (44,118 | ) | ||||||||||||||||||||||
MIC's share of MIC Hawaii Free Cash Flow | 38,701 | 36,308 | 44,118 | |||||||||||||||||||||||||
Free Cash Flow Proportionately Combined basis | $ | 550,194 | $ | 483,846 | $ | 392,636 | 66,348 | 13.7 | 91,210 | 23.2 |
Effective cost control and the acquisition of Epic Midstream offset a negative contribution for the full year from OMI and weaker than anticipated revenue growth in terminal operations. Contributions from the storage and handling of chemical and vegetable and tropical oils were in line with expectations and the outlook for these product lines remains positive. Changing conditions in certain petroleum product categories and markets began to negatively impact contract renewals and IMTTs results late in the year. These changing conditions are reflective of several larger trends.
Global demand for light transportation fuels, including gasoline and distillates, has increased at a faster rate than global demand for heavy oils. In the U.S., demand for both heavy oil and gasoline has declined over the past decade, although the decline in gasoline demand has been modest. U.S. refiners have responded to the global trends by increasing production of gasoline and distillates relative to the production of residual and heavy oils to the extent possible. This has resulted in:
| on the Lower Mississippi River, increased demand for gasoline and distillate storage and handling, mostly for export, and reduced demand for storage and handling of residual and heavy oil; and |
| in New York Harbor, altered gasoline and distillate trade flows between Europe and North America and reduced demand for marine borne gasoline storage and handling services. |
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Backwardation in futures markets (meaning the futures prices for the commodities are below the current, or spot, prices) for refined products have also impacted the bulk liquid terminals industry. While it persists, backwardation tends to reduce demand for storage and handling services by traders of these commodities.
The development of shale gas extraction in the U.S. has increased the amount of natural gas and natural gas liquids available in North America. The increase has been a driver of growing chemical production in the U.S. Gulf Coast region and has resulted in greater demand for storage and export of chemical products on the Lower Mississippi River.
Vegetable and agricultural oil products have benefitted from improved fundamental demand drivers. Tropical oils (e.g., coconut oil, palm kernel oil) have seen consumer-led, domestic demand growth leading to increased demand for the import and storage of these products. Vegetable oils (e.g., corn oil, soybean oil) have seen domestic production growth resulting in demand for the storage and export of these products on the Lower Mississippi River.
In response to these trends, and requests from customers, IMTT is currently both involved in and evaluating opportunities to:
| repurpose a portion of its capacity away from residual and heavy oils to clean products on the Lower Mississippi River; |
| increase connectivity between its facilities and those of its customers to improve supply chain efficiency and better utilize IMTTs capabilities including privileged marine access; and |
| invest in enhancements of intermodal capabilities to increase flexibility with respect to product distribution. |
The successful implementation of these initiatives is, over time, expected to contribute to improved utilization rates and pricing, to increase IMTTs exposure to growth markets and increase the proportion of contracted revenue, overall.
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Year Ended December 31, |
Change
(From 2016 to 2017) Favorable/(Unfavorable) |
Change
(From 2015 to 2016) Favorable/(Unfavorable) |
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2017 | 2016 | 2015 | ||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||
Revenue | 549,422 | 532,472 | 550,041 | 16,950 | 3.2 | (17,569 | ) | (3.2 | ) | |||||||||||||||||||
Cost of services | 196,369 | 204,279 | 222,724 | 7,910 | 3.9 | 18,445 | 8.3 | |||||||||||||||||||||
Selling, general and administrative expenses | 36,406 | 32,687 | 33,903 | (3,719 | ) | (11.4 | ) | 1,216 | 3.6 | |||||||||||||||||||
Depreciation and amortization | 126,463 | 134,385 | 132,002 | 7,922 | 5.9 | (2,383 | ) | (1.8 | ) | |||||||||||||||||||
Operating income | 190,184 | 161,121 | 161,412 | 29,063 | 18.0 | (291 | ) | (0.2 | ) | |||||||||||||||||||
Interest expense, net (1) | (38,357 | ) | (38,752 | ) | (37,378 | ) | 395 | 1.0 | (1,374 | ) | (3.7 | ) | ||||||||||||||||
Other income, net | 1,758 | 18,509 | 2,212 | (16,751 | ) | (90.5 | ) | 16,297 | NM | |||||||||||||||||||
Benefit (provision) for income taxes | 209,464 | (57,736 | ) | (51,520 | ) | 267,200 | NM | (6,216 | ) | (12.1 | ) | |||||||||||||||||
Net income | 363,049 | 83,142 | 74,726 | 279,907 | NM | 8,416 | 11.3 | |||||||||||||||||||||
Less: net income attributable to noncontrolling interests | | 59 | 586 | 59 | 100.0 | 527 | 89.9 | |||||||||||||||||||||
Net income attributable to MIC | 363,049 | 83,083 | 74,140 | 279,966 | NM | 8,943 | 12.1 | |||||||||||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
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Net income | 363,049 | 83,142 | 74,726 | |||||||||||||||||||||||||
Interest expense, net (1) | 38,357 | 38,752 | 37,378 | |||||||||||||||||||||||||
(Benefit) provision for income taxes | (209,464 | ) | 57,736 | 51,520 | ||||||||||||||||||||||||
Depreciation and amortization | 126,463 | 134,385 | 132,002 | |||||||||||||||||||||||||
Pension expense (2) | 6,996 | 7,219 | 6,063 | |||||||||||||||||||||||||
Other non-cash expense, net | 767 | 657 | 378 | |||||||||||||||||||||||||
EBITDA excluding non-cash items (3) | 326,168 | 321,891 | 302,067 | 4,277 | 1.3 | 19,824 | 6.6 | |||||||||||||||||||||
EBITDA excluding non-cash items (3) | 326,168 | 321,891 | 302,067 | |||||||||||||||||||||||||
Interest expense, net (1) | (38,357 | ) | (38,752 | ) | (37,378 | ) | ||||||||||||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | (3,834 | ) | (2,169 | ) | (2,912 | ) | ||||||||||||||||||||||
Amortization of debt financing costs (1) | 1,647 | 1,654 | 2,344 | |||||||||||||||||||||||||
Interest rate swap breakage fees | | | (31,385 | ) | ||||||||||||||||||||||||
Provision for current income taxes | (4,417 | ) | (5,438 | ) | (470 | ) | ||||||||||||||||||||||
Changes in working capital | (32,795 | ) | (3,734 | ) | (11,260 | ) | ||||||||||||||||||||||
Cash provided by operating activities | 248,412 | 273,452 | 221,006 | |||||||||||||||||||||||||
Changes in working capital | 32,795 | 3,734 | 11,260 | |||||||||||||||||||||||||
Maintenance capital expenditures (4) | (20,143 | ) | (38,620 | ) | (37,696 | ) | ||||||||||||||||||||||
Free cash flow | 261,064 | 238,566 | 194,570 | 22,498 | 9.4 | 43,996 | 22.6 |
NM Not meaningful
(1) | Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees. For the year ended December 31, 2015, interest expense also included non-cash write-off of deferred financing costs related to the May 2015 refinancing. |
(2) | Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. |
(3) | For the year ended December 31, 2016, EBITDA excluding non-cash items included $16.5 million of insurance recoveries related to damaged docks. These insurance recoveries were used to repair damaged docks and recorded in Other Income, net . The cost of those repairs were recorded in Maintenance Capital Expenditures . Excluding insurance proceeds, EBITDA excluding non-cash items would have been $305.4 million for the year ended December 31, 2016. On that basis, EBITDA excluding non-cash items would have increased by $20.8 million, or 6.8%, for the year ended December 31, 2017 compared with the prior comparable period. |
(4) | For the year ended December 31, 2016, maintenance capital expenditures included $13.9 million associated with the rebuilding of damaged docks, the majority of which were insured losses. Excluding these costs, maintenance capital expenditures would have been $24.7 million for the year ended December 31, 2016. On that basis, maintenance capital expenditures would have decreased by $4.6 million, or 18.6%, for the year ended December 31, 2017 compared with the prior comparable period. |
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IMTT generates the majority of its revenue from contracts typically comprising a fixed monthly charge (that typically escalates annually with inflation) for access to or use of its infrastructure. We refer to revenue generated from such contracts or fixed charges as firm commitments. Firm commitments are generally of medium term duration and at December 31, 2017, had a revenue weighted average remaining life of 2.3 years. Revenue from firm commitments comprised 80.2% of total revenue for the year ended December 31, 2017.
For the year ended December 31, 2017, total revenue increased by $17.0 million compared with the year ended December 31, 2016. The increase in revenue for the year ended December 31, 2017 compared with the year ended December 31, 2016 was primarily due to an acquisition and the recognition of deferred revenue resulting from termination of a construction project by a customer, partially offset by lower utilization.
Capacity utilization for the quarter and year ended December 31, 2017 was 90.6% and 93.3%, respectively, compared with 96.6% and 96.4%, respectively, for the quarter and year ended December 31, 2016. The decrease in utilization reflects the non-renewal of a small number of primarily residual and heavy oil contracts late in the year. These non-renewals reflected both continuing changes in domestic and global demand for the product, and market conditions for trading customers.
Cost of services and selling, general and administrative expenses combined decreased for the year ended December 31, 2017 compared with the year ended December 31, 2016. The decrease was primarily the result of lower labor, healthcare and repair and maintenance expenses, partially offset by incremental costs from an acquisition and higher franchise taxes.
Depreciation and amortization expense decreased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to the write-off of tanks and docks in 2016.
Interest expense includes gains on derivative instruments of $1.7 million for the year ended December 31, 2017 compared with losses on derivative instruments of $2.1 million for the year ended December 31, 2016. Excluding the derivative adjustments, interest expense increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to increased debt balances. Cash interest expense was $40.5 million for the year ended December 31, 2017 compared with $39.3 million for the year ended December 31, 2016.
The interest rate for the Gulf Opportunity Zone Bonds (GO Zone Bonds) tax-exempt bonds at IMTT are expected to increase in 2018 by 0.6% due to the reduction in the corporate tax rate from 35% to 21% under the Tax Cuts and Jobs Act.
Other income, net, decreased for the year ended December 31, 2017 compared with the year ended December 31, 2016. The business incurred insured losses in connection with damage done to various docks in Bayonne and Gretna for which insurance recoveries of approximately $16.5 million were recorded during the year ended December 31, 2016.
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The taxable income generated by IMTT is reported on our consolidated federal income tax return. The business files state income tax returns in the states in which it operates. The Provision for current income taxes of $4.4 million for the year ended December 31, 2017 in the above table includes $3.2 million of state income tax expense and $1.2 million of federal income tax expense. Any current federal income tax payable is expected to be offset in consolidation with the application of NOLs at the MIC holding company level.
The change from income tax expense for the year ended December 31, 2016 to income tax benefit for the year ended December 31, 2017 is primarily due to the Tax Cut and Jobs Act. The effects of the change in the corporate tax rate required a revaluation of the net deferred tax liability balances on the balance sheet. The effect of revaluing the net deferred tax liabilities to the new rate of 21% resulted in recording a tax benefit of approximately $260.0 million in the statement of operations.
The majority of the difference between IMTTs book and federal taxable income relates to depreciation of terminal fixed assets. For book purposes, these fixed assets are depreciated primarily over 5 to 30 years using the straight-line method of depreciation. For federal income tax purposes, these fixed assets are depreciated primarily over 5 to 15 years using accelerated methods. In addition, most terminal fixed assets placed in service between 2012 through 2017 qualify for the federal 50% (or 100% in applicable periods) bonus tax depreciation. A significant portion of the Lower Mississippi River terminal fixed assets constructed in the period after Hurricane Katrina were financed with GO Zone Bonds. GO Zone Bond financed assets are depreciated, for tax purposes, primarily over 9 to 20 years using the straight-line depreciation method. Most of the states in which the business operates do not allow the use of 50% or 100% bonus tax depreciation. However, Louisiana has historically allowed the use of federal bonus depreciation except for assets financed with GO Zone Bonds.
For the year ended December 31, 2016, EBITDA excluding non-cash items included $16.5 million of insurance recoveries for damaged docks. These insurance recoveries were used to repair damaged docks and recorded in Other Income, net . The cost of those repairs was recorded in Maintenance Capital Expenditures . Excluding insurance proceeds, EBITDA excluding non-cash items would have been $305.4 million for the year ended December 31, 2016. On that basis, EBITDA excluding non-cash items would have increased by $20.8 million, or 6.8%, for the year ended December 31, 2017 compared with the prior comparable period.
For the year ended December 31, 2017, IMTT incurred maintenance capital expenditures of $20.1 million and $23.0 million on an accrual basis and cash basis, respectively, compared with $38.6 million and $40.4 million on an accrual basis and cash basis, respectively, for the year ended December 31, 2016. For the year ended December 31, 2016, maintenance capital expenditures included $13.9 million associated with the rebuilding of damaged docks at IMTTs Gretna and Bayonne terminals. The property insurance recoveries are recorded in Other Income, net , in the above statement of operations. Excluding these costs, maintenance capital expenditures would have been $24.7 million for the year ended December 31, 2016. On that basis, maintenance capital expenditures would have decreased by $4.6 million, or 18.6%, for year ended December 31, 2017 compared with the prior comparable period. The decrease for the year ended December 31, 2017 compared with the year ended December 31, 2016 is primarily as a result of the timing of planned maintenance for the year. IMTT expects to incur between $20.0 million and $25.0 million of maintenance capital expenditures in 2018.
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For the year ended December 31, 2016, total revenue decreased by $17.6 million compared with the year ended December 31, 2015. The decrease reflects primarily a reduced level of spill response activity on the part of IMTTs subsidiary, OMI, and a decrease in rail services revenue principally in connection with the reduced demand for Canadian crude oil in the U.S. The decline in rail service was offset by an increase in other revenue from firm commitments. Revenue from firm commitments comprised approximately 81.9% of total revenue for the year ended December 31, 2016. The weighted average remaining life of firm commitments decreased to 2.3 years at December 31, 2016 compared with 2.6 years at December 31, 2015.
Consistent with strong demand patterns across petroleum product storage markets, capacity utilization was higher than historically normal levels at 96.4% for the year ended December 31, 2016 compared with 94.9% for the year ended December 31, 2015.
Costs were 7.7% lower for the year ended December 31, 2016 compared with the year ended December 31, 2015. The reduction in costs was primarily the result of lower costs associated with OMI as a result of a lower level of spill related activity, lower fuel costs, improved cost controls and the continued realization of efficiencies following our acquisition of the second half of IMTT in 2014.
Depreciation and amortization expense increased in the year ended December 31, 2016 compared with year ended December 31, 2015 primarily due to the write-off of tanks and docks in 2016.
Interest expense includes losses on derivative instruments of $2.1 million and $7.4 million for the years ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2015, interest expense also included the non-cash write-off of deferred financing costs related to the May 2015 refinancing. Excluding the derivative adjustments and deferred financing cost write-offs, interest expense increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 due to a higher average debt balance, partially offset by lower interest rates. Cash interest expense was $39.3 million and $37.9 million for the years ended December 31, 2016 and 2015, respectively.
As part of the refinancing of its debt in May 2015, IMTT paid $31.4 million in interest rate swap breakage fees related to the termination of out-of-the-money interest rate swap contracts related to prior debt facilities.
IMTT maintains insurance against the loss of use or damage to IMTTs facilities. The business incurred insured losses in connection with damage done to docks in Bayonne and Gretna for which insurance proceeds of approximately $16.5 million were recorded during the year ended December 31, 2016.
The Provision for current income taxes of $5.4 million for the year ended December 31, 2016 in the above table includes $3.8 million of state income tax expense and $1.6 million of federal income tax expense. The Provision for current income taxes of $470,000 for the year ended December 31, 2015 relates to state income tax expense.
For the year ended December 31, 2016, IMTT incurred maintenance capital expenditures of $38.6 million and $40.4 million on an accrual basis and cash basis, respectively, compared with $37.7 million and $34.9 million on an accrual basis and cash basis, respectively, for the year ended December 31, 2015. The increase in maintenance capital expenditures for the year ended December 31, 2016 was primarily a result of $13.9 million of expenditures associated with the rebuilding of damaged docks at IMTTs Gretna and Bayonne terminals.
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Industry-wide, domestic GA take-offs and landings increased by 3.6% in 2017 compared with 2016 according to data reported by the FAA. GA take-off and landings at airports where Atlantic Aviation operates increased by 4.3% during 2017. The growth in flight activity resulted in an increase in the volume of fuel sold and an increase in hangar and ramp rental income.
In addition to fundamental growth driven by increases in flight activity, Atlantic Aviation completed acquisitions of two additional FBOs and deployed growth capital at existing locations in terminal and hangar improvements and expansions. We expect these trends to continue in 2018.
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Year Ended December 31, |
Change
(From 2016 to 2017) Favorable/(Unfavorable) |
Change
(From 2015 to 2016) Favorable/(Unfavorable) |
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2017 | 2016 | 2015 | ||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||
Revenue | 846,431 | 740,209 | 738,460 | 106,222 | 14.4 | 1,749 | 0.2 | |||||||||||||||||||||
Cost of services (exclusive of depreciation and amortization shown separately below) | 378,494 | 303,899 | 328,305 | (74,595 | ) | (24.5 | ) | 24,406 | 7.4 | |||||||||||||||||||
Gross margin | 467,937 | 436,310 | 410,155 | 31,627 | 7.2 | 26,155 | 6.4 | |||||||||||||||||||||
Selling, general and administrative expenses | 222,205 | 212,331 | 207,062 | (9,874 | ) | (4.7 | ) | (5,269 | ) | (2.5 | ) | |||||||||||||||||
Depreciation and amortization | 100,190 | 90,659 | 126,351 | (9,531 | ) | (10.5 | ) | 35,692 | 28.2 | |||||||||||||||||||
Operating income | 145,542 | 133,320 | 76,742 | 12,222 | 9.2 | 56,578 | 73.7 | |||||||||||||||||||||
Interest expense, net (1) | (14,512 | ) | (33,961 | ) | (35,735 | ) | 19,449 | 57.3 | 1,774 | 5.0 | ||||||||||||||||||
Other (expense) income, net | (151 | ) | 68 | (2,121 | ) | (219 | ) | NM | 2,189 | 103.2 | ||||||||||||||||||
Provision for income taxes | (6,509 | ) | (39,889 | ) | (16,081 | ) | 33,380 | 83.7 | (23,808 | ) | (148.1 | ) | ||||||||||||||||
Net income | 124,370 | 59,538 | 22,805 | 64,832 | 108.9 | 36,733 | 161.1 | |||||||||||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
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Net income | 124,370 | 59,538 | 22,805 | |||||||||||||||||||||||||
Interest expense, net (1) | 14,512 | 33,961 | 35,735 | |||||||||||||||||||||||||
Provision for income taxes | 6,509 | 39,889 | 16,081 | |||||||||||||||||||||||||
Depreciation and amortization | 100,190 | 90,659 | 126,351 | |||||||||||||||||||||||||
Pension expense (2) | 20 | 110 | 112 | |||||||||||||||||||||||||
Other non-cash expense, net | 1,642 | 905 | 2,533 | |||||||||||||||||||||||||
EBITDA excluding non-cash items | 247,243 | 225,062 | 203,617 | 22,181 | 9.9 | 21,445 | 10.5 | |||||||||||||||||||||
EBITDA excluding non-cash items | 247,243 | 225,062 | 203,617 | |||||||||||||||||||||||||
Interest expense, net (1) | (14,512 | ) | (33,961 | ) | (35,735 | ) | ||||||||||||||||||||||
Convertible senior notes interest (3) | (7,782 | ) | (1,969 | ) | | |||||||||||||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | 429 | (4,158 | ) | 3,617 | ||||||||||||||||||||||||
Amortization of debt financing costs (1) | 1,170 | 14,195 | 3,221 | |||||||||||||||||||||||||
Interest rate swap breakage fees | | (17,770 | ) | | ||||||||||||||||||||||||
Interest rate cap premium | | (8,629 | ) | | ||||||||||||||||||||||||
Provision for current income taxes | (14,457 | ) | (2,137 | ) | (242 | ) | ||||||||||||||||||||||
Changes in working capital | (7,240 | ) | 11,164 | (2,635 | ) | |||||||||||||||||||||||
Cash provided by operating activities | 204,851 | 181,797 | 171,843 | |||||||||||||||||||||||||
Changes in working capital | 7,240 | (11,164 | ) | 2,635 | ||||||||||||||||||||||||
Maintenance capital expenditures | (7,965 | ) | (10,632 | ) | (21,455 | ) | ||||||||||||||||||||||
Free cash flow | 204,126 | 160,001 | 153,023 | 44,125 | 27.6 | 6,978 | 4.6 |
73
NM Not meaningful
(1) | Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees. For the year ended December 31, 2016, interest expense also included non-cash write-off of deferred financing costs related to the October 2016 refinancing. |
(2) | Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. |
(3) | Represents the cash interest expense reclassified from MIC Corporate related to the 2.00% Convertible Senior Notes due October 2023, proceeds of which were used to pay down a portion of Atlantic Aviation's credit facility in October 2016. |
Atlantic Aviation generates a significant portion of its revenue from the sale of jet fuel. Accordingly, revenue can fluctuate based on the cost of jet fuel to Atlantic Aviation and reported revenue may not reflect the business ability to effectively manage volume and price. For example, an increase in revenue may be attributable to an increase in the cost of the jet fuel and not an increase in the volume sold or price per gallon to the customer. Conversely, a decline in revenue may be attributable to a decrease in the cost of jet fuel and not a reduction in the volume sold or price.
Gross margin, which we define as revenue less cost of services, excluding depreciation and amortization, is the effective top line for Atlantic Aviation as it is reflective of the business ability to drive growth in the volume of products and services sold and the margins earned on those sales over time. We believe that our investors view gross margin as reflective of our ability to manage volume and price throughout the commodity cycle. Gross margin can be reconciled to operating income the most comparable GAAP measure by subtracting selling, general and administrative expenses and depreciation and amortization in the table above.
The majority of the revenue and gross margin earned by Atlantic Aviation is generated through fueling GA aircraft at facilities located on the 70 U.S. airports at which the business operates. Atlantic Aviation seeks to maintain and, where appropriate, increase dollar-based margins on fuel sales. Generally, fluctuations in the cost of jet fuel are passed through to the customer.
Revenue and gross margin are driven, in part, by the volume of fuel sold and the dollar-based margin/fee per gallon on those sales. Revenue increased by 14.4% for the year ended December 31, 2017 compared with the year ended December 31, 2016 as a result of higher wholesale cost of fuel, an increase in the volume of fuel sold and contributions from acquisitions. The higher wholesale cost of fuel was largely offset by a corresponding increase in cost of services, resulting in an increase in gross margin of 7.2% for the year ended December 31, 2017 compared with the year ended December 31, 2016.
Atlantic Aviation seeks to extend FBO leases prior to their maturity to improve our visibility into the cash generating capacity of these assets. Atlantic Aviation calculates a weighted average remaining lease life based on EBITDA excluding non-cash items in the prior calendar year adjusted for the impact of acquisitions/dispositions. The weighted average remaining lease life was 20.3 years at December 31, 2017 compared with 19.6 years at December 31, 2016. Notwithstanding the passage of one year, the length of the remaining lease life increased as a result of acquisitions and successful extensions of certain leaseholds.
Selling, general and administrative expenses increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to higher salaries and benefit costs and incremental costs associated with acquisitions.
Depreciation and amortization expense increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily as a result of assets placed in service and contributions from acquisitions.
74
Operating income increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 due to the increase in gross margin, partially offset by the increase in selling, general and administrative expenses and the increase in depreciation and amortization expense.
Interest expense includes gains on derivative instruments of $120,000 for the year ended December 31, 2017 compared with losses on derivative instruments of $2.2 million for the year ended December 31, 2016. For the year ended December 31, 2016, interest expense also included the non-cash write-off of deferred financing costs at Atlantic Aviation related to the October 2016 refinancing of its term loan and revolving credit facility. Excluding the derivative adjustments and deferred financing costs, interest expense decreased for the year ended December 31, 2017 compared with the year ended December 31, 2016 due to a lower weighted average interest rate and a lower average debt balance resulting from the October 2016 refinancing.
Cash interest expense was $20.7 million for the year ended December 31, 2017 compared with $25.9 million for the year ended December 31, 2016. Cash interest expense is inclusive of the interest expense related to the $402.5 million of 2.00% Convertible Senior Notes due October 2023, proceeds of which were used in part to reduce the drawn balance of Atlantic Aviations revolving credit facility.
As part of the refinancing of the Atlantic Aviation debt in October 2016, Atlantic Aviation paid $17.8 million in interest rate swap breakage fees associated with the termination of out-of-the-money interest rate swap contracts related to prior debt facilities. In addition, the business entered into $400.0 million of interest rate caps with a strike price of 1.0% to hedge the one month LIBOR floating rate interest exposure on the new Atlantic Aviation term loan facility. The business paid $8.6 million in upfront premiums to enter into the caps.
The taxable income generated by Atlantic Aviation is reported on our consolidated federal income tax return. The business files state income tax returns in the states in which it operates. The tax expense in the table above includes both state taxes and the portion of the consolidated federal tax liability attributable to the business.
The Provision for current income taxes of $14.5 million for the year ended December 31, 2017 in the above table includes $7.6 million of federal income tax expense and $6.9 million of state income tax expense. Any current federal income tax payable is expected to be offset in consolidation with the application of NOLs at the MIC holding company level.
The decrease in income tax expense for the year ended December 31, 2017 compared with the year ended December 31, 2016 is primarily due to the Tax Cut and Jobs Act. The effects of the change in the corporate tax rate required a revaluation of the net deferred tax liability balances on the balance sheet. The effect of revaluing the net deferred tax liabilities to the new rate of 21% resulted in recording a tax benefit of approximately $46.0 million in the statement of operations.
At December 31, 2017, Atlantic Aviation had $22.6 million of state NOL carryforwards. State NOL carryforwards are specific to the state in which the NOL was generated and various states impose limitations on the utilization of NOL carryforwards. Therefore, the business may incur state income tax liabilities in the future, even if its consolidated state taxable income is less than $22.6 million.
For the year ended December 31, 2017, Atlantic Aviation incurred maintenance capital expenditures of $8.0 million both on an accrual basis and cash basis compared with $10.6 million and $10.2 million on an accrual basis and cash basis, respectively, for the year ended December 31, 2016.
75
Revenue increased by 0.2% for the year ended December 31, 2016 compared with the year ended December 31, 2015 as a result of an increase in the volume of fuel sold and higher rental and ancillary services revenue, partially offset by a decline in the wholesale cost of fuel. The decline in the wholesale cost of fuel was largely offset in cost of services, resulting in an increase in gross margin of 6.4% for the year ended December 31, 2016 compared with the year ended December 31, 2015.
Selling, general and administrative expenses increased by 2.5% for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to costs associated with acquired FBOs, higher salaries and benefit costs and higher rent expense.
Depreciation and amortization expense decreased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to the absence of non-cash impairments. The non-cash impairments incurred during the first quarter of 2015 were attributable to the reassessment of the useful lives of contractual arrangements and leasehold and land improvements related to leases at certain airports and a change in the lease terms at one base.
Operating income increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 due to the increase in gross margin and decrease in depreciation and amortization expense, partially offset by an increase in selling, general and administrative expenses.
Interest expense includes losses on derivative instruments of $2.2 million and $12.1 million for the years ended December 31, 2016 and 2015, respectively. For the year ended December 31, 2016, interest expense also included the non-cash write-off of deferred financing costs at Atlantic Aviation related to the October 2016 refinancing of its term loan and revolving credit facility. Excluding the derivative adjustments and deferred financing costs, interest expense decreased for the year ended December 31, 2016 compared with the year ended December 31, 2015 due to lower average interest rates. Cash interest expense was $25.9 million and $28.9 million for the years ended December 31, 2016 and 2015, respectively. Cash interest expense for the year ended December 31, 2016 is inclusive of the cash interest expense related to the $402.5 million of 2.00% Convertible Senior Notes due October 2023, the proceeds of which were used in part to reduce the drawn balance of Atlantic Aviations revolving credit facility.
The Provision for current income taxes of $2.1 million for the year ended December 31, 2016 includes $1.4 million of state income tax expense and $703,000 of federal income tax expense. The Provision for current income taxes of $242,000 for the year ended December 31, 2015 relates to $139,000 of state income tax expense and $103,000 related to federal income tax expense.
76
For the year ended December 31, 2016, Atlantic Aviation incurred maintenance capital expenditures of $10.6 million and $10.2 million on an accrual basis and cash basis, respectively, compared with $21.5 million on both an accrual basis and cash basis for the year ended December 31, 2015. As disclosed in our 2015 filing on Form 10-K, the business accelerated its maintenance capital expenditures for the year ended December 31, 2015 due to the strong performance of the business and the availability of capital. The acceleration was intended to increase Atlantic Aviations future financial flexibility. Maintenance capital expenditures for the periods presented were primarily to fund replacement of equipment. For the year ended December 31, 2016, maintenance capital expenditures include the full repayment on all of the business capital lease obligations.
Full year results for Contracted Power were in line with our expectations. Unfavorable weather conditions and operational issues in the renewable portion of the portfolio, and mild weather and lower capacity prices affecting the thermal portion of the portfolio, were offset by contributions from an acquisition in 2016, profit share from development of a renewable facility and the installation of additional tariff-based ancillary services in Bayonne. Particularly mild summer weather in New York City led to a significant decline in the number of cooling degree days the hours during which air conditioning systems are typically in use and reduced demand for peaking power generators.
During the year, we completed various cost saving initiatives including changing the operations and maintenance provider for five of our existing solar facilities and by insourcing asset management and balance of plant maintenance activities at our largest wind facility.
77
The financial results below reflect 100% of the performance of the wind and solar facilities within the CP segment since our acquisitions, not the contribution based on our economic interest, and the performance of BEC from the date of our acquisition on April 1, 2015, unless specified otherwise.
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Year Ended December 31, |
Change
(From 2016 to 2017) Favorable/(Unfavorable) |
Change
(From 2015 to 2016) Favorable/(Unfavorable) |
||||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||
Product revenue | 145,926 | 150,010 | 123,797 | (4,084 | ) | (2.7 | ) | 26,213 | 21.2 | |||||||||||||||||||
Cost of product sales | 20,524 | 23,302 | 18,901 | 2,778 | 11.9 | (4,401 | ) | (23.3 | ) | |||||||||||||||||||
Selling, general and administrative expenses | 25,703 | 25,474 | 30,847 | (229 | ) | (0.9 | ) | 5,373 | 17.4 | |||||||||||||||||||
Depreciation and amortization | 60,300 | 55,548 | 48,990 | (4,752 | ) | (8.6 | ) | (6,558 | ) | (13.4 | ) | |||||||||||||||||
Operating income | 39,399 | 45,686 | 25,059 | (6,287 | ) | (13.8 | ) | 20,627 | 82.3 | |||||||||||||||||||
Interest expense, net (1) | (23,487 | ) | (21,286 | ) | (28,390 | ) | (2,201 | ) | (10.3 | ) | 7,104 | 25.0 | ||||||||||||||||
Other income, net | 11,465 | 4,021 | 1,066 | 7,444 | 185.1 | 2,955 | NM | |||||||||||||||||||||
Provision for income taxes | (6,169 | ) | (14,328 | ) | (4,887 | ) | 8,159 | 56.9 | (9,441 | ) | (193.2 | ) | ||||||||||||||||
Net income (loss) | 21,208 | 14,093 | (7,152 | ) | 7,115 | 50.5 | 21,245 | NM | ||||||||||||||||||||
Less: net income (loss) attributable to noncontrolling interest | 5,058 | 2,092 | (5,856 | ) | (2,966 | ) | (141.8 | ) | (7,948 | ) | (135.7 | ) | ||||||||||||||||
Net income (loss) attributable to MIC | 16,150 | 12,001 | (1,296 | ) | 4,149 | 34.6 | 13,297 | NM | ||||||||||||||||||||
Reconciliation of net income (loss) to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
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Net income (loss) | 21,208 | 14,093 | (7,152 | ) | ||||||||||||||||||||||||
Interest expense, net (1) | 23,487 | 21,286 | 28,390 | |||||||||||||||||||||||||
Provision for income taxes | 6,169 | 14,328 | 4,887 | |||||||||||||||||||||||||
Depreciation and amortization | 60,300 | 55,548 | 48,990 | |||||||||||||||||||||||||
Other non-cash income, net (2) | (8,103 | ) | (7,047 | ) | (6,959 | ) | ||||||||||||||||||||||
EBITDA excluding non-cash items | 103,061 | 98,208 | 68,156 | 4,853 | 4.9 | 30,052 | 44.1 | |||||||||||||||||||||
EBITDA excluding non-cash items | 103,061 | 98,208 | 68,156 | |||||||||||||||||||||||||
Interest expense, net (1) | (23,487 | ) | (21,286 | ) | (28,390 | ) | ||||||||||||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | (5,301 | ) | (4,762 | ) | 819 | |||||||||||||||||||||||
Amortization of debt financing
costs (1) |
1,516 | 1,489 | 686 | |||||||||||||||||||||||||
Interest rate swap breakage fees | | | (19,171 | ) | ||||||||||||||||||||||||
Provision for current income taxes | (129 | ) | (6 | ) | (4 | ) | ||||||||||||||||||||||
Changes in working capital | (3,480 | ) | (1,129 | ) | (2,331 | ) | ||||||||||||||||||||||
Cash provided by operating activities | 72,180 | 72,514 | 19,765 | |||||||||||||||||||||||||
Changes in working capital | 3,480 | 1,129 | 2,331 | |||||||||||||||||||||||||
Maintenance capital expenditures | (526 | ) | (1,012 | ) | (107 | ) | ||||||||||||||||||||||
Free cash flow | 75,134 | 72,631 | 21,989 | 2,503 | 3.4 | 50,642 | NM |
NM Not meaningful
(1) | Interest expense, net, includes adjustments to derivative instruments and non-cash amortization of deferred financing fees. |
(2) | Other non-cash income, net, primarily includes amortization of tolling liabilities. See Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics above for further discussion. |
78
Revenue decreased by $4.1 million for the year ended December 31, 2017 compared with the year ended December 31, 2016. Revenue from BEC decreased driven by reduced capacity prices and lower energy margins tied to mild weather, partially offset by additional tariff-based ancillary services provided to the grid operator. Revenue at the wind and solar facilities increased primarily due to contributions from acquired solar facilities, partially offset by lower wind and solar generation.
Cost of product sales decreased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to a reduction in gas consumed at BEC as a result of reduced generation and lower natural gas costs, including from the recently completed gas lateral, partially offset by incremental costs from acquired solar facilities.
Selling, general and administrative expenses increased slightly for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to incremental costs associated with the improvement projects constructed at BEC, incremental costs from acquisitions and development-related expenses at the wind and solar facilities, partially offset by lower costs related to leased engines and insurance savings at BEC.
Depreciation and amortization expense increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to incremental expenses associated with acquisitions completed in 2017 and 2016 and projects placed in service during the year.
Other income, net, increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to our share of the development profit on the sale of certain renewable project assets by a developer. In addition, other income, net, includes financing income from a credit facility provided to that developer. The increase in other income, net, was partially offset by the absence of escrow proceeds related to the BEC acquisition received during the year ended December 31, 2016.
Interest expense includes gains on derivative instruments of $716,000 for the year ended December 31, 2017 compared with losses on derivative instruments of $2.5 million for the year ended December 31, 2016. Excluding the derivative adjustments, interest expense increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to debt assumed in an acquisition completed in December 2016, partially offset by lower average debt balances on all other facilities. Cash interest expense was $27.3 million for the year ended December 31, 2017 compared with $24.6 million for the year ended December 31, 2016.
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Our wind and solar facilities where we do not own 100% are held in limited liability companies that are treated as partnerships for tax purposes. As such, these entities do not pay federal or state income taxes on a standalone basis, but each partner pays federal and state income taxes based on their allocated share of taxable income. For the year ended December 31, 2017, MIC expects its allocated share of the federal taxable income from these facilities to be a loss of approximately $10.7 million. For 2016, MICs allocated share of the federal taxable income from these facilities was a loss of approximately $20.0 million.
The taxable income generated by BEC is reported on our consolidated federal income tax return and is subject to New York state income tax as part of a combined return. For the year ended December 31, 2017, the business does not expect to have a federal or a state income tax liability. Future current federal taxable income attributable to BEC may be offset in consolidation with the application of NOLs at the MIC holding company level.
Total revenue increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 as a result of improved output from wind and solar facilities as well as full-year contribution from BEC, which was acquired on April 1, 2015. During the year ended December 31, 2016, solar resources were approximately 99% of long-term historical average. For the year ended December 31, 2016, the wind resource was approximately 94% of long-term historical average.
At BEC, revenue for the year ended December 31, 2016 was higher than the year ended December 31, 2015 as a result of an additional quarter of ownership. Lower capacity prices in the year ended December 31, 2016 compared with the year ended December 31, 2015 were largely offset by higher utilization in the year ended December 31, 2016. Higher utilization was driven by higher than expected summer temperatures, which resulted in an average capacity factor of approximately 26% for the year ended December 31, 2016 compared with approximately 24% for the year ended December 31, 2015.
Cost of product sales increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to the full year contribution from BEC.
The decrease in selling, general and administrative expenses for the year ended December 31, 2016 compared with the year ended December 31, 2015 was primarily due to absence of transaction costs related to the BEC acquisition, partially offset by incremental costs incurred from BEC related to the first quarter of 2016.
Depreciation and amortization expense increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily related to incremental depreciation and amortization associated with BEC for the first quarter of 2016.
Other income, net, increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to escrow proceeds received in 2016 related to our acquisition of BEC.
Interest expense includes losses on derivative instruments of $2.5 million and $8.6 million for the years ended December 31, 2016 and 2015, respectively. Excluding the derivative adjustments, interest expense decreased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to lower interest rates, principally on the BEC debt facilities, and lower average debt balances on all facilities. Cash interest expense was $24.6 million and $26.9 million for the years ended December 31, 2016 and 2015, respectively.
80
In connection with the BEC acquisition in April 2015, the business assumed $509.1 million of debt facilities, of which $257.6 million was repaid on June 12, 2015 and the remaining balance of $251.5 million was repaid on July 20, 2015. As part of the repayment, BEC paid $19.2 million in interest rate swap breakage fees associated with the termination of out-of-the-money interest rate swap contracts. On August 10, 2015, BEC entered into new debt agreements.
For the year ended December 31, 2016, our allocated share of the federal taxable income from these facilities was a loss of approximately $20.0 million. For the year ended December 31, 2015, MICs allocated share of the taxable income from the wind and solar facilities was a loss of approximately $50.0 million.
For the year ended December 31, 2016, BEC did not have a federal or a state income tax liability.
For the year ended December 31, 2016, CP incurred maintenance capital expenditures of $1.0 million and $673,000 on an accrual basis and cash basis, respectively. Maintenance capital expenditures were primarily to fund system upgrades.
MIC Hawaii generated results that were below expectations primarily driven by underperformance by our design-build mechanical contractor as a result of cost overruns on projects with fixed revenue. The largest of the MIC Hawaii businesses, Hawaii Gas, recorded an increase in the volume of gas sold of 1.7%. Each of the MIC Hawaii businesses experienced price pressure in 2017, including price declines in the unregulated LPG distribution portion of the business.
The MIC Hawaii businesses continued to support the States clean energy goals by taking steps to diversify our feedstocks to include fuels which are cleaner burning and have the potential to lower energy costs, such as renewable natural gas (RNG) and liquefied natural gas (LNG). Alongside Waihonu Solar, we added additional clean energy and distributed generation projects in this segment.
In August 2017, Hawaii Gas filed a general rate case with the HPUC. The rate case seeks an increase in revenue of $15.0 million per year and, if approved, is expected to be implemented in mid-2018.
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Year Ended December 31, |
Change
(From 2016 to 2017) Favorable/ (Unfavorable) |
Change
(From 2015 to 2016) Favorable/ (Unfavorable) |
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2017 | 2016 | 2015 | ||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||
Product revenue | 222,955 | 213,159 | 226,952 | 9,796 | 4.6 | (13,793 | ) | (6.1 | ) | |||||||||||||||||||
Service revenue | 54,913 | 20,762 | | 34,151 | 164.5 | 20,762 | NM | |||||||||||||||||||||
Total revenue | 277,868 | 233,921 | 226,952 | 43,947 | 18.8 | 6,969 | 3.1 | |||||||||||||||||||||
Cost of product sales (exclusive of depreciation and amortization shown separately below) | 143,787 | 119,429 | 150,053 | (24,358 | ) | (20.4 | ) | 30,624 | 20.4 | |||||||||||||||||||
Cost of services (exclusive of depreciation and amortization shown separately below) | 49,365 | 16,335 | | (33,030 | ) | NM | (16,335 | ) | NM | |||||||||||||||||||
Cost of revenue total | 193,152 | 135,764 | 150,053 | (57,388 | ) | (42.3 | ) | 14,289 | 9.5 | |||||||||||||||||||
Gross margin | 84,716 | 98,157 | 76,899 | (13,441 | ) | (13.7 | ) | 21,258 | 27.6 | |||||||||||||||||||
Selling, general and administrative expenses | 26,938 | 24,276 | 21,475 | (2,662 | ) | (11.0 | ) | (2,801 | ) | (13.0 | ) | |||||||||||||||||
Depreciation and amortization | 15,303 | 11,325 | 9,335 | (3,978 | ) | (35.1 | ) | (1,990 | ) | (21.3 | ) | |||||||||||||||||
Operating income | 42,475 | 62,556 | 46,089 | (20,081 | ) | (32.1 | ) | 16,467 | 35.7 | |||||||||||||||||||
Interest expense, net (1) | (7,041 | ) | (5,559 | ) | (7,279 | ) | (1,482 | ) | (26.7 | ) | 1,720 | 23.6 | ||||||||||||||||
Other expense, net | (731 | ) | (812 | ) | (556 | ) | 81 | 10.0 | (256 | ) | (46.0 | ) | ||||||||||||||||
Provision for income taxes | (9,287 | ) | (20,441 | ) | (14,261 | ) | 11,154 | 54.6 | (6,180 | ) | (43.3 | ) | ||||||||||||||||
Net income | 25,416 | 35,744 | 23,993 | (10,328 | ) | (28.9 | ) | 11,751 | 49.0 | |||||||||||||||||||
Less: net loss attributable to noncontrolling interests | (148 | ) | (3,663 | ) | | (3,515 | ) | (96.0 | ) | 3,663 | NM | |||||||||||||||||
Net income attributable to MIC | 25,564 | 39,407 | 23,993 | (13,843 | ) | (35.1 | ) | 15,414 | 64.2 | |||||||||||||||||||
Reconciliation of net income to EBITDA excluding non-cash items and a reconciliation of cash provided by operating activities to Free Cash Flow:
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Net income | 25,416 | 35,744 | 23,993 | |||||||||||||||||||||||||
Interest expense, net (1) | 7,041 | 5,559 | 7,279 | |||||||||||||||||||||||||
Provision for income taxes | 9,287 | 20,441 | 14,261 | |||||||||||||||||||||||||
Depreciation and amortization | 15,303 | 11,325 | 9,335 | |||||||||||||||||||||||||
Pension expense (2) | 1,090 | 1,272 | 1,125 | |||||||||||||||||||||||||
Other non-cash expense (income), net (3) | 2,494 | (11,539 | ) | 4,090 | ||||||||||||||||||||||||
EBITDA excluding non-cash items | 60,631 | 62,802 | 60,083 | (2,171 | ) | (3.5 | ) | 2,719 | 4.5 | |||||||||||||||||||
EBITDA excluding non-cash items | 60,631 | 62,802 | 60,083 | |||||||||||||||||||||||||
Interest expense, net (1) | (7,041 | ) | (5,559 | ) | (7,279 | ) | ||||||||||||||||||||||
Adjustments to derivative instruments recorded in interest expense (1) | (398 | ) | (2,088 | ) | (15 | ) | ||||||||||||||||||||||
Amortization of debt financing costs (1) | 403 | 948 | 483 | |||||||||||||||||||||||||
(Provision) benefit for current income taxes | (8,312 | ) | (8,353 | ) | 184 | |||||||||||||||||||||||
Pension contribution | | (3,500 | ) | | ||||||||||||||||||||||||
Changes in working capital | (6,364 | ) | 9,342 | (1,570 | ) | |||||||||||||||||||||||
Cash provided by operating activities | 38,919 | 53,592 | 51,886 | |||||||||||||||||||||||||
Changes in working capital | 6,364 | (9,342 | ) | 1,570 | ||||||||||||||||||||||||
Maintenance capital expenditures | (6,568 | ) | (7,939 | ) | (9,338 | ) | ||||||||||||||||||||||
Free cash flow | 38,715 | 36,311 | 44,118 | 2,404 | 6.6 | (7,807 | ) | (17.7 | ) |
NM Not meaningful
(1) | Interest expense, net, includes adjustments to derivative instruments related to interest rate swaps and non-cash amortization of deferred financing fees. For the year ended December 31, 2016, interest expense, net, also included a non-cash write-off of deferred financing fees related to the February 2016 refinancing at Hawaii Gas. |
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(2) | Pension expense primarily consists of interest cost, expected return on plan assets and amortization of actuarial and performance gains and losses. Any cash contributions to pension plans are not included in pension expense, but rather reflected as a reduction to Free Cash Flow, as noted in the table above. |
(3) | Other non-cash expense (income), net, primarily includes non-cash adjustments related to unrealized gains (losses) on commodity hedges and asset retirement obligations. See Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) excluding non-cash items, Free Cash Flow and Proportionately Combined Metrics above for further discussion. |
Hawaii Gas generates a significant portion of its revenue from the sale of gas. Accordingly, revenue can fluctuate based on the wholesale cost of the commodity to Hawaii Gas and may not reflect the business ability to effectively manage volume and price. For example, an increase in revenue may be attributable to an increase in the wholesale cost of gas and not an increase in the volume sold or price per BTU. Conversely, a decline in revenue may be attributable to a decrease in the wholesale cost of gas and not a reduction in volume sold or price per BTU.
Gross margin, which we define as revenue less cost of product sales and services, excluding depreciation and amortization, is the effective top line for Hawaii Gas as it is reflective of the business ability to drive growth in the volume of products and services and the margins earned on those sales over time. We believe that investors utilize gross margin as it is reflective of our performance in managing volume and price throughout the commodity cycle. Gross margin is reconciled to operating income the most comparable GAAP measure by subtracting selling, general and administrative expenses and depreciation and amortization in the table above.
Revenue increased by $43.9 million for the year ended December 31, 2017 compared with the year ended December 31, 2016. The increase is primarily attributable to contributions from acquisitions, an increase in the wholesale cost of gas and an increase of 1.7% in the volume of gas sold by Hawaii Gas for the year ended December 31, 2017. On an underlying basis, adjusting for changes in customer inventory, the volume of gas sold increased by 1.2% in the year ended December 31, 2017 compared with the year ended December 31, 2016.
Gross margin decreased by $13.4 million for the year ended December 31, 2017 compared with the year ended December 31, 2016. The decrease for the year ended December 31, 2017 is primarily attributable to unrealized losses on commodity hedges of $94,000 compared with unrealized gains on commodity hedges of $15.0 million for the year ended December 31, 2016, partially offset by contribution from acquisitions.
Gross margin, excluding the impact of unrealized gains and losses on commodity hedges, increased by $1.6 million, or 2.0%, for the year ended December 31, 2017 compared with the year ended December 31, 2016. The increase was primarily as a result of contributions from acquisitions and lower transmission and distribution expenses, partially offset by a decrease in gross margin from the non-utility business at Hawaii Gas.
Selling, general and administrative expenses increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to incremental costs from acquisitions.
Depreciation and amortization expense increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to incremental expenses associated with acquisitions.
Operating income decreased for the year ended December 31, 2017 compared with the year ended December 31, 2016 due to the decrease in gross margin, an increase in depreciation and amortization expense and an increase in selling, general and administrative expenses.
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Interest expense includes gains on derivative instruments of $409,000 and $1.8 million for the years ended December 31, 2017 and 2016, respectively. For the year ended December 31, 2016, interest expense also included the non-cash write-off of deferred financing costs at Hawaii Gas related to the refinancing of its $80.0 million term loan and its $60.0 million revolving credit facility. Excluding the derivative adjustments and the write-off of the deferred financing costs, interest expense increased for the year ended December 31, 2017 compared with the year ended December 31, 2016 primarily due to debt assumed from an acquisition and the financing of solar facilities constructed in the past year. Cash interest expense was $7.0 million for the year ended December 31, 2017 compared with $6.7 million for the year ended December 31, 2016.
The taxable income generated by the MIC Hawaii businesses is reported on our consolidated federal income tax return and is subject to Hawaii state income tax on a stand-alone basis. The tax expense in the table above includes both state tax and the portion of the consolidated federal tax liability attributable to the businesses. The Provision for current income taxes of $8.3 million for the year ended December 31, 2017 in the above table includes $7.6 million of federal income tax expense and $680,000 of state income tax expense. Any current federal income tax payable is expected to be offset in consolidation with the application of NOLs at the MIC holding company level.
For the year ended December 31, 2017, MIC Hawaii incurred maintenance capital expenditures of $6.6 million and $7.0 million on an accrual basis and cash basis, respectively, compared with $7.9 million and $8.4 million on an accrual basis and cash basis, respectively, for the year ended December 31, 2016.
The Tax Cuts and Jobs Act is expected to have both positive and negative impacts on the businesses of MIC Hawaii. The positive aspects primarily benefit the non-regulated MIC Hawaii businesses and include the reduction in federal corporate tax rates and the expensing of a portion of capital expenditures. On the other hand, the regulated MIC Hawaii business expects a reduction in revenues as a result of the lower federal corporate tax rate. The HPUC determines the allowable rate of return Hawaii Gas can earn and therefore the rates it charges for its services. As a result of the reduction in federal corporate tax rate, Hawaii Gas requires a smaller amount of revenue to generate the same allowable return. We expect the application of the new laws to reduce revenue generated by Hawaii Gas with a corresponding reduction in federal income tax expense. The HPUC has opened a proceeding that is expected to result in a determination of the final impact of the new tax law on regulated utilities in Hawaii, including the treatment of accumulated deferred taxes as of the date of the change in federal corporate tax rate.
Hawaii Gas utility gas rates are regulated by the HPUC. On August 1, 2017, Hawaii Gas filed a general rate case application with the HPUC requesting an annual increase in regulated revenues of $15.0 million. To the extent that new rates are approved by regulators, we expect that interim rate increases, if any, could take effect in mid-2018.
The increase in revenue and gross margin includes contributions from acquisitions during the year ended December 31, 2016. The volume of gas sold by Hawaii Gas increased by 3.6% for the year ended December 31, 2016. On an underlying basis, adjusting for changes in customer inventory, the volume of gas sold increased by 4.2% for the year ended December 31, 2016.
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Gross margin, excluding the impact of unrealized gains and losses on commodity hedges, increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to acquisitions and an increase in the volume of gas sold, partially offset by lower margin per BTU. The business defines margin per BTU as product revenue less the cost of product sales excluding production, transmission and distribution costs as a percentage of volume of gas sold.
Selling, general and administrative expense increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily due to transactional and operating costs from new acquisitions, partially offset by lower sales and promotion, vehicle and legal costs.
Operating income increased for the year ended December 31, 2016 compared with the year ended December 31, 2015 due to the increase in gross margin, partially offset by the increase in selling, general and administrative expenses and an increase in depreciation and amortization expense.
Interest expense includes gains on derivative instruments of $1.8 million for the year ended December 31, 2016 compared with losses on derivative instruments of $351,000 for the year ended December 31, 2015. For the year ended December 31, 2016, interest expense also included the non-cash write-off of deferred financing costs at Hawaii Gas related to the refinancing of its $80.0 million term loan and its $60.0 million revolving credit facility. Excluding the derivative adjustments and the write-off of the deferred financing costs, interest expense decreased for the year ended December 31, 2016 compared with the year ended December 31, 2015 primarily attributable to the refinancing of Hawaii Gas $80.0 million term loan and $60.0 million revolving credit facility at rates that are lower by 0.50% and 0.25%, respectively. The decrease was partially offset by the increase in debt assumed from the acquisitions and financing of the solar facilities during the year ended December 31, 2016. Cash interest expense was $6.7 million and $6.8 million for the years ended December 31, 2016 and 2015, respectively.
The Provision for current income taxes of $8.4 million for the year ended December 31, 2016 in the above table includes $7.1 million of federal income tax expense and $1.3 million of state income tax expense. The Benefit for current income taxes of $184,000 for the year ended December 31, 2015 includes $10,000 of federal income tax benefit and $174,000 of state income tax benefit.
For the year ended December 31, 2016, MIC Hawaii incurred maintenance capital expenditures of $7.9 million and $8.4 million on an accrual basis and cash basis, respectively, compared with $9.3 million and $7.3 million on an accrual basis and cash basis, respectively, for the year ended December 31, 2015. Maintenance capital expenditures for the periods presented were primarily for transmission line modifications (net of customer reimbursements) and vehicle replacements.
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The financial results below reflect Corporate and Others performance during the periods below.
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Year Ended December 31, |
Change
(From 2016 to 2017) Favorable/ (Unfavorable) |
Change
(From 2015 to 2016) Favorable/ (Unfavorable) |
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2017 | 2016 | 2015 | ||||||||||||||||||||||||||
$ | $ | $ | $ | % | $ | % | ||||||||||||||||||||||
($ In Thousands) (Unaudited) | ||||||||||||||||||||||||||||
Fees to Manager-related party (1) | 71,388 | 68,486 | 354,959 | (2,902 | ) | (4.2 | ) | 286,473 | 80.7 | |||||||||||||||||||
Selling, general and administrative
expenses (2) |
25,013 | 13,056 | 11,575 | (11,957 | ) | (91.6 | ) | (1,481 | ) | (12.8 | ) | |||||||||||||||||
Depreciation | 161 | | | (161 | ) | NM | | | ||||||||||||||||||||
Operating loss | (96,562 | ) | (81,542 | ) | (366,534 | ) | (15,020 | ) | (18.4 | ) | 284,992 | 77.8 | ||||||||||||||||
Interest expense, net (3) | (27,006 | ) | (17,243 | ) | (14,242 | ) | (9,763 | ) | (56.6 | ) | (3,001 | ) | (21.1 | ) | ||||||||||||||
Other (expense) income, net | (1,018 | ) | | 687 | (1,018 | ) | NM | (687 | ) | (100.0 | ) | |||||||||||||||||
Benefit for income taxes | 46,655 | 61,137 | 151,910 | (14,482 | ) | (23.7 | ) | (90,773 | ) | (59.8 | ) | |||||||||||||||||
Net loss | (77,931 | ) | (37,648 | ) | (228,179 | ) | (40,283 | ) | (107.0 | ) | 190,531 | 83.5 | ||||||||||||||||
Reconciliation of net loss to EBITDA excluding non-cash items and a reconciliation of cash used in operating activities to Free Cash Flow:
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Net loss | (77,931 | ) | (37,648 | ) | (228,179 | ) | ||||||||||||||||||||||
Interest expense, net (3) | 27,006 | 17,243 | 14,242 | |||||||||||||||||||||||||
Benefit for income taxes | (46,655 | ) | (61,137 | ) | (151,910 | ) | ||||||||||||||||||||||
Depreciation | 161 | | | |||||||||||||||||||||||||
Fees to Manager-related party (1) | 71,388 | 68,486 | 354,959 | |||||||||||||||||||||||||
Other non-cash expense | 831 | 681 | 750 | |||||||||||||||||||||||||
EBITDA excluding non-cash items | (25,200 | ) | (12,375 | ) | (10,138 | ) | (12,825 | ) | (103.6 | ) | (2,237 | ) | (22.1 | ) | ||||||||||||||
EBITDA excluding non-cash items | (25,200 | ) | (12,375 | ) | (10,138 | ) | ||||||||||||||||||||||
Interest expense, net (3) | (27,006 | ) | (17,243 | ) | (14,242 | ) | ||||||||||||||||||||||
Convertible senior notes interest (4) | 7,782 | 1,969 | | |||||||||||||||||||||||||
Amortization of debt financing costs (3) | 3,964 | 2,755 | 2,341 | |||||||||||||||||||||||||
Amortization of debt discount (3) | 3,266 | 1,007 | | |||||||||||||||||||||||||
Benefit for current income taxes | 16,155 | 8,624 | 6,959 | |||||||||||||||||||||||||
Changes in working capital (1) | (13,864 | ) | (5,772 | ) | (68,264 | ) | ||||||||||||||||||||||
Cash used in operating activities | (34,903 | ) | (21,035 | ) | (83,344 | ) | ||||||||||||||||||||||
Changes in working capital (1) | 13,864 | 5,772 | 68,264 | |||||||||||||||||||||||||
Free cash flow | (21,039 | ) | (15,263 | ) | (15,080 | ) | (5,776 | ) | (37.8 | ) | (183 | ) | (1.2 | ) |
NM Not meaningful
(1) | Fees to Manager-related party includes base management fees and performance fees, if any. In July 2015, our board requested, and our Manager agreed, that $67.8 million of the performance fee for the quarter ended June 30, 2015 be settled in cash in July 2015 to minimize dilution. The remaining $67.8 million obligation was settled and reinvested in shares by our Manager on August 1, 2016. |
(2) | For the year ended December 31, 2017, selling, general and administrative expenses included $8.5 million of costs related to the implementation of a shared service initiative and $9.3 million of costs incurred in connection with the evaluation of various investment and acquisition opportunities. |
(3) | Interest expense, net, included non-cash amortization of deferred financing fees and non-cash amortization of debt discount related to the 2.00% Convertible Senior Notes due October 2023. |
(4) | Represents the cash interest expense reclassified to Atlantic Aviation related to the 2.00% Convertible Senior Notes due October 2023, proceeds of which were used to pay down a portion of Atlantic Aviation's credit facility in October 2016. |
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Our primary cash requirements include normal operating expenses, debt service, debt principal payments, payments of dividends and capital expenditures. Our primary source of cash is operating activities, although we may draw on credit facilities for capital expenditures, issue new equity or debt or sell assets to generate cash.
At December 31, 2017, our consolidated debt outstanding totaled $3,638.8 million (excluding adjustments for unamortized debt discounts), our consolidated cash balance totaled $47.1 million and consolidated available capacity under our revolving credit facilities totaled $853.5 million, excluding letter of credits outstanding of $60.7 million.
The following table shows MICs proportionate debt obligations at February 20, 2018 ($ in thousands):
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Business | Debt |
Weighted
Average Remaining Life (in years) |
Balance
Outstanding (1) |
Weighted
Average Rate (2) |
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MIC Corporate | ||||||||||||||||
Revolving Facility | 3.9 | $ | 107,500 | 3.34 | % | |||||||||||
Convertible Senior Notes | 3.7 | 752,451 | 2.41 | % | ||||||||||||
IMTT | ||||||||||||||||
Senior Notes | 8.2 | 600,000 | 3.97 | % | ||||||||||||
Tax-Exempt Bonds | 4.2 | 508,975 | 3.31 | % | ||||||||||||
Revolving Facility | 2.2 | 205,000 | 3.09 | % | ||||||||||||
Atlantic Aviation | ||||||||||||||||
Term Loan | 3.6 | 390,000 | 2.50 | % | ||||||||||||
Revolving Facility | 3.6 | 274,000 | 3.09 | % | ||||||||||||
CP | ||||||||||||||||
Renewables Project Finance | 14.3 | 261,166 | 4.82 | % | ||||||||||||
BEC Term Loan | 4.5 | 251,000 | 3.91 | % | ||||||||||||
MIC Hawaii (3) | ||||||||||||||||
Term Loan | 5.6 | 96,511 | 2.85 | % | ||||||||||||
Senior Notes | 4.5 | 100,000 | 4.22 | % | ||||||||||||
Revolving Facility | 5.0 | 14,000 | 2.84 | % | ||||||||||||
Total | 5.3 | $ | 3,560,603 | 3.28 | % |
(1) | Proportionate to MIC's ownership interest. |
(2) | Reflects annualized interest rate on all facilities including interest rate hedges. |
(3) | Excludes $2.6 million of equipment loans at MIC Hawaii business. |
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The following table profiles each revolving credit facility at our businesses and at MIC Corporate as of February 20, 2018 ($ in thousands):
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Business | Debt |
Weighted
Average Remaining Life (in years) |
Undrawn
Amount |
Interest Rate (1) | ||||||||||||
MIC Corporate (2) | Revolving Facility | 3.9 | $ | 492,500 | LIBOR + 1.750% | |||||||||||
IMTT | USD Revolving Facility | 2.2 | 345,000 | LIBOR + 1.500% | ||||||||||||
CAD Revolving Facility | 2.2 | 50,000 | Bankers' Acceptance Rate + 1.500% | |||||||||||||
Atlantic Aviation | Revolving Facility | 3.6 | 76,000 | LIBOR + 1.500% | ||||||||||||
CP BEC | Revolving Facility | 4.5 | 25,000 | LIBOR + 2.125% | ||||||||||||
CP Renewables | Revolving Facility | 1.8 | 19,980 | LIBOR + 2.000% | ||||||||||||
MIC Hawaii (3) | Revolving Facility | 5.0 | 46,000 | LIBOR + 1.250% | ||||||||||||
Total (4) | 3.3 | $ | 1,054,480 |
(1) | Excludes commitment fees. |
(2) | On January 3, 2018, the Company completed the refinancing and upsizing of its senior secured revolving credit facility and extended its maturity to January 2022. |
(3) | On February 12, 2018, Hawaii Gas completed the refinancing of its existing $60.0 million revolving credit facility and extended its maturity to February 2023. |
(4) | Excludes letters of credits outstanding of $43.2 million. |
We will, in general, apply available cash to the repayment of revolving credit facility balances as a means of minimizing interest expense and draw on those facilities to fund growth projects and for general corporate purposes.
We use revolving credit facilities at each of our operating companies and the holding company as a means of maintaining access to sufficient liquidity to meet future requirements, managing interest expense and funding growth projects. We base our assessment of the sufficiency of our liquidity and capital resources on the assumptions that:
| our businesses overall generate, and are expected to continue to generate, significant operating cash flow; |
| the ongoing capital expenditures associated with our businesses are readily funded from their respective operating cash flow or available debt facilities; and |
| we will be able to refinance, extend and/or repay the principal amount of maturing long-term debt on terms that can be supported by our businesses. |
We capitalize our businesses in part using floating rate bank debt with medium-term maturities between five and seven years. In general, we hedge the floating rate exposure for the majority of the term of these facilities. We also use longer dated private placement debt and other forms of capital including bond or hybrid debt instruments to capitalize our businesses. In general, the debt facilities at our businesses are non-recourse to the holding company and there are no cross-collateralization or cross-guarantee provisions in these facilities.
Our wind and solar facilities are financed primarily with fully amortizing non-recourse project finance style debt with maturities prior to or coterminous with the expiration of the underlying PPAs.
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The following table summarizes our future obligations, by period due, as of December 31, 2017, under our various contractual obligations and commitments. We had no other off-balance sheet arrangement at that date or currently.
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Payments Due by Period | ||||||||||||||||||||
Total | Less than One Year | 1 3 Years | 3 5 Years |
More than
5 Years |
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($ In Thousands) | ||||||||||||||||||||
Long-term debt (1) | $ | 3,638,767 | $ | 50,835 | $ | 674,697 | $ | 1,597,777 | $ | 1,315,458 | ||||||||||
Interest obligations (2) | 672,313 | 125,338 | 230,861 | 166,725 | 149,389 | |||||||||||||||
Operating lease obligations (3) | 697,603 | 50,028 | 88,237 | 82,690 | 476,648 | |||||||||||||||
Pension and post-retirement benefit obligations (4) | 131,562 | 12,379 | 24,591 | 25,048 | 69,544 | |||||||||||||||
Purchase commitments | 74,488 | 35,749 | 37,711 | 1,028 | | |||||||||||||||
Service commitments | 73,968 | 11,163 | 16,123 | 9,378 | 37,304 | |||||||||||||||
Capital expenditure commitments | 143,636 | 108,297 | 30,807 | 3,100 | 1,432 | |||||||||||||||
Other | 67,742 | 10,318 | 16,635 | 6,767 | 34,022 | |||||||||||||||
Total contractual cash obligations (5) | $ | 5,500,079 | $ | 404,107 | $ | 1,119,662 | $ | 1,892,513 | $ | 2,083,797 |
(1) | The long-term debt represents the consolidated principal obligations to various lenders and reflects the refinancing of the MIC senior secured revolving credit facility and the extension of Hawaii Gas term loan and revolving credit facility subsequent to December 31, 2017. The primary debt facilities are subject to certain covenants, the violation of which could result in acceleration of the maturity dates. For a description of the material terms and debt covenants of MIC and its businesses, see Note 7, Long-Term Debt, in our consolidated financial statements in Financial Statements and Supplementary Data in Part II, Item 8, of this Form 10-K. |
(2) | The variable rate portion on the interest obligation on long-term debt was calculated using three months LIBOR forward spot rate at December 31, 2017. |
(3) | This represents the minimum annual rentals required to be paid under non-cancellable operating leases with terms in excess of one year. |
(4) | The pension and post-retirement benefit obligation is forecasted payments, by actuaries, for the next ten years. |
(5) | The above table does not reflect certain long-term obligations, such as deferred taxes, for which we are unable to estimate the period in which the obligation will be incurred. |
In addition to these commitments and contingencies, we typically incur capital expenditures on a regular basis. See Managements Discussion and Analysis of Financial Condition and Results of Operations Classification of Maintenance Capital Expenditures and Growth Capital Expenditures and Investing Activities below for further discussion of growth capital expenditures. Maintenance capital expenditures are discussed above in Results of Operations for each of our businesses.
We also have other contingencies, including pending or threatened legal and administrative proceedings that are not reflected above as amounts at this time are not ascertainable. See Legal Proceedings in Part I, Item 3.
Our sources of cash to meet these obligations are:
| cash generated from our operations (see Operating Activities below); |
| the issuance of shares or debt securities (see Financing Activities below); |
| refinancing of our current credit facilities on or before maturity (see Financing Activities below); |
| cash available from our undrawn credit facilities (see Financing Activities below); and |
| if advantageous, the sale of all or part of any of our businesses (see Investing Activities below). |
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The following section discusses our sources and uses of cash on a consolidated basis. All intercompany activities such as corporate allocations, capital contributions to our businesses and distributions from our businesses have been excluded from the tables as these transactions are eliminated on consolidation.
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Year Ended December 31, |
Change
(From 2016 to 2017) Favorable/ (Unfavorable) |
Change
(From 2015 to 2016) Favorable/ (Unfavorable) |
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2017 | 2016 | 2015 | ||||||||||||||||||||||||||
($ In Thousands) | $ | $ | $ | $ | % | $ | % | |||||||||||||||||||||
Cash provided by operating activities | 529,459 | 560,320 | 381,156 | (30,861 | ) | (5.5 | ) | 179,164 | 47.0 | |||||||||||||||||||
Cash used in investing activities | (566,116 | ) | (376,845 | ) | (448,816 | ) | (189,271 | ) | (50.2 | ) | 71,971 | 16.0 | ||||||||||||||||
Cash provided by (used in) financing activities | 38,500 | (161,313 | ) | 42,896 | 199,813 | 123.9 | (204,209 | ) | NM |
NM Not meaningful
Cash provided by (used in) operating activities is generally comprised of EBITDA excluding non-cash items (as defined by us), less cash interest, tax and pension payments, and changes in working capital. See Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for discussions around the components of EBITDA excluding non-cash items on a consolidated basis and for each of our businesses above.
The decrease in consolidated cash provided by operating activities for the year ended December 31, 2017 compared with the year ended December 31, 2016 was primarily due to:
| increase in the cost of jet fuel at Atlantic Aviation and the increase in the cost of gas at MIC Hawaii; |
| timing of payment of insurance premium; and |
| an increase in current state taxes; partially offset by |
| an absence of interest rate swap breakage fees and interest rate cap premiums paid in connection with the Atlantic Aviation refinancing; |
| improved operating results from existing businesses and contributions from acquisitions; and |
| an absence of any voluntary pension contributions. |
The increase in consolidated cash provided by operating activities for the year ended December 31, 2016 compared with the year ended December 31, 2015 was primarily due to:
| an increase in EBITDA excluding non-cash items; |
| an absence of a portion of a performance fee settled in cash in 2015; and |
| a decrease in interest rate swap breakage fees and interest rate cap premiums paid in connection with refinancings; partially offset by |
| an increase in current state taxes. |
We believe our operating activities overall provide a source of sustainable and stable cash flows over the long-term with the opportunity for future growth as a result of:
| consistent customer demand driven by the basic nature of the services provided; |
| our strong competitive position due to factors including: |
| high initial development and construction costs; |
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| difficulty in obtaining suitable land on which to operate (for example, airports, waterfront near ports); |
| long-term concessions, leases or customer contracts; |
| required government approvals, which may be difficult or time-consuming to obtain; |
| lack of immediate cost-effective alternatives for the services provided; and |
| product/service pricing that we expect will keep pace with cost increases as a result of: |
| consistent demand; |
| limited alternatives; |
| contractual terms; and |
| regulatory rate setting. |
Cash provided by investing activities include proceeds from divestitures of businesses and fixed assets. Cash used in investing activities include acquisitions of businesses in new and existing segments and capital expenditures. Acquisitions of businesses are generally funded by raising additional equity and/or drawings on credit facilities.
In general, maintenance capital expenditures are funded by cash from operating activities and growth capital expenditures are funded by drawing on our available credit facilities or with equity capital. See Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations for maintenance capital expenditures for each of our businesses.
The increase in consolidated cash used in investing activities for the year ended December 31, 2017 compared with the year ended December 31, 2016 was primarily due to:
| larger acquisitions in 2017, primarily 7 terminals at IMTT (Epic) and two FBOs at Atlantic Aviation; |
| an increase in capital expenditures primarily for BEC expansion project; |
| the absence of insurance proceeds received by IMTT during 2016; and |
| net borrowings by a third party renewables developer on a revolving credit facility provided by our CP business. |
The decrease in consolidated cash used in investing activities for the year ended December 31, 2016 compared with the year ended December 31, 2015 was primarily due to:
| larger acquisitions in 2015, primarily BEC on April 1, 2015; partially offset by |
| an increase in capital expenditures primarily for BEC expansion project and at Atlantic Aviation and MIC Hawaii during the year ended December 31, 2016. |
We invested $302.4 million, $257.6 million and $132.6 million of growth capital expenditures in our existing businesses during the years ended December 31, 2017, 2016 and 2015, respectively.
We continuously evaluate opportunities to deploy capital in both growth projects and in acquisitions of additional businesses, whether as part of our existing businesses or in new lines of business. These opportunities can be significant. We are expanding BEC by 130 MW on adjacent land and have deployed approximately $120.0 million growth capital on the project in 2017. In aggregate, we have deployed approximately $640.0 million in these types of activities in 2017. In 2018, we expect to undertake a number of growth capital projects as part of our continued repurposing of our terminals at IMTT and the improvement in capacity and capabilities of the businesses in our other segments. As of February 21, 2018, our backlog of approved growth capital projects was approximately $240.0 million.
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In addition, we maintain a backlog of projects that we expect to complete in subsequent periods. We consider projects to be a part of our backlog when we have committed to the deployment of capital for the underlying project, and have, where relevant, received all requisite approvals/authorizations for the deployment of such capital. The inclusion of a project in our backlog does not guarantee that the project will commence, be completed or ultimately generate revenue.
Cash provided by financing activities primarily includes new equity issuance and debt issuance related to acquisitions and capital expenditures. Cash used in financing activities primarily includes dividends to our stockholders and the repayment of debt principal balances on maturing debt.
The change in consolidated cash provided by financing activities for the year ended December 31, 2017 compared with the cash used in financing activities for the year ended December 31, 2016 was primarily due to:
| higher net debt borrowings during 2017 to partially fund acquisitions, growth capital expenditures and general corporate purposes; and |
| the absence of the purchase of the remaining 33.3% interest in IMTTs Quebec terminal that it did not previously own in March 2016; partially offset by |
| cash proceeds from the issuance of the 2.00% Convertible Senior Notes due October 2023, net of deferred financing costs paid, in 2016; |
| an increase in dividends paid to stockholders during 2017; and |
| a decrease in contributions received from noncontrolling interests during 2017. |
The change in consolidated cash used in financing activities for the year ended December 31, 2016 compared with the cash provided by financing activities for the year ended December 31, 2015 was primarily due to:
| an absence of cash proceeds from the equity offering completed in March 2015, net of offering costs paid; |
| net borrowing on IMTT credit facilities upon refinancing its debt in May 2015, net of deferred financing costs paid; |
| an increase in dividends paid to stockholders during 2016; and |
| the purchase of the remaining 33.3% interest in IMTTs Quebec marine terminal that it did not previously own in March 2016; partially offset by |
| cash proceeds from the issuance of the 2.00% Convertible Senior Notes due October 2023, net of deferred financing costs paid, in 2016; |
| the net repayment of term loan at BEC, net of deferred financing costs paid, in 2015; and |
| borrowings on the Atlantic Aviation and IMTT revolving credit facility for growth capital expenditures and the MIC revolving credit facility for general corporate purposes during 2016. |
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During the year ended December 31, 2017, IMTT drew down $285.0 million on its USD revolving credit facility for general corporate purposes, to fund capital expenditures and to fund a portion of the Epic acquisition, of which $107.0 million was repaid. IMTT had $1.3 billion of debt outstanding consisting of $600.0 million of senior notes, $509.0 million of tax-exempt bonds and $210.0 million drawn on its unsecured revolving credit facility. IMTT has access to $600.0 million of revolving credit facilities, of which $390.0 million remained undrawn at December 31, 2017. For the years ended December 31, 2017, 2016 and 2015, cash interest expense, excluding any interest rate swap breakage fees, was $40.5 million, $39.3 million and $37.9 million, respectively. At December 31, 2017, IMTT was in compliance with its financial covenants.
Through February 21, 2018, IMTT repaid $5.0 million drawn on its revolving credit facility resulting in an outstanding balance of $205.0 million.
During the year ended December 31, 2017, the business borrowed $330.5 million on its senior secured revolving credit facility for general corporate purposes and to partially fund acquisitions of FBOs during the year, of which $120.5 million was repaid. At December 31, 2017, Atlantic Aviation had total debt outstanding of $648.0 million comprising $390.0 million senior secured, first lien term loan facility and $258.0 million outstanding on its senior secured, first lien revolving credit facility. Atlantic Aviation has access to a $350.0 million revolving credit facility, of which $92.0 million remained undrawn at December 31, 2017.
For the years ended December 31, 2017, 2016 and 2015, cash interest expense, excluding any interest rate swap breakage fees and interest rate cap premium, was $20.7 million, $25.9 million and $28.9 million, respectively. Cash interest expense for the years ended December 31, 2017 and December 31, 2016 are inclusive of the cash interest expense related to the $402.5 million of 2.00% Convertible Senior Notes due October 2023, the proceeds of which were used in part to reduce the drawn balance of Atlantic Aviations revolving credit facility. See MIC Corporate below. At December 31, 2017, Atlantic Aviation was in compliance with its financial covenants.
Through February 21, 2018, Atlantic Aviation borrowed an additional $16.0 million for general corporate purposes on its revolving credit facility resulting in an outstanding balance of $274.0 million.
At December 31, 2017, the CP segment had $576.6 million in term loans outstanding. For the years ended December 31, 2017, 2016 and 2015, cash interest expense, excluding any interest rate swap breakage fees, was $27.3 million, $24.6 million and $26.9 million, respectively.
At December 31, 2017, BEC had $251.0 million of an amortizing term loan facility outstanding and access to a revolving credit facility of $25.0 million that was undrawn. For the years ended December 31, 2017, 2016 and 2015, cash interest expense, excluding any interest rate swap breakage fees, was $10.5 million, $10.9 million and $12.0 million, respectively. At December 31, 2017, BEC was in compliance with its financial covenants.
At December 31, 2017, the wind and solar facilities had an aggregate $325.6 million in term loan debt outstanding. Cash interest expense was $16.8 million, $13.7 million and $14.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017, all of the wind and solar facilities were in compliance with their respective financial covenants.
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At December 31, 2017, MIC Hawaii had total debt outstanding of $199.3 million in term loans and senior secured note borrowings and access to a revolving credit facility of $60.0 million that was undrawn. Cash interest expense was $7.0 million, $6.7 million and $6.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.
At December 31, 2017, Hawaii Gas had total debt outstanding of $180.0 million in term loan and senior secured note borrowings and a revolving credit facility of $60.0 million that was undrawn. Cash interest expense was $6.3 million, $6.3 million and $6.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017, Hawaii Gas was in compliance with its financial covenants.
Through February 21, 2018, Hawaii Gas borrowed $17.0 million for general corporate purposes and repaid $3.0 million drawn on its revolving credit facility resulting in an outstanding balance of $14.0 million.
In February 2018, Hawaii Gas exercised the second of two one-year extensions related to its $80.0 million secured term loan facility and its $60.0 million revolving credit facility. The maturities have been extended to February 2023.
At December 31, 2017, the other businesses within MIC Hawaii had $19.3 million in outstanding debt, consisting primarily of $16.7 million term loan debt related to our solar facilities. At December 31, 2017, these businesses were in compliance with their financial covenants.
During the year ended December 31, 2017, MIC drew down $315.5 million and repaid $172.0 million on its senior secured revolving credit facility primarily for general corporate purposes. At December 31, 2017, the outstanding balance on the senior secured revolving credit facility was $143.5 million resulting in an undrawn balance of $266.5 million. At December 31, 2017, MIC also had $350.0 million and $402.5 million in convertible senior notes outstanding that bear interest at 2.875% and 2.00%, respectively. Cash interest expense was $12.0 million, $11.5 million and $11.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. Cash interest expense for the years ended December 31, 2017 and 2016 exclude the cash interest expense related to the $402.5 million of 2.00% Convertible Senior Notes due October 2023, the proceeds of which were used in part to reduce the drawn balance of Atlantic Aviations revolving credit facility. See Atlantic Aviation above. At December 31, 2017, MIC Corporate was in compliance with its financial covenants.
On January 3, 2018, the Company completed the refinancing and upsizing of its senior secured revolving credit facility to $600.0 million and extended the maturity through January 3, 2022.
Through February 21, 2018, the Company borrowed an additional $1.5 million for general corporate purposes and repaid $37.5 million drawn on its revolving credit facility resulting in an outstanding balance of $107.5 million.
For a description of the material terms and debt covenants of MIC and its businesses, see Note 7, Long-Term Debt, in our consolidated financial statements in Financial Statements and Supplementary Data in Part II, Item 8, of this Form 10-K.
The preparation of our financial statements requires management to make estimates and judgments that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions and judgments and uncertainties, and potentially could result in materially different results under different conditions. Our critical accounting policies and estimates are discussed below. These estimates and policies are consistent with the estimates and accounting policies followed by the businesses we own and operate.
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Our acquisitions of businesses that we control are accounted for under the purchase method of accounting. The amounts assigned to the identifiable assets acquired and liabilities assumed in connection with acquisitions are based on estimated fair values as of the date of the acquisition, with the remainder, if any, recorded as goodwill. The fair values are determined by our management, taking into consideration information supplied by the management of acquired entities and other relevant information. Such information includes valuations supplied by independent appraisal experts for significant business combinations. The valuations are generally based upon future cash flow projections for the acquired assets, discounted to present value. The determination of fair values require significant judgment both by management and outside experts engaged to assist in this process.
Significant assets acquired in connection with our acquisition of businesses include contractual arrangements, customer relationships, non-compete agreements, trademarks, property and equipment and goodwill.
Trademarks are generally considered to be indefinite life intangibles. Trademarks and goodwill are not amortized in most circumstances although it may be appropriate to amortize some trademarks. We are required to perform annual impairment reviews (or more frequently in certain circumstances) for unamortized intangible assets.
ASU No. 2011-08, Intangibles Goodwill and Other (Topic 350) : Testing Goodwill for Impairment , permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step goodwill impairment test, as discussed below. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test.
If an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, it needs to perform the two-step impairment test. This requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of each reporting unit based on a discounted cash flow model using revenue and profit forecasts and comparing those estimated fair values with the carrying values, which includes the allocated goodwill. If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The determination of a reporting units implied fair value of goodwill requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any unallocated fair value represents the implied fair value of goodwill, which is compared with its corresponding carrying value. IMTT, Atlantic Aviation, CP and the MIC Hawaii businesses are separate reporting units for purposes of this analysis. The impairment test for trademarks, which are not amortized, requires the determination of the fair value of such assets. If the fair value of the trademarks is less than their carrying value, an impairment loss is recognized in an amount equal to the difference. We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and/or intangible assets. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, or material negative change in relationship with significant customers.
Property and equipment is initially stated at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the property and equipment after consideration of historical results and anticipated results based on our current plans. Our estimated useful lives represent the period the asset remains in service assuming normal routine maintenance. We review the estimated useful lives assigned to property and equipment when our business experience suggests that they do not properly reflect the consumption of economic benefits embodied in the property and equipment nor result in the appropriate matching of cost against revenue. Factors that lead to such a conclusion may include physical observation of asset usage, examination of realized gains and losses on asset disposals and consideration of market trends such as technological obsolescence or change in market demand.
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Significant intangibles, including contractual arrangements, customer relationships, non-compete agreements and technology are amortized using the straight-line method over the estimated useful lives of the intangible asset after consideration of historical results and anticipated results based on our current plans. With respect to contractual rights at Atlantic Aviation, the useful lives will generally match the remaining lease terms plus extensions under the business control.
We perform impairment reviews of property and equipment and intangibles subject to amortization when events or circumstances indicate that assets are less than their carrying amount and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In this circumstance, the impairment charge is determined based upon the amount by which the net book value of the assets exceeds their fair market value. Any impairment is measured by comparing the fair value of the asset to its carrying value.
The implied fair value of reporting units and fair value of property and equipment and intangible assets is determined by our management and is generally based upon future cash flow projections for the acquired assets, discounted to present value. We use outside valuation experts when management considers that it is appropriate to do so.
We test for goodwill and indefinite-lived intangible assets annually as of October 1 st or when there is an indicator of impairment. See Note 4, Property, Equipment, Land and Leasehold Improvements, and Note 5, Intangible Assets, in our consolidated financial statements in Financial Statements and Supplementary Data in Part II, Item 8, of this Form 10-K for financial information and further discussions.
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sellers price to the buyer is fixed and determinable and collectability is probable.
Revenue from IMTT is recorded in service revenue. Services provided by IMTT include: (i) Contracts for the use of storage capacity at the various terminals which predominantly have non-cancelable terms of generally one to three years. These contracts generally provide for payments for providing storage capacity and product movement (thruput) throughout their term based on a fixed rate per barrel of capacity leased, with a majority of contract adjusted annually for inflation indices. These contracts are accounted for as operating leases and the related rental income is recognized in service revenue over the term of the contract based upon the rate specified in the contract; (ii) Revenue from the rendering of ancillary services includes activities such as heating, mixing, and blending, and is recognized as the related services are performed based on contract rates; (iii) Payments received prior to the related services being performed or as a reimbursement for specific fixed asset additions or improvements related to a customers contract are recorded as deferred revenue and ratably recognized as revenues over the contract term; and (iv) Environmental response services revenues are recognized as services are rendered.
Revenue from Atlantic Aviation is recorded in service revenue. Services provided by Atlantic Aviation include: (i) Fuel services are recognized when fuel has been delivered to the customer, collection of the resulting receivable is probable, persuasive evidence of an arrangement exists and the fee is fixed or determinable. Fuel services are recorded net of volume discounts and rebates; (ii) Contracted hangar rental revenue is recognized over the term of the customer contract; and (iii) Other FBO services consisting principally of de-icing services, landing, concession, terminal use and fuel distribution fees are recognized as the services are rendered to the customer. FBO services also includes fueling fees for fueling certain carriers with fuel owned by such carriers. Revenue from these transactions are recorded based on the service fee earned and does not include the cost of the carriers fuel.
BECs revenues are derived from contracts that are accounted for as an operating lease that does not have minimum lease payments. These revenues are recorded within product revenue.
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With respect to BECs contracted capacity, revenue is recognized as energy, capacity and ancillary services are sold to the off-taker under the third-party tolling agreements, which are based on a fixed rate per MW of capacity and not subject to dispatch or utilization. A portion of the revenues under the tolling agreements are subject to annual increases. Revenues under the tolling agreements are subject to availability of capacity (subject to a historical rolling average forced outage factor). Variable operating and major maintenance revenues under the tolling agreements are a function of net plant output and a negotiated rate, which is adjusted annually based on historical plant experience.
With respect to BECs residual capacity, revenue is recognized as energy, capacity and ancillary services are sold into the NYISO energy market, which are based on prevailing market rates at the time such services are sold. Volumes of energy and ancillary services sold are subject to BECs market based dispatch from NYISO.
Owners of the wind and solar facilities sell substantially all of the electricity generated at a fixed price to customers pursuant to long-term (typically 20 25 years) PPAs. Substantially all of the PPAs are accounted for as operating leases, have no minimum lease payments and all of the rental income under these leases is recorded within product revenue when the electricity is delivered.
Revenue from Hawaii Gas is recorded in product revenue. Hawaii Gas recognizes revenue when products are delivered. Sales of gas to customers are billed on a monthly-cycle basis. Earned but unbilled revenue is accrued and included in accounts receivable and revenue based on the amount of gas that is delivered but not billed to customers from the latest meter reading or billed delivery date to the end of an accounting period. The related costs are charged to expense.
The other businesses within MIC Hawaii primarily consist of a mechanical contractor focused on designing and constructing energy efficient building infrastructure and controlling interests in renewable and distributed power facilities including two facilities on Oahu. Revenue generated by the mechanical contractor business is recognized from long-term construction contracts on the percentage-of-completion method recorded in service revenue. At December 31, 2017, the signed contract backlog from the mechanical contractor business totaled approximately $42.0 million, which primarily is expected to be recognized into revenue within two to three years. PPAs at the renewable facilities are accounted for as operating leases and the related rental income is recorded in product revenues when the electricity is delivered.
From time to time we enter into interest rate agreements to minimize potential variations in cash flows resulting from fluctuations in interest rates and their impact on its variable-rate debt. In addition, Hawaii Gas enters into commodity price hedges to mitigate the impact of fluctuations in propane prices on its cash flows.
Our derivative instruments are recorded on the balance sheet at fair value with changes in fair value of interest rate swap contracts recorded directly through earnings. We measure derivative instruments at fair value using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. See Note 8, Derivative Instruments and Hedging Activities, in our consolidated financial statements in Financial Statements and Supplementary Data in Part II, Item 8, of this Form 10-K for financial information and further discussions.
We account for income taxes using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
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In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements in Financial Statements and Supplementary Data in Part II, Item 8, of this Form 10-K for financial information and further discussions, for a summary of the Companys significant accounting policies, including a discussion of recently adopted and issued accounting pronouncements.
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The discussion that follows describes our exposure to market risks and the use of derivatives to address those risks. See Critical Accounting Policies and Estimates Hedging for a discussion of the related accounting.
We are exposed to interest rate risk in relation to the borrowings of our businesses. Our current policy is to enter into derivative financial instruments to fix variable-rate interest payments covering a portion of the interest rate risk associated with the borrowings of our businesses, subject to the requirements of our lenders. As of December 31, 2017, we had $3.6 billion of current and long-term debt, of which $1.4 billion was economically hedged with interest rate contracts, $1.6 billion was fixed rate debt and $608.6 million was unhedged.
Changes in interest rates impact our interest expense on both the hedged and unhedged portion of our debt. Interest expense on the unhedged portion of our debt changes by the variation in interest rates applied to the outstanding balance of the debt. This has a corresponding impact on the amount of cash interest we pay and our effective cash interest rate. Interest expense on the hedged portion of our debt changes by the variation in the fair value of the underlying interest rate contracts. This has no impact on the amount of cash interest we pay or our effective cash interest rate.
At December 31, 2017, IMTT had $509.0 million in tax exempt bonds outstanding. The floating rate has been fully fixed at a weighted average of 2.70% using interest rate swap contracts through June 2021, approximately one year before the tax exempt bonds are subject to mandatory tender. A 10% decrease in interest rates would result in a $2.7 million decrease in the fair market value of the interest rate swaps and a corresponding 10% increase would result in a $3.2 million increase in the fair market value.
At December 31, 2017, IMTT also had $210.0 million outstanding under its revolving credit facility, which floats at LIBOR plus 1.50%. A 10% decrease in interest rate on this debt would result in a $328,000 decrease in interest expense per year and a corresponding 10% increase would result in a $328,000 increase in interest expense per year.
At December 31, 2017, Atlantic Aviation had $390.0 million of term loan debt and $258.0 million of revolving credit facility debt outstanding. At December 31, 2017, the interest rate on the term loan and revolving credit facility debt floats at LIBOR plus 1.50% based on a leverage based interest grid. This floating rate has been partially hedged with $400.0 million of interest rate cap agreements with a strike price of 1.0% through September 2021, approximately the maturity of the debt. A 10% decrease in interest rates would result in a $3.2 million decrease in the fair market value of the interest rate caps and a corresponding 10% increase would result in a $4.0 million increase in the fair market value. A 10% decrease in interest rate on the revolving credit facility would result in a $404,000 decrease in interest expense per year and a corresponding 10% increase would result in a $404,000 increase in interest expense per year.
At December 31, 2017, BEC had $251.0 million of term loan debt outstanding. The interest rate on the term loan debt floats at LIBOR plus 2.125% at December 31, 2017. This floating rate has been fixed at 3.91% using amortizing interest rate swap contracts that are expected to equal the total principal balance outstanding on the term loan debt through August 2021, approximately one year prior to maturity. A 10% decrease in interest rates would result in a $1.8 million decrease in the fair market value of the interest rate swaps and a corresponding 10% increase would result in a $2.2 million increase in the fair market value.
At December 31, 2017, one of the wind facilities had $132.5 million of term loan debt outstanding. The interest rate on this term loan facility floats at LIBOR plus 1.625% at December 31, 2017. This floating rate has been fixed at a weighted average rate of 4.763% using amortizing interest rate swap contracts that are
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expected to equal the total principal balance outstanding on the term loan facility through maturity in December 2027. A 10% decrease in interest rates would result in a $1.7 million decrease in the fair market value of the interest rate swaps and a corresponding 10% increase would result in a $1.4 million increase in the fair market value.
At December 31, 2017, one of the solar facilities had $7.1 million of floating term loan debt outstanding. The interest rate on this term loan facility floats at LIBOR plus 2.00% through maturity in September 2023. A 10% decrease in interest rate on this debt would result in an $11,000 decrease in interest expense per year and a corresponding 10% increase would result in an $11,000 increase in interest expense per year.
At December 31, 2017, Hawaii Gas had $80.0 million of term loan debt outstanding. The interest rate on this term loan facility floats at LIBOR plus 1.75% at December 31, 2017. This floating rate has been fixed at 2.74% using interest rate swap contract through February 2020, approximately three years prior to maturity. A 10% decrease in interest rates would result in a $346,000 decrease in the fair market value of the interest rate swaps and a corresponding 10% increase would result in a $441,000 increase in the fair market value.
At December 31, 2017, the solar facilities in Hawaii had $16.7 million of term loan debt outstanding. The interest rate on this term loan facility floats at LIBOR plus 2.00%. This floating rate has been fixed at 3.38% using an interest rate swap contract through June 2026. A 10% decrease in interest rates would result in a $217,000 decrease in the fair market value of the interest rate swaps and a corresponding 10% increase would result in a $263,000 increase in the fair market value.
At December 31, 2017, MIC Corporate had $143.5 million outstanding under its revolving credit facility, which floats at LIBOR plus 1.75%. A 10% decrease in interest rate on this debt would result in a $224,000 decrease in interest expense per year and a corresponding 10% increase would result in a $224,000 increase in interest expense per year.
The risk associated with fluctuations in the prices at Hawaii Gas pays for propane is principally a result of market forces reflecting changes in supply and demand for propane and other energy commodities. Hawaii Gas gross margin is sensitive to changes in propane supply costs and Hawaii Gas may not always be able to pass through product cost increases fully or on a timely basis, particularly when product costs rise rapidly. In order to reduce the volatility of the business propane market price risk, Hawaii Gas has used and expects to continue to use over-the-counter commodity derivative instruments including price swaps. Hawaii Gas does not use commodity derivative instruments for speculative or trading purposes. Over-the-counter derivative commodity instruments utilized by Hawaii Gas to hedge forecasted purchases of propane are generally settled at expiration of the contract. The fair value of unsettled commodity price risk sensitive instruments at December 31, 2017 was an asset of $10.5 million. A 10% increase in the market price of propane would result in an increase in such fair value of approximately $2.3 million. A 10% decrease in the market price of propane would result in a decrease in such fair value of approximately $2.5 million.
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The Board of Directors and Stockholders
Macquarie Infrastructure Corporation:
We have audited the accompanying consolidated balance sheets of Macquarie Infrastructure Corporation and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Companys internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2018 expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
KPMG LLP
We have served as the Companys auditor since 2004.
Dallas, Texas
February 21, 2018
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See accompanying notes to the consolidated financial statements.
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As of December 31, | ||||||||
2017 | 2016 | |||||||
Stockholders equity
(1)
:
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Common stock ($0.001 par value; 500,000,000 authorized; 84,733,957 shares issued and outstanding at December 31, 2017 and 82,047,526 shares issued and outstanding at December 31, 2016) | $ | 85 | $ | 82 | ||||
Additional paid in capital | 1,840,033 | 2,089,407 | ||||||
Accumulated other comprehensive loss | (29,993 | ) | (28,960 | ) | ||||
Retained earnings | 1,343,567 | 892,365 | ||||||
Total stockholders equity | 3,153,692 | 2,952,894 | ||||||
Noncontrolling interests | 197,011 | 194,640 | ||||||
Total equity | 3,350,703 | 3,147,534 | ||||||
Total liabilities and equity | $ | 8,008,951 | $ | 7,559,253 |
(1) | See Note 9, Stockholders Equity, for discussions on preferred stock and special stock. |
See accompanying notes to the consolidated financial statements.
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Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Revenue
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Service revenue | $ | 1,445,832 | $ | 1,288,562 | $ | 1,288,501 | ||||||
Product revenue | 368,881 | 363,169 | 350,749 | |||||||||
Total revenue | 1,814,713 | 1,651,731 | 1,639,250 | |||||||||
Costs and expenses
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Cost of services | 624,214 | 524,423 | 551,029 | |||||||||
Cost of product sales | 164,311 | 142,731 | 168,954 | |||||||||
Selling, general and administrative | 331,345 | 303,033 | 304,862 | |||||||||
Fees to Manager related party | 71,388 | 68,486 | 354,959 | |||||||||
Depreciation | 234,164 | 226,492 | 215,243 | |||||||||
Amortization of intangibles | 68,253 | 65,425 | 101,435 | |||||||||
Total operating expenses | 1,493,675 | 1,330,590 | 1,696,482 | |||||||||
Operating income (loss) | 321,038 | 321,141 | (57,232 | ) | ||||||||
Other income (expense)
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Interest income | 199 | 132 | 55 | |||||||||
Interest expense (1) | (110,602 | ) | (116,933 | ) | (123,079 | ) | ||||||
Other income, net | 11,323 | 21,786 | 1,288 | |||||||||
Net income (loss) before income taxes | 221,958 | 226,126 | (178,968 | ) | ||||||||
Benefit (provision) for income taxes | 234,154 | (71,257 | ) | 65,161 | ||||||||
Net income (loss) | $ | 456,112 | $ | 154,869 | $ | (113,807 | ) | |||||
Less: net income (loss) attributable to noncontrolling interests | 4,910 | (1,512 | ) | (5,270 | ) | |||||||
Net income (loss) attributable to MIC | $ | 451,202 | $ | 156,381 | $ | (108,537 | ) | |||||
Basic income (loss) per share attributable to MIC | $ | 5.42 | $ | 1.93 | $ | (1.39 | ) | |||||
Weighted average number of shares outstanding: basic | 83,204,404 | 80,892,654 | 77,997,826 | |||||||||
Diluted income (loss) per share attributable to MIC | $ | 5.13 | $ | 1.85 | $ | (1.39 | ) | |||||
Weighted average number of shares outstanding: diluted | 91,073,362 | 82,218,627 | 77,997,826 | |||||||||
Cash dividends declared per share | $ | 5.56 | $ | 5.05 | $ | 4.46 |
(1) | Interest expense includes gains on derivative instruments of $3.0 million and losses on derivative instruments of $5.0 million and $28.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. |
See accompanying notes to the consolidated financial statements.
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Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net income (loss) | $ | 456,112 | $ | 154,869 | $ | (113,807 | ) | |||||
Other comprehensive (loss) income, net of taxes:
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Change in post-retirement benefit plans (1) | (3,651 | ) | (2,017 | ) | 4,049 | |||||||
Translation adjustment (2) (3) | 2,618 | 2,375 | (9,671 | ) | ||||||||
Other comprehensive (loss) income | (1,033 | ) | 358 | (5,622 | ) | |||||||
Comprehensive income (loss) | $ | 455,079 | $ | 155,227 | $ | (119,429 | ) | |||||
Less: comprehensive income (loss) attributable to noncontrolling interests (3) | 4,910 | (78 | ) | (9,147 | ) | |||||||
Comprehensive income (loss) attributable to MIC | $ | 450,169 | $ | 155,305 | $ | (110,282 | ) |
(1) | Change in post-retirement benefit plans is presented net of tax benefit of $3.0 million and $1.4 million and tax expense of $2.7 million for the years ended December 31, 2017, 2016 and 2015, respectively. See Note 9, Stockholders Equity, for further discussions. |
(2) | Translation adjustment is presented net of tax expense of $2.0 million and $618,000 and tax benefit of $3.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. See Note 9, Stockholders Equity, for further discussions. |
(3) | On March 31, 2016, IMTT acquired the remaining 33.3% interest in its Quebec terminal that it did not previously own. As part of this transaction, the translation adjustment of $4.6 million, net of taxes, was reclassified from noncontrolling interests to accumulated other comprehensive loss. See Note 9, Stockholders Equity, for disclosures on accumulated other comprehensive loss. |
See accompanying notes to the consolidated financial statements.
106
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LLC Interests
(1)
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Balance, beginning of year | $ | | $ | | $ | 1,942,745 | | | 71,089,590 | |||||||||||||||
Issuance of shares, net of offering costs | | | 471,627 | | | 6,111,253 | ||||||||||||||||||
Issuance of shares to Manager | | | 176,256 | | | 2,213,666 | ||||||||||||||||||
Issuance of shares to independent directors | | | 750 | | | 12,525 | ||||||||||||||||||
Issuance of shares pursuant to conversion of convertible senior notes | | | 2 | | | 23 | ||||||||||||||||||
Dividends to stockholders (2) | | | (162,967 | ) | | | | |||||||||||||||||
Conversion of LLC interests to common stock (1) | | | (2,428,413 | ) | | | (79,427,057 | ) | ||||||||||||||||
Balance, end of year | $ | | $ | | $ | | | | | |||||||||||||||
Common Stock
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Balance, beginning of year | $ | 82 | $ | 80 | $ | | 82,047,526 | 80,006,744 | | |||||||||||||||
Issuance of shares, net of offering costs | | | | 78,343 | 157,649 | 53,798 | ||||||||||||||||||
Issuance of shares pursuant to acquisition | 2 | | | 1,650,104 | | | ||||||||||||||||||
Issuance of shares to Manager (3) | 1 | 2 | 1 | 948,147 | 1,874,426 | 525,598 | ||||||||||||||||||
Issuance of shares to independent directors | | | | 9,595 | 8,660 | | ||||||||||||||||||
Issuance of shares pursuant to conversion of convertible senior notes | | | | 242 | 47 | 291 | ||||||||||||||||||
Conversion of LLC interests to common stock (1) | | | 79 | | | 79,427,057 | ||||||||||||||||||
Balance, end of year | $ | 85 | $ | 82 | $ | 80 | 84,733,957 | 82,047,526 | 80,006,744 | |||||||||||||||
Additional Paid in Capital
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Balance, beginning of year | $ | 2,089,407 | $ | 2,317,421 | $ | 21,447 | ||||||||||||||||||
Issuance of shares, net of offering costs | 5,603 | 11,751 | 3,822 | |||||||||||||||||||||
Issuance of shares pursuant to acquisition | 124,998 | | | |||||||||||||||||||||
Issuance of shares to Manager | 72,273 | 135,343 | 42,388 | |||||||||||||||||||||
Issuance of shares to independent directors | 681 | 750 | | |||||||||||||||||||||
Issuance of shares pursuant to conversion of convertible senior notes | 20 | 4 | 23 | |||||||||||||||||||||
Dividends to common stockholders (2) | (452,949 | ) | (396,093 | ) | (178,593 | ) | ||||||||||||||||||
Purchase of noncontrolling interest | | 6,102 | | |||||||||||||||||||||
Conversion of LLC interests to common stock (1) | | | 2,428,334 | |||||||||||||||||||||
Equity component of convertible senior notes issued, net of tax (4) | | 14,129 | | |||||||||||||||||||||
Balance, end of year | $ | 1,840,033 | $ | 2,089,407 | $ | 2,317,421 | ||||||||||||||||||
Accumulated Other Comprehensive Loss
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Balance, beginning of year | $ | (28,960 | ) | $ | (23,295 | ) | $ | (21,550 | ) | |||||||||||||||
Other comprehensive loss | (1,033 | ) | (1,076 | ) | (1,745 | ) | ||||||||||||||||||
Purchase of noncontrolling interest (5) | | (4,589 | ) | | ||||||||||||||||||||
Balance, end of year | $ | (29,993 | ) | $ | (28,960 | ) | $ | (23,295 | ) | |||||||||||||||
Retained Earnings
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Balance, beginning of year | $ | 892,365 | $ | 735,984 | $ | 844,521 | ||||||||||||||||||
Net income (loss) | 451,202 | 156,381 | (108,537 | ) | ||||||||||||||||||||
Balance, end of year | $ | 1,343,567 | $ | 892,365 | $ | 735,984 | ||||||||||||||||||
Total Stockholders' Equity | $ | 3,153,692 | $ | 2,952,894 | $ | 3,030,190 |
See accompanying notes to the consolidated financial statements.
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Noncontrolling Interests
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Balance, beginning of year | $ | 194,640 | $ | 172,252 | $ | 183,005 | ||||||
Distributions to noncontrolling interests | (3,916 | ) | (4,639 | ) | (2,138 | ) | ||||||
Net adjustment to noncontrolling interest from acquisitions/disposition (5) | 919 | 11,674 | | |||||||||
Contributions from noncontrolling interests | 458 | 15,431 | 532 | |||||||||
Net income (loss) | 4,910 | (1,512 | ) | (5,270 | ) | |||||||
Other comprehensive income (loss) | | 1,434 | (3,877 | ) | ||||||||
Balance, end of year | $ | 197,011 | $ | 194,640 | $ | 172,252 | ||||||
Total Equity | $ | 3,350,703 | $ | 3,147,534 | $ | 3,202,442 |
(1) | See Note 9, Stockholders' Equity, for discussion on LLC interests, common stock and additional paid in capital. |
(2) | See Note 9, Stockholders' Equity, for discussion on cash dividends paid on shares for each period. |
(3) | Excludes 100 shares of special stock issued to Manager. See Note 9, Stockholders' Equity, for further discussion. |
(4) | Represents the stockholders' equity component of the $402.5 million 2.00% Convertible Senior Notes due October 2023 recorded net of taxes of $11.9 million. See Note 7, Long-Term Debt, for further discussions. |
(5) | On March 31, 2016, IMTT acquired the remaining 33.3% interest in its Quebec terminal that it did not previously own. As part of this transaction, the translation adjustment of $4.6 million, net of taxes, was reclassified from noncontrolling interests to accumulated other comprehensive loss. See Note 9, Stockholders Equity, for disclosures on accumulated other comprehensive loss. |
See accompanying notes to the consolidated financial statements.
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Operating activities
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Net income (loss) | $ | 456,112 | $ | 154,869 | $ | (113,807 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
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Depreciation and amortization of property and equipment | 234,164 | 226,492 | 215,243 | |||||||||
Amortization of intangible assets | 68,253 | 65,425 | 101,435 | |||||||||
Amortization of debt financing costs | 8,700 | 21,041 | 9,075 | |||||||||
Amortization of debt discount | 3,266 | 1,007 | | |||||||||
Adjustments to derivative instruments | (9,010 | ) | (54,549 | ) | (47,208 | ) | ||||||
Fees to Manager-related party | 71,388 | 68,486 | 287,139 | |||||||||
Deferred taxes | (245,314 | ) | 63,947 | (58,734 | ) | |||||||
Pension expense | 8,106 | 8,601 | 7,300 | |||||||||
Other non-cash income, net | (2,463 | ) | (1,370 | ) | (1,047 | ) | ||||||
Changes in other assets and liabilities, net of acquisitions:
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Restricted cash | 425 | 525 | 722 | |||||||||
Accounts receivable | (31,444 | ) | (8,415 | ) | 5,418 | |||||||
Inventories | (6,182 | ) | (2,343 | ) | (84 | ) | ||||||
Prepaid expenses and other current assets | (7,044 | ) | 7,794 | (6,964 | ) | |||||||
Due to Manager related party | (130 | ) | 135 | (33 | ) | |||||||
Accounts payable and accrued expenses | (7,073 | ) | 4,686 | (8,002 | ) | |||||||
Income taxes payable | 464 | 8,251 | (5,926 | ) | ||||||||
Pension contribution | | (3,500 | ) | | ||||||||
Other, net | (12,759 | ) | (762 | ) | (3,371 | ) | ||||||
Net cash provided by operating activities | 529,459 | 560,320 | 381,156 | |||||||||
Investing activities
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Acquisitions of businesses and investments, net of cash acquired | (209,962 | ) | (69,168 | ) | (266,895 | ) | ||||||
Purchases of property and equipment | (340,952 | ) | (314,684 | ) | (194,148 | ) | ||||||
Proceeds from insurance claim | 83 | 11,068 | | |||||||||
Loan to project developer | (23,341 | ) | (5,000 | ) | | |||||||
Loan repayment from project developer | 17,079 | | | |||||||||
Change in restricted cash | (9,295 | ) | (84 | ) | 10,559 | |||||||
Other, net | 272 | 1,023 | 1,668 | |||||||||
Net cash used in investing activities | (566,116 | ) | (376,845 | ) | (448,816 | ) |
See accompanying notes to the consolidated financial statements.
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Financing activities
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Proceeds from long-term debt | $ | 931,001 | $ | 1,311,000 | $ | 2,486,569 | ||||||
Payment of long-term debt | (440,950 | ) | (1,476,228 | ) | (2,554,552 | ) | ||||||
Proceeds from the issuance of shares | 6,060 | 12,623 | 492,433 | |||||||||
Dividends paid to common stockholders | (452,949 | ) | (396,093 | ) | (341,560 | ) | ||||||
Contributions received from noncontrolling interests | 458 | 15,431 | 532 | |||||||||
Purchase of noncontrolling interest | | (9,909 | ) | | ||||||||
Distributions paid to noncontrolling interests | (3,936 | ) | (4,630 | ) | (2,546 | ) | ||||||
Offering and equity raise costs paid | (466 | ) | (1,601 | ) | (16,984 | ) | ||||||
Debt financing costs paid | (717 | ) | (17,392 | ) | (23,816 | ) | ||||||
Proceeds from the issuance of convertible senior notes | | 402,500 | | |||||||||
Change in restricted cash | 397 | 5,587 | 5,166 | |||||||||
Payment of capital lease obligations | (398 | ) | (2,601 | ) | (2,346 | ) | ||||||
Net cash provided by (used in) financing activities | 38,500 | (161,313 | ) | 42,896 | ||||||||
Effect of exchange rate changes on cash and cash equivalents | 511 | 211 | (856 | ) | ||||||||
Net change in cash and cash equivalents | 2,354 | 22,373 | (25,620 | ) | ||||||||
Cash and cash equivalents, beginning of period | 44,767 | 22,394 | 48,014 | |||||||||
Cash and cash equivalents, end of period | $ | 47,121 | $ | 44,767 | $ | 22,394 | ||||||
Supplemental disclosures of cash flow information
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Non-cash investing and financing activities:
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Accrued financing costs | $ | 107 | $ | 3 | $ | 3 | ||||||
Accrued purchases of property and equipment | $ | 24,940 | $ | 28,228 | $ | 23,396 | ||||||
Acquisition of equipment through capital leases | $ | | $ | | $ | 398 | ||||||
Issuance of shares to Manager | $ | 72,274 | $ | 135,345 | $ | 218,645 | ||||||
Issuance of shares to independent directors | $ | 681 | $ | 750 | $ | 750 | ||||||
Issuance of shares for acquisition of business | $ | 125,000 | $ | | $ | | ||||||
Conversion of convertible senior notes to shares | $ | 20 | $ | 4 | $ | 25 | ||||||
Conversion of LLC interests to common stock (1) | $ | | $ | | $ | 79 | ||||||
Conversion of LLC interests to additional paid in capital (1) | $ | | $ | | $ | 2,428,334 | ||||||
Distributions payable to noncontrolling interests | $ | 22 | $ | 42 | $ | 33 | ||||||
Taxes paid (refund), net | $ | 10,704 | $ | (898 | ) | $ | 6,654 | |||||
Interest paid | $ | 112,132 | $ | 108,737 | $ | 109,450 |
(1) | See Note 9, Stockholders Equity, for discussion on LLC interests, common stock and additional paid in capital. |
See accompanying notes to the consolidated financial statements.
110
Macquarie Infrastructure Corporation (MIC) is the successor to Macquarie Infrastructure Company LLC (MIC LLC) pursuant to the conversion (the Conversion) of MIC LLC from a Delaware limited liability company to a Delaware corporation on May 21, 2015. MIC LLC was formed on April 13, 2004. Except as otherwise specified, all references in this Form 10-K to MIC or the Company refer (i) from and after the time of the Conversion, to Macquarie Infrastructure Corporation and its subsidiaries and (ii) prior to the Conversion, to the predecessor MIC LLC and its subsidiaries. Except as otherwise specified, all references in this Form 10-K to common stock or shares refer (i) from and after the time of the Conversion, to common stock and (ii) prior to the Conversion, LLC interests.
MIC is externally managed by Macquarie Infrastructure Management (USA) Inc. (the Manager), pursuant to the terms of a Management Services Agreement, that is subject to the oversight and supervision of the board of directors. The majority of the members of the board of directors have no affiliation with Macquarie. The Manager is a member of the Macquarie Group of companies comprising the Macquarie Group Limited and its subsidiaries and affiliates worldwide. Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange.
The Company owns its businesses through its direct wholly-owned subsidiary MIC Ohana Corporation, the successor to Macquarie Infrastructure Company Inc. The Company owns and operates a diversified portfolio of businesses that provide services to other businesses, government agencies and individuals primarily in the U.S. The businesses it owns and operates are organized into four segments:
| International-Matex Tank Terminals (IMTT) : a business providing bulk liquid terminalling to third parties at 17 terminals in the U.S. and two in Canada; |
| Atlantic Aviation : a provider of fuel, terminal, aircraft hangaring and other services primarily to owners and operators of general aviation (GA) jet aircraft at 70 airports throughout the U.S.; |
| Contracted Power (CP) : comprising electricity generating assets including a gas-fired facility and controlling interests in wind and solar facilities in the U.S.; and |
| MIC Hawaii : comprising an energy company that processes and distributes gas and provides related services (Hawaii Gas) and several smaller businesses collectively engaged in efforts to reduce the cost and improve the reliability and sustainability of energy in Hawaii. |
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company consolidates investments where it has a controlling financial interest. The general condition for a controlling financial interest is ownership of a majority of the voting interest and, therefore, as a general rule, ownership, directly or indirectly, of over 50% of the outstanding voting shares is a condition for consolidation. In addition, if the Company demonstrates that it has the ability to direct policies and management, this may be also indication for consolidation. For investments in variable interest entities, the Company consolidates when it is determined to be the primary beneficiary of the variable interest entity. As of December 31, 2017, the Company was the primary beneficiary in seven solar facilities and two wind facilities in the U.S. and consolidated these projects accordingly.
111
Investment in unconsolidated business of $9.5 million and $8.8 million at December 31, 2017 and 2016, respectively, represent primarily a 20% ownership interest in a joint venture acquired in conjunction with the IMTT Acquisition on July 16, 2014. This investment is accounted for at cost on the consolidated balance sheet. Dividend income from this investment is recorded in Other income, net , on the consolidated statements of operations.
The preparation of the consolidated financial statements, which are in conformity with generally accepted accounting principles (GAAP) requires the Company to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis and the estimates are based on experience, current and expected future conditions, third-party evaluations and various other assumptions that the Company believes are reasonable under the circumstances. Significant items subject to such estimates and assumptions include the carrying amount of property, equipment, land and leasehold improvements, intangibles and goodwill; assets and obligations related to employee benefits; and valuation of derivative instruments. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from the estimates and assumptions used in the financial statements and related notes.
Acquisitions of businesses that the Company controls are accounted for under the purchase method of accounting. The amounts assigned to the identifiable assets acquired and liabilities assumed in connection with acquisitions are based on estimated fair values as of the date of the acquisition, with the remainder, if any, recorded as goodwill. The fair values are determined by the Companys management, taking into consideration information supplied by the management of acquired entities and other relevant information. Such information includes valuations supplied by independent appraisal experts for significant business combinations. The valuations are generally based upon future cash flow projections for the acquired assets, discounted to present value. The determination of fair value requires significant judgment both by management and outside experts engaged to assist in this process.
The Company considers all highly liquid investments, including commercial paper issued by a counterparty with a Standard & Poors rating of A1+ or higher, with a maturity of three months or less when purchased to be cash equivalents. The Company did not have any investments in commercial paper at December 31, 2017 or 2016.
Restricted cash on the consolidated balance sheets represents primarily cash account agreements that require the businesses within the CP segment and the solar facilities within the MIC Hawaii segment that have long-term debt to maintain cash accounts. These cash accounts are restricted to funding operations, capital expenditures, debt service and make distributions to the Company and its partners. For these businesses, cash generated from operations is recorded as restricted cash upon receipt.
The Company recorded $25.0 million of cash pledged as collateral on its consolidated balance sheet at December 31, 2017, which was recorded within current assets. At December 31, 2016, the Company recorded $16.5 million of cash pledged as collateral on its consolidated balance sheet, of which $16.4 million was recorded within current assets. The remaining amounts are included in other noncurrent assets.
112
The Company uses estimates to determine the amount of allowance for doubtful accounts necessary to reduce billed and unbilled accounts receivable to their net realizable value. The Company estimates the required allowance by reviewing the status of past-due receivables and analyzing historical bad debt trends. Actual collection experience has not varied significantly from estimates primarily due to credit policies and a lack of concentration of accounts receivable. The Company writes off receivables deemed to be uncollectible to the allowance for doubtful accounts.
Inventory consists principally of fuel purchased from various third-party vendors at Atlantic Aviation and Hawaii Gas and materials and supplies at all of the operating businesses. Fuel inventory is stated at the lower of cost or market. Materials and supplies inventory is valued at the lower of average cost or market. Inventory sold is recorded using the first-in-first-out method at Atlantic Aviation and an average cost method at Hawaii Gas. IMTT also has inventory for sale for its spill response activity business. This is carried at lower of average cost or market. Cash flows related to the sale of inventory are classified in net cash provided by operating activities in the consolidated statements of cash flows.
The Companys inventory balance at December 31, 2017 comprised $16.6 million of inventory held for sale and $20.4 million of materials and supplies. The Companys inventory balance at December 31, 2016 comprised $14.3 million of inventory held for sale and $17.2 million of materials and supplies.
Property, equipment and land are initially recorded at cost. Leasehold improvements are recorded at the initial present value of the minimum lease payments less accumulated amortization. Major renewals and improvements are capitalized while maintenance and repair expenditures are expensed when incurred. Interest expense relating to construction in progress is capitalized as an additional cost of the asset. The Company depreciates property, equipment and leasehold improvements over their estimated useful lives on a straight-line basis. Excluding the regulated business at MIC Hawaii, the estimated economic useful lives range according to the table below:
|
|
|
Buildings | 20 to 30 years | |
Leasehold and land improvements | 7 to 30 years | |
Machinery and equipment | 3 to 34 years | |
Furniture and Fixtures | 5 to 15 years |
The estimated economic useful lives for the regulated business at MIC Hawaii ranges up to 68 years for buildings, leasehold and land improvements and machinery and equipment.
Goodwill consists of costs in excess of the aggregate purchase price over the fair value of tangible and identifiable intangible net assets acquired in business combinations. The cost of intangible assets with determinable useful lives is amortized over their estimated useful lives ranging as follows:
|
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Customer relationships | 5 to 30 years | |
Contractual arrangements | 5 to 57 years | |
Non-compete agreements | 3 to 10 years | |
Leasehold rights | 25 years | |
Trade names | 20 years | |
Technology | 5 years |
Contractual arrangements primarily relate to airport contract rights at Atlantic Aviation. The useful lives generally match the lease terms plus extensions under the business control.
113
Long-lived assets, including amortizable intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be fully recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans, or changes in anticipated future cash flows. If an impairment indicator is present, the Company evaluates recoverability by comparing the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Fair value is generally determined by estimates of discounted cash flows or value expected to be realized in a third party sale. The discount rate used in any estimate of discounted cash flows would be the rate required for a similar investment of like risk.
Goodwill is tested for impairment at least annually on October 1 st or when there is a triggering event that indicates impairment. For the annual impairment test, the Company can make a qualitative assessment of whether it is more likely than not that a reporting units fair value is less than its carrying amount before applying the two-step goodwill impairment test, as discussed below. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test.
If an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if there is a triggering event that indicates impairment, the Company needs to perform the two-step impairment test. This requires management to make judgments in determining what assumptions to use in the calculation. The first step is to determine the estimated fair value of each reporting unit with goodwill. The reporting units of the Company, for purposes of the impairment test, are those components of operating segments for which discrete financial information is available and segment management regularly reviews the operating results of that component. When determining reporting units, components with similar economic characteristics are combined.
The Company estimates the fair value of each reporting unit by estimating the present value of the reporting units future discounted cash flows or value expected to be realized in a third party sale. If the recorded net assets of the reporting unit are less than the reporting units estimated fair value, then no impairment is indicated. Alternatively, if the recorded net assets of the reporting unit exceed its estimated fair value, then goodwill is assumed to be impaired and a second step is performed. In the second step, the implied fair value of goodwill is determined by deducting the estimated fair value of all tangible and identifiable intangible net assets of the reporting unit from the estimated fair value of the reporting unit. If the recorded amount of goodwill exceeds this implied fair value, an impairment charge is recorded for the excess.
Indefinite-lived intangibles, which consist of trademarks, are considered impaired when the carrying amount of the asset exceeds its implied fair value. The Company estimates the fair value of each trademark using the relief-from-royalty method that discounts the estimated net cash flows the Company would have to pay to license the trademark under an arms length licensing agreement. If the recorded indefinite-lived intangible is less than its estimated fair value, then no impairment is indicated. Alternatively, if the recorded intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
114
The Company capitalizes all direct costs incurred in connection with the issuance of debt as deferred financing costs. These costs are amortized over the contractual term of the debt instrument, which ranges from 2 to 23 years. At December 31, 2017, the weighted average remaining life of deferred financing costs was 5.5 years.
From time to time the Company enters into interest rate derivative agreements to minimize potential variations in cash flows resulting from fluctuations in interest rates and their impact on its variable-rate debt. Hawaii Gas, a business within the MIC Hawaii reportable segment, enters into commodity price hedges to mitigate the impact of fluctuations in propane prices on its cash flows.
The Company accounts for derivatives and hedging activities in accordance with Accounting Standard Codification (ASC) 815 Derivatives and Hedging , which requires that all derivative instruments be recorded on the balance sheet at their respective fair values. All movements in the fair value of derivative contracts are recorded directly through earnings. See Note 8, Derivative Instruments and Hedging Activities, for further discussion.
The Companys financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and variable-rate senior debt, are carried at cost, which approximates their fair value because of either the short-term maturity, or competitive interest rates assigned to these financial instruments.
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with financial institutions and its balances may exceed federally insured limits. The Companys accounts receivable are mainly derived from fuel and gas sales and services rendered under contract terms with commercial and private customers located primarily in the United States. At December 31, 2017 and 2016, there were no outstanding accounts receivable due from a single customer that accounted for more than 10% of the total accounts receivable. Additionally, no single customer accounted for more than 10% of the Companys revenue during the years ended December 31, 2017, 2016 and 2015.
The assets and liabilities of IMTTs Newfoundland and Quebec locations are translated from their local currency (Canadian dollars) to U.S. dollars at exchange rates in effect at the end of the year and consolidated statement of operations accounts are translated at average exchange rates for the year. Translation gains or losses as a result of changes in the exchange rate are recorded as a component of other comprehensive income (loss).
Accrued expenses of $89.5 million and $83.7 million at December 31, 2017 and 2016, respectively, primarily consisted of payroll and related liabilities, purchase of property and equipment, interest, non-income related taxes, insurance and other individually insignificant balances.
Tolling agreements represent agreements with an off-taker where Bayonne Energy Center (BEC) agrees to sell 62.5% of its capacity, energy and ancillary services for fixed monthly tolling and capacity payments and variable monthly operations and maintenance (O&M) fees. Fixed payments received under these contracts
115
were below prevailing market rates at the date of acquisition. The difference between the present value of the fixed payments and the present value of the market rates at the date of acquisition is recorded as a liability on the consolidated balance sheet as part of purchase accounting. This liability is amortized into revenue over a weighted average life of the tolling agreements of approximately thirteen years at acquisition with approximately ten years remaining at December 31, 2017.
The Company calculates income (loss) per share using the weighted average number of common shares outstanding during the period. Diluted income (loss) per share is computed using the weighted average number of dilutive common equivalent shares outstanding during the period. Common equivalent shares may consist of (i) shares issuable upon conversion of the Companys convertible senior notes (using the if-converted method); (ii) stock units granted to the Companys independent directors; and (iii) fees payable to the Manager that will be reinvested in shares by the Manager in a future period, if any. Common equivalent shares are excluded from the calculation if their effect is anti-dilutive.
The Company follows the requirements of ASC 220 Comprehensive Income , for the reporting and presentation of comprehensive income (loss) and its components. This guidance requires unrealized gains or losses on the Companys foreign currency translation adjustments, minimum pension liability adjustments and changes in fair value of derivatives, where hedge accounting had been previously applied, to be included in other comprehensive income (loss).
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sellers price to the buyer is fixed and determinable and collectability is probable.
Revenue from IMTT is recorded in service revenue. Services provided by IMTT include: (i) Contracts for the use of storage capacity at the various terminals which predominantly have non-cancelable terms of generally one to three years. These contracts generally provide for payments for providing storage capacity and product movement (thruput) throughout their term based on a fixed rate per barrel of capacity leased, with a majority of contract adjusted annually for inflation indices. These contracts are accounted for as operating leases and the related rental income is recognized in service revenue over the term of the contract based upon the rate specified in the contract; (ii) Revenue from the rendering of ancillary services includes activities such as heating, mixing, and blending, and is recognized as the related services are performed based on contract rates; (iii) Payments received prior to the related services being performed or as a reimbursement for specific fixed asset additions or improvements related to a customers contract are recorded as deferred revenue and ratably recognized as revenues over the contract term; and (iv) Environmental response services revenues are recognized as services are rendered.
Revenue from Atlantic Aviation is recorded in service revenue. Services provided by Atlantic Aviation include: (i) Fuel services are recognized when fuel has been delivered to the customer, collection of the resulting receivable is probable, persuasive evidence of an arrangement exists and the fee is fixed or determinable. Fuel services are recorded net of volume discounts and rebates; (ii) Contracted hangar rental revenue is recognized over the term of the customer contract; and (iii) Other fixed based operation (FBO) services consisting principally of de-icing services, landing, concession, terminal use and fuel distribution fees are recognized as the services are rendered to the customer. FBO services also includes fueling fees for fueling certain carriers with fuel owned by such carriers. Revenue from these transactions are recorded based on the service fee earned and does not include the cost of the carriers fuel.
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BECs revenues are derived from contracts that are accounted for as an operating lease that does not have minimum lease payments. These revenues are recorded within product revenue.
With respect to BECs contracted capacity, revenue is recognized as energy, capacity and ancillary services are sold to the off-taker under the third-party tolling agreements, which are based on a fixed rate per megawatt (MW) of capacity and not subject to dispatch or utilization. A portion of the revenues under the tolling agreements are subject to annual increases. Revenues under the tolling agreements are subject to availability of capacity (subject to a historical rolling average forced outage factor). Variable operating and major maintenance revenues under the tolling agreements are a function of net plant output and a negotiated rate, which is adjusted annually based on historical plant experience.
With respect to BECs residual capacity, revenue is recognized as energy, capacity and ancillary services are sold into the New York Independent System Operator (NYISO) energy market, which are based on prevailing market rates at the time such services are sold. Volumes of energy and ancillary services sold are subject to BECs market based dispatch from NYISO.
Owners of the wind and solar facilities sell substantially all of the electricity generated at a fixed price to customers pursuant to long-term (typically 20 25 years) power purchase agreements (PPAs). Substantially all of the PPAs are accounted for as operating leases, have no minimum lease payments and all of the rental income under these leases is recorded within product revenue when the electricity is delivered.
Revenue from Hawaii Gas is recorded in product revenue. Hawaii Gas recognizes revenue when products are delivered. Sales of gas to customers are billed on a monthly-cycle basis. Earned but unbilled revenue is accrued and included in accounts receivable and revenue based on the amount of gas that is delivered but not billed to customers from the latest meter reading or billed delivery date to the end of an accounting period. The related costs are charged to expense.
The other businesses within MIC Hawaii primarily consist of a mechanical contractor focused on designing and constructing energy efficient building infrastructure and controlling interests in renewable and distributed power facilities including two facilities on Oahu. Revenue generated by the mechanical contractor business is recognized from long-term construction contracts on the percentage-of-completion method recorded in service revenue. At December 31, 2017, the signed contract backlog from the mechanical contractor business totaled approximately $42.0 million, which primarily is expected to be recognized into revenue within two to three years. PPAs at the renewable facilities are accounted for as operating leases and the related rental income is recorded in product revenues when the electricity is delivered.
The utility operations of the Hawaii Gas business are subject to regulation with respect to rates, service, maintenance of accounting records, and various other matters by the Hawaii Public Utilities Commission (HPUC). The established accounting policies recognize the financial effects of the rate-making and accounting practices and policies of the HPUC. Regulated utility operations are subject to the provisions of ASC 980, Regulated Operations . This guidance requires regulated entities to disclose in their financial statements the authorized recovery of costs associated with regulatory decisions. Accordingly, certain costs that otherwise would normally be charged to expense may, in certain instances, be recorded as an asset in a regulatory
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entitys balance sheet. The Hawaii Gas business records regulatory assets as costs that have been deferred for which future recovery through customer rates has been approved by the HPUC. Regulatory liabilities represent amounts included in rates and collected from customers for costs expected to be incurred in the future.
ASC 980 may, at some future date, be deemed inapplicable because of changes in the regulatory and competitive environments or other factors. If the Company were to discontinue the application of this guidance, the Company would be required to write-off its regulatory assets and regulatory liabilities and would be required to adjust the carrying amount of any other assets, including property, plant and equipment, that would be deemed not recoverable related to these affected operations. The Company believes its regulated operations in the Hawaii Gas business continue to meet the criteria of ASC 980 and that the carrying value of its regulated property, plant and equipment is recoverable in accordance with established HPUC rate-making practices.
The Company accounts for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company and its more than 80% owned subsidiaries file a consolidated U.S. federal income tax return, including its allocated share of the taxable income from its wind and solar facilities. The investments in wind and solar facilities, where the Company does not own 100% of the investment, within the CP and the MIC Hawaii segments are held in various LLCs, which are treated as partnerships for income tax purposes.
In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Certain reclassifications were made to the financial statements for the prior periods to conform to current year presentation.
On March 10, 2017, the FASB issued ASU No. 2017-07, Compensation Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which requires companies to present the service cost component separately from other components of net benefit cost. Specifically, a company will present service cost in the income statement line item in which it reports compensation cost. All other components of net benefit cost will be reported in the income statement separate from the service cost component and outside operating income. Additionally, the service cost component will be the only component that can be capitalized. The Company has early adopted this ASU in 2017 and the service cost component of the net periodic costs are recorded in the same line item as compensation costs in the statement of operations. All other costs within net benefit costs are recorded in Other income, net, on the consolidated statements of operations. The adoption of this ASU did not have a material impact to the presentation of the consolidated statements of operations.
On January 26, 2017, the FASB issued ASU No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which simplifies the measurement of goodwill subsequent to a business combination, and no longer requires an entity to perform a hypothetical purchase price allocation when computing implied fair value to measure goodwill impairment. Instead, impairment will be assessed by quantifying the difference between the fair value of a reporting unit and its carrying amount.
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An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting units fair value, on condition that the charge doesnt exceed the total amount of goodwill allocated to that reporting unit. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for public issuers and shall be applied prospectively. Early adoption is permitted. The Company will evaluate this ASU prospectively as part of its goodwill impairment testing when it adopts the provisions of this ASU.
On January 5, 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business , which provides a restrictive framework for determining whether business transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Determining whether a Company acquires a set of assets or a business will impact the initial measurement, the accounting treatment of direct acquisition related costs, contingent considerations and the bargain purchase price. The guidance in the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 for public issuers and shall be applied prospectively. The Company will evaluate this ASU on asset acquisitions and business combinations when it adopts the provisions of this ASU in 2018.
On November 17, 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash , which requires companies to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial statements. The guidance will be applied retrospectively and is effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those years. The Company will include appropriate disclosures related to restricted cash in accordance with the standard when it adopts the provisions of this ASU in 2018.
On February 25, 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) , which requires a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 will require all leases with an initial term greater than one year to be recognized on the balance sheet as a right-of-use asset and a lease liability. The Company also serves as a lessor primarily through operating leases. The accounting for lessors is not expected to fundamentally change except for changes to conform and align existing guidance to the lessee guidance under ASU 2016-02, as well as to the new revenue recognition guidance in ASU 2014-09. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is allowed. The standard is to be applied using a modified retrospective approach. The Company has begun evaluating and planning for the adoption and implementation of ASU 2016-02, including assessing the overall impact. ASU 2016-02 will have a material impact on the Companys consolidated balance sheets; however, the full impact to the overall financial statements has not yet been determined.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . The new guidance sets forth a five-step revenue recognition model which replaces the current revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance and requires more detailed disclosures. To further assist with adoption and implementation of ASU 2014-09, the FASB issued the following ASUs:
| ASU 2015-14 (Issued August 2015) Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date ; |
| ASU 2016-08 (Issued March 2016) Principal versus Agent Consideration (Reporting Revenue Gross versus Net) ; |
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| ASU 2016-10 (Issued April 2016) Identifying Performance Obligations and Licensing; |
| ASU 2016-12 (Issued May 2016) Narrow-Scope Improvements and Practical Expedients ; and |
| ASU 2016-20 (Issued December 2016) Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers . |
The new standard is effective for the Company on January 1, 2018.
There are two adoption methods available for implementation of the standard related to the recognition of revenue from contracts with customers. Under one method, the new guidance is applied retrospectively to contracts for each reporting period presented, subject to allowable practical expedients. Under the other method, referred to as the modified retrospective method, the new guidance is applied only to the most current period presented, recognizing the cumulative effect of the change to prior period amounts as an adjustment to the beginning balance of retained earnings, and also requires additional disclosures comparing the results to the previous guidance. The Company will adopt this standard using the modified retrospective method and the Company has determined that the adjustment to the beginning balance of retained earnings is not significant and that the adoption of this standard will not have a significant impact to the Companys consolidated financial statements other than the additional required disclosures. The Company is still in the process of finalizing the changes to its systems, processes and internal controls to meet the reporting and disclosure requirements.
The Company believes key changes in the standard that impact the Companys revenue recognition relate to the allocation of contract revenue between various services and equipment, and the timing of when those revenues are recognized. In addition, the Company currently includes sales, excise and value-added taxes related to sales transactions within revenue on the consolidated statements of operations. Upon adoption of ASU 2014-09, the Company will exclude sales-based taxes collected on behalf of third parties from service and product revenue and include these amounts in cost of services and product sales. The result will be an insignificant reclassification on the consolidated statements of operations.
ASU 2014-09 also introduces new qualitative and quantitative disclosure requirements about contracts with customers including revenue and impairments recognized, disaggregation of revenue and information about contract balance and performance obligations. Information is required about significant judgments and changes in judgments in determining the timing of satisfaction of performance obligations. The Company has finalized what additional information will be disclosed and determined that the overall level of disclosures related to revenue recognition will increase.
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Following is a reconciliation of the basic and diluted income (loss) per share computations ($ in thousands, except share and per share data):
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Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Numerator:
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Net income (loss) attributable to MIC | $ | 451,202 | $ | 156,381 | $ | (108,537 | ) | |||||
Interest expense attributable to 2.875% Convertible senior notes due July 2019, net of taxes | 7,811 | | | |||||||||
Interest expense attributable to 2.00% Convertible senior notes due October 2023, net of taxes | 8,068 | (4,523 | ) | | ||||||||
Diluted net income (loss) attributable to MIC | $ | 467,081 | $ | 151,858 | $ | (108,537 | ) | |||||
Denominator:
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Weighted average number of shares outstanding: basic | 83,204,404 | 80,892,654 | 77,997,826 | |||||||||
Dilutive effect of restricted stock unit grants | 9,495 | 9,589 | | |||||||||
Dilutive effect of fees to Manager-related party | | 549,404 | | |||||||||
Dilutive effect of 2.875% Convertible senior notes due July 2019 | 4,252,609 | | | |||||||||
Dilutive effect of 2.00% Convertible senior notes due October 2023 | 3,606,854 | 766,980 | | |||||||||
Weighted average number of shares outstanding: diluted | 91,073,362 | 82,218,627 | 77,997,826 | |||||||||
Income (loss) per share:
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Basic income (loss) per share attributable to MIC | $ | 5.42 | $ | 1.93 | $ | (1.39 | ) | |||||
Diluted income (loss) per share attributable to MIC | $ | 5.13 | $ | 1.85 | $ | (1.39 | ) |
The effect of potentially dilutive shares for the year ended December 31, 2017 is calculated assuming that (i) the restricted stock unit grants totaling 9,435 provided to the independent directors on May 17, 2017, which will vest during the second quarter of 2018, had been fully converted into shares on the grant date; (ii) the 8,604 restricted stock unit grants (net of 2,151 restricted stock unit grants forfeited on September 30, 2016) provided to the independent directors on May 18, 2016 and restricted stock unit grants of 991 provided to a new independent director on November 1, 2016, which vested during the second quarter of 2017, had been fully converted to shares on those grant dates; and (iii) the 2.00% Convertible Senior Notes due October 2023 and the 2.875% Convertible Senior Notes due July 2019 had been fully converted into shares on the date of issuance.
The effect of potentially dilutive shares for the year ended December 31, 2016 is calculated assuming that (i) the restricted stock unit grants totaling 8,604 (net of 2,151 restricted stock unit grants forfeited on September 30, 2016) provided to the independent directors on May 18, 2016 and restricted stock units grants of 991 provided to a new independent director on November 1, 2016, which vested during the second quarter of 2017, had been fully converted to shares on those grant dates; (ii) the 8,660 restricted stock unit grants provided to the independent directors on June 18, 2015, which vested during the second quarter of 2016, had been fully converted to shares on the grant date; (iii) the $67.8 million of the performance fee for the quarter ended June 30, 2015, which was reinvested in shares by the Manager on August 1, 2016, had been reinvested in shares by the Manager in July 2015; and (iv) the 2.00% Convertible Senior Notes due October 2023 had been fully converted into shares on the date of issuance. The 2.875% Convertible Senior Notes due July 2019 were anti-dilutive for the year ended December 31, 2016.
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Due to the Companys net loss for the year ended December 31, 2015, (i) the 8,660 restricted stock unit grants provided to the independent directors on June 18, 2015, which vested during the second quarter of 2016; (ii) the 12,525 restricted stock unit grants provided to the independent directors on May 21, 2014, which vested during the second quarter of 2015; (iii) the $67.8 million of the performance fee for the quarter ended June 30, 2015, which was reinvested in shares by the Manager on August 1, 2016, had been reinvested in shares by the Manager in July 2015; and (iv) the 2.875% Convertible Senior Notes due July 2019, were all anti-dilutive.
The following represents the weighted average potential dilutive shares of common stock that were excluded from the diluted income (loss) per share calculation:
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Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Restricted stock unit grants | | | 9,410 | |||||||||
Fees to Manager related party (1) | | | 449,126 | |||||||||
2.875% Convertible senior notes due July 2019 | | 4,177,097 | 4,160,717 | |||||||||
Total | | 4,177,097 | 4,619,253 |
(1) | Represents $67.8 million of the performance fee for the quarter ended June 30, 2015, which was reinvested in shares by the Manager on August 1, 2016. The weighted average potentially dilutive shares of common stock in the above table include shares assumed to have been reinvested in shares by the Manager in July 2015. |
Property, equipment, land and leasehold improvements at December 31, 2017 and 2016 consist of the following ($ in thousands):
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As of December 31, | ||||||||
2017 | 2016 | |||||||
Land | $ | 339,148 | $ | 304,240 | ||||
Easements | 131 | 131 | ||||||
Buildings | 41,776 | 41,711 | ||||||
Leasehold and land improvements | 834,241 | 673,122 | ||||||
Machinery and equipment | 4,092,624 | 3,764,553 | ||||||
Furniture and fixtures | 39,386 | 35,454 | ||||||
Construction in progress | 246,422 | 233,184 | ||||||
5,593,728 | 5,052,395 | |||||||
Less: accumulated depreciation | (934,114 | ) | (705,859 | ) | ||||
Property, equipment, land and leasehold improvements, net | $ | 4,659,614 | $ | 4,346,536 |
During the year ended December 31, 2017, the Company invested approximately $340.0 million in acquisitions primarily consisting of (i) $171.5 million in seven bulk liquid storage terminals at IMTT, of which $125.0 million was funded through the issuance of shares; (ii) approximately $155.0 million in two fixed base operations (FBOs) at Atlantic Aviation; and (iii) the remainder in construction in progress renewable projects. The Company treated these as business combinations and substantially all of the purchase price was allocated to property, plant, equipment, land and leasehold improvements of approximately $205.0 million, intangible assets of approximately $93.0 million and goodwill of $43.6 million, all of which are tax deductible. The purchase price allocation for these acquisitions has been finalized as of December 31, 2017. The pro forma effects of these acquisitions is not material.
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During the quarter ended March 31, 2015, Atlantic Aviation reassessed the useful lives of its leasehold and land improvements related to leases at certain airports to generally match these useful lives with the remaining lease terms plus extensions under Atlantic Aviations control. During the quarter ended March 31, 2015, as a result of this reassessment, the business performed an impairment analysis related to its leasehold and land improvements and recorded a non-cash impairment of $2.8 million, which was included in depreciation expense.
In addition, during the quarter ended March 31, 2015, a non-cash impairment charge of $4.2 million was recorded due to a change in the lease terms at one base. This amount was included in depreciation expense.
Intangible assets at December 31, 2017 and 2016 consist of the following ($ in thousands):
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As of December 31, | ||||||||
2017 | 2016 | |||||||
Contractual arrangements | $ | 989,228 | $ | 925,428 | ||||
Non-compete agreements | 14,014 | 10,014 | ||||||
Customer relationships | 361,623 | 335,978 | ||||||
Leasehold rights | 350 | 350 | ||||||
Trade names | 16,091 | 16,091 | ||||||
Technology | 8,760 | 8,760 | ||||||
1,390,066 | 1,296,621 | |||||||
Less: accumulated amortization | (475,968 | ) | (407,650 | ) | ||||
Intangible assets, net | $ | 914,098 | $ | 888,971 |
See Note 4, Property, Equipment, Land and Leasehold Improvements, for discussion on intangible assets and goodwill acquired during the year ended December 31, 2017.
During the quarter ended March 31, 2015, Atlantic Aviation reassessed the useful lives of its contractual arrangements related to leases at certain airports to generally match these useful lives with the remaining lease terms plus extensions under Atlantic Aviations control. During the quarter ended March 31, 2015, as a result of this reassessment, the business performed an impairment analysis related to its contractual arrangements and recorded a non-cash impairment of $13.5 million, which was included in amortization expense.
In addition, during the quarter ended March 31, 2015, a non-cash impairment charge of $17.8 million was recorded due to a change in the lease terms at one base. This amount was included in amortization expense.
At December 31, 2017, the Company had $13.7 million in trade names net of accumulated amortization, of which $7.5 million relates to Atlantic Aviation and are considered to be indefinite-lived. The remaining balance of $6.2 million relates to The Gas Company trade name.
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Amortization expense of intangible assets for the years ended December 31, 2017, 2016 and 2015 totaled $68.3 million, $65.4 million and $101.4 million, respectively. The estimated future amortization expense for amortizable intangible assets to be recognized are ($ in thousands):
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2018 | $ | 67,242 | ||
2019 | 64,294 | |||
2020 | 55,499 | |||
2021 | 50,243 | |||
2022 | 48,728 | |||
Thereafter | 620,601 | |||
Total | $ | 906,607 |
The goodwill balance as of December 31, 2017 is comprised of the following ($ in thousands):
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Goodwill acquired in business combinations, net of disposals, at
December 31, 2016 |
$ | 2,149,894 | ||
Accumulated impairment charges | (123,200 | ) | ||
Other | (2,285 | ) | ||
Balance at December 31, 2016 | 2,024,409 | |||
Goodwill related to 2017 acquisitions | 43,584 | |||
Other | 675 | |||
Balance at December 31, 2017 | $ | 2,068,668 |
The Company tests for goodwill impairment at the reporting unit level on an annual basis on October 1 st of each year and between annual tests if a triggering event indicates impairment. There were no triggering events indicating impairment for the year ended December 31, 2017.
Future minimum rental revenue for the remaining unexpired term of lease agreements in existence at December 31, 2017 is as follows ($ in thousands):
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2018 | $ | 317,346 | ||
2019 | 182,037 | |||
2020 | 106,168 | |||
2021 | 56,751 | |||
2022 | 43,069 | |||
Thereafter | 73,467 | |||
Total | $ | 778,838 |
The above table does not include the future minimum rental revenue from the Companys CP and the renewable businesses within the MIC Hawaii reportable segments. The payments from these leases are considered variable as they are based on the output of the underlying assets (i.e. energy generated).
The Company capitalizes its businesses in part using floating rate bank debt with medium-term maturities between five and seven years. In general, the Company hedges the floating rate exposure for the majority of the term of these facilities. The Company also uses longer dated private placement debt and other forms of capital including bond or hybrid debt instruments to capitalize its businesses. In general, the debt facilities at the businesses are non-recourse to the holding company and there are no cross-collateralization or
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cross-guarantee provisions in these facilities. All of the term debt facilities of the Companys operating businesses described below contain customary financial covenants, including maintaining or exceeding certain financial ratios, and limitations on capital expenditures and additional debt. The facilities include events of default, representations and warranties and other covenants that are customary for facilities of this type, including change of control, which will occur if the Macquarie Group, or any fund or entity managed by the Macquarie Group, fails to control a majority of the Borrower. For a description of related party transactions associated with the Companys long-term debt, see Note 11, Related Party Transactions.
At December 31, 2017 and 2016, the Companys consolidated long-term debt comprised the following ($ in thousands):
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As of December 31, | ||||||||
2017 | 2016 | |||||||
IMTT | $ | 1,318,975 | $ | 1,140,975 | ||||
Atlantic Aviation | 648,000 | 449,691 | ||||||
CP | 576,558 | 604,862 | ||||||
MIC Hawaii | 199,282 | 200,744 | ||||||
MIC Corporate | 873,477 | 726,730 | ||||||
Total | 3,616,292 | 3,123,002 | ||||||
Current portion | (50,835 | ) | (40,016 | ) | ||||
Long-term portion | 3,565,457 | 3,082,986 | ||||||
Unamortized deferred financing costs (1) | (35,146 | ) | (43,020 | ) | ||||
Long-term portion less unamortized debt discount and deferred financing costs | $ | 3,530,311 | $ | 3,039,966 |
(1) | The weighted average remaining life of the deferred financing costs at December 31, 2017 was 5.5 years. |
At December 31, 2017, the total undrawn capacity on the revolving credit facilities was $853.5 million excluding letters of credits outstanding of $60.7 million.
The following table represents the future maturities of long-term debt balances at December 31, 2017 and includes the unamortized debt discount of $22.5 million related to the 2.00% Convertible Senior Notes due October 2023. The maturities also reflect the refinancing of the MIC senior secured revolving credit facility and the extension of Hawaii Gas term loan and revolving credit facility subsequent to December 31, 2017 discussed below.
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2018 | $ | 50,835 | ||
2019 | 401,876 | |||
2020 | 272,821 | |||
2021 | 610,602 | |||
2022 | 987,175 | |||
Thereafter | 1,315,458 | |||
Total | $ | 3,638,767 |
In July 2014, the Company entered into a five-year, $250.0 million senior secured revolving credit facility with a syndicate of banks and subsequently increased the aggregate commitments under its revolving credit facility to $410.0 million, with all terms remaining the same. No amounts were drawn at December 31, 2016. During the year ended December 31, 2017, the Company drew down $315.5 million for general
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corporate purposes and repaid $172.0 million resulting in an outstanding balance of $143.5 million. Through February 21, 2018, the Company borrowed an additional $1.5 million for general corporate purposes and repaid $37.5 million drawn on its revolving credit facility resulting in an outstanding balance of $107.5 million.
On January 3, 2018, the Company completed the refinancing and upsizing of its senior secured revolving credit facility to $600.0 million and extended the maturity through January 3, 2022.
In July 2014, the Company completed an underwritten public offering of a five-year, $350.0 million aggregate principal amount of 2.875% Convertible Senior Notes due July 2019 to partially fund the IMTT Acquisition and for general corporate purposes. The notes are convertible, at the holders option, into the Companys shares, initially at a conversion rate of 11.7942 shares per $1,000 principal amount (equivalent to an initial conversion price of approximately $84.79 per share, subject to adjustment), at any time on or prior to the close of business on the second scheduled trading day immediately preceding the maturity date.
On November 13, 2017, the conversion rate increased to 12.3561 shares of common stock per $1,000 principal amount. The adjustment reflects, in accordance with the indenture governing the senior notes, the impact of dividends paid by the Company from July 15, 2017, the prior anniversary date of the convertible senior notes. The notes are the Companys unsecured obligations and rank equal in right of payment with all of the Companys existing and future senior unsecured indebtedness. The fair value of these convertible senior notes at December 31, 2017 was approximately $361.0 million. These convertible senior notes fall within Level 1 of the fair value hierarchy.
In October 2016, the Company completed an underwritten public offering of a seven year, $402.5 million aggregate principal amount of 2.00% Convertible Senior Notes due October 2023. The net proceeds of $392.4 million were used to repay a portion of the drawn balance under the revolving credit facility under the New AA Credit Agreement and to fully repay the outstanding balances on both the MIC senior secured and IMTT revolving credit facilities. The remaining proceeds were used for general corporate purposes. The notes are convertible, at the holders option, only upon satisfaction of one or more conditions set forth in the indenture governing the notes. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Companys common stock or a combination thereof, at the Companys election. The initial conversion rate is 8.9364 shares per $1,000 principal amount (equivalent to an initial conversion price of approximately $111.90 per share, subject to adjustment).
On October 13, 2017, the conversion rate increased to 8.9713 shares of common stock per $1,000 principal amount. The adjustment was made, in accordance with the indenture governing the senior notes, on the anniversary of the convertible senior notes issuance and reflects the impact of dividends paid by the Company. The notes are not redeemable prior to maturity on October 1, 2023. The notes are the Companys unsecured obligations and rank equal in right of payment with all of the Companys existing and future senior unsecured indebtedness. The fair value of liability component of these convertible senior notes at December 31, 2017 was approximately $366.0 million. These convertible senior notes fall within Level 1 of the fair value hierarchy.
The $402.5 million of 2.00% Convertible Senior Notes due October 2023 had an initial value of the principal amount recorded as a liability of $375.8 million, using an effective interest rate of 3.1%. The remaining $26.7 million of principal amount was allocated to the conversion feature and recorded in additional paid in capital as a component of stockholders equity. This amount represents a discount to the debt to be amortized through interest expense using the effective interest method through the maturity of the
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convertible senior notes. The Company also recorded $11.0 million in deferred financing costs from the issuance of the convertible senior notes, of which $729,000 was recorded as equity issuance costs as a component of stockholders equity.
At December 31, 2017 and 2016, the 2.00% Convertible Senior Notes due October 2023 consisted of the following ($ in thousands):
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As of December 31, | ||||||||
2017 | 2016 | |||||||
Liability Component:
|
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Principal | $ | 402,500 | $ | 402,500 | ||||
Unamortized debt discount | (22,475 | ) | (25,741 | ) | ||||
Long-term debt, net of unamortized debt discount | 380,025 | 376,759 | ||||||
Unamortized deferred financing costs | (8,643 | ) | (9,934 | ) | ||||
Net carrying amount | $ | 371,382 | $ | 366,825 | ||||
Equity Component | $ | 26,748 | $ | 26,748 |
For the years ended December 31, 2017 and 2016, total interest expense recognized related to the 2.00% Convertible Senior Notes due October 2023 consisted of the following ($ in thousands):
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||||||
Year Ended December 31, | ||||||||
2017 | 2016 | |||||||
Contractual interest expense | $ | 7,782 | $ | 1,969 | ||||
Amortization of debt discount | 3,266 | 1,007 | ||||||
Amortization of deferred financing costs | 1,509 | 306 | ||||||
Total interest expense | $ | 12,557 | $ | 3,282 |
The key terms of the senior secured revolving credit facility and the convertible senior notes are summarized in the table below.
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Facility Terms |
Senior Secured Revolving
Credit Facility (1) |
2.875% Convertible
Senior Notes due July 2019 |
2.00% Convertible
Senior Notes due October 2023 |
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Total Committed Amount | $600.0 million | | | |||
Amount Outstanding at December 31, 2017 | $143.5 million | $350.0 million | $380.0 million, net of unamortized discount of $22.5 million | |||
Maturity | January 2022 | July 2019 | October 2023 | |||
Amortization | Revolving, payable at maturity | Payable at maturity or convertible at the holders option into the Companys shares | Payable at maturity or convertible at the holders option into cash, the Companys shares or a combination thereof only upon satisfaction of one or more conditions set forth in the indenture | |||
Interest Rate | LIBOR plus 1.75% at December 31, 2017 | 2.875% payable on January 15 th and July 15 th of each year | 2.00% payable on April 1 st and October 1 st of each year | |||
Commitment Fees | 0.275% at December 31, 2017 | | |
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Facility Terms |
Senior Secured Revolving
Credit Facility (1) |
2.875% Convertible
Senior Notes due July 2019 |
2.00% Convertible
Senior Notes due October 2023 |
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Security | Secured (may fall away if certain ratings and other conditions are met) | Unsecured | Unsecured |
(1) | Terms for the senior secured revolving credit facility reflects the refinancing and upsizing completed in January 2018. |
On May 21, 2015, ITT Holdings LLC (ITT LLC), a direct subsidiary of IMTT Holdings LLC and an indirect subsidiary of the Company, entered into a Credit Agreement (the Credit Agreement), among ITT LLC, IMTT Quebec Inc. and IMTT NTL, LTD. as Canadian borrowers, SunTrust Bank as administrative agent and the lenders thereto. The Credit Agreement provides for (i) a $550.0 million unsecured revolving credit facility for ITT LLC and (ii) the Canadian dollar equivalent of a $50.0 million unsecured revolving credit facility for the Canadian borrowers.
In addition, ITT LLC entered into a Note Purchase Agreement for the issuance of $325.0 million aggregate principal amount of 3.92% Guaranteed Senior Notes, Series A due 2025, and $275.0 million aggregate principal amount of 4.02% of Guaranteed Senior Notes, Series B due 2027 (together the senior notes). The senior notes are unsecured. Proceeds from the senior notes issuance and the revolving credit facility borrowings were used to repay all amounts under the existing IMTT credit agreement and were used to finance working capital needs, capital expenditures, acquisitions, distributions and for other general corporate purposes.
In connection with this refinancing, $509.0 million of IMTTs outstanding Gulf Opportunity Zone Bonds (GO Zone Bonds) and New Jersey Economic Development Authority Bonds (NJEDA Bonds and, together with the Go Zone Bonds, the Tax Exempt Bonds) were repurchased. The GO Zone Bonds were reissued and sold to certain lenders under the Credit Agreement. The NJEDA Bonds were financed with a new issuance of tax exempt bonds and sold to certain lenders under the Credit Agreement. IMTT entered into interest rate swap contracts, maturing in June 2021, with a total notional amount of $361.1 million. These swaps fully hedge the floating LIBOR interest rate risk associated with the tax-exempt bonds for six years at 1.677%.
The revolving credit facilities are used primarily to fund IMTTs growth capital expenditures and for general corporate purposes. During the year ended December 31, 2017, IMTT drew down $285.0 million on its USD revolving credit facility and repaid $107.0 million. The proceeds were primarily used for general corporate purposes, to fund capital expenditures and to fund a portion of an acquisition. At December 31, 2017 and 2016, IMTT had $210.0 million and $32.0 million drawn on its USD revolving credit facility, respectively. Through February 21, 2018, IMTT repaid $5.0 million drawn on its revolving credit facility resulting in an outstanding balance of $205.0 million.
The key terms of IMTTs U.S. dollar and Canadian dollar denominated revolving credit facilities are summarized in the table below.
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Facility Terms | USD Revolving Credit Facility | CAD Revolving Credit Facility | ||
Total Committed Amount | $550.0 million | $50.0 million | ||
Amount Outstanding at
December 31, 2017 |
$210.0 million | Undrawn | ||
Maturity | May 2020 | May 2020 | ||
Amortization | Revolving, payable at maturity | Revolving, payable at maturity |
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Facility Terms | USD Revolving Credit Facility | CAD Revolving Credit Facility | ||
Interest Rate | LIBOR plus 1.50% at December 31, 2017 | Bankers Acceptances Rate plus 1.50% at December 31, 2017 | ||
Commitment Fees | 0.225% at December 31, 2017 | 0.225% at December 31, 2017 | ||
Security | Unsecured | Unsecured |
The key terms of the senior notes are summarized in the table below.
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Facility Terms | Senior Notes, Series A | Senior Notes, Series B | ||
Amount Outstanding at
December 31, 2017 |
$325.0 million | $275.0 million | ||
Maturity | May 2025 | May 2027 | ||
Amortization | Payable at maturity | Payable at maturity | ||
Interest Rate | 3.92% | 4.02% | ||
Security | Unsecured | Unsecured |
The key terms of the LA Bonds are summarized in the table below.
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Facility Terms |
Louisiana Public
Facilities Authority Revenue Bonds, Series 2007 |
The Industrial
Development Board of the Parish of Ascension, Louisiana Revenue Bonds, Series 2007 |
Louisiana Public
Facilities Authority Gulf Opportunity Zone Revenue Bonds, Series 2010 |
Louisiana Public
Facilities Authority Revenue Bonds, Series 2010A |
Louisiana Public
Facilities Authority Revenue Bonds, Series 2010B |
|||||
Amount Outstanding at December 31, 2017 | $50.0 million | $165.0 million | $85.0 million | $90.9 million | $81.8 million | |||||
Maturity | June 2043 | June 2043 | August 2046 | December 2040 | December 2040 | |||||
Amortization | Payable at maturity, subject to mandatory tender in May 2022 | Payable at maturity, subject to mandatory tender in May 2022 | Payable at maturity, subject to mandatory tender in May 2022 | Payable at maturity, subject to mandatory tender in May 2022 | Payable at maturity, subject to mandatory tender in May 2022 | |||||
Interest Rate | One-month LIBOR plus Revolving Credit Facility margin plus 0.625% multiplied by 75% | One-month LIBOR plus Revolving Credit Facility margin plus 0.625% multiplied by 75% | One-month LIBOR plus Revolving Credit Facility margin plus 0.625% multiplied by 67% | One-month LIBOR plus Revolving Credit Facility margin plus 0.625% multiplied by 67% | One-month LIBOR plus Revolving Credit Facility margin plus 0.625% multiplied by 67% | |||||
Security | Unsecured | Unsecured | Unsecured | Unsecured | Unsecured |
The key terms of the NJEDA Bonds are summarized in the table below.
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Facility Terms |
New Jersey Economic Development Authority
Revenue Refunding Bonds, Series 2015 |
|
Amount Outstanding at December 31, 2017 | $36.3 million | |
Maturity | December 2027 | |
Amortization | Payable at maturity, subject to mandatory tender in May 2022 | |
Interest Rate | One-month LIBOR plus Revolving Credit Facility margin plus 0.625% multiplied by 75% | |
Security | Unsecured |
On October 7, 2016, Atlantic Aviation FBO Inc. (AA FBO) completed the refinancing of its existing $595.9 million term loan and $70.0 million revolving credit facility. AA FBO entered into a new five-year first lien senior secured $400.0 million term loan facility and a new five year first lien senior secured
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$350.0 million revolving credit facility (the New AA Credit Agreement). The New AA Credit Agreement is guaranteed jointly and severally on a senior secured basis by Atlantic Aviation FBO Holdings LLC (Holdings) and certain subsidiaries of AA FBO. Proceeds from the new term loan facility, together with $200.0 million drawn on the revolving credit facility, were used primarily to fully repay the outstanding balance on the existing term loan facility.
During the year ended December 31, 2017, the business borrowed $330.5 million on its senior secured revolving credit facility and repaid $120.5 million. The proceeds were primarily used for general corporate purposes and to partially fund acquisitions of FBOs. The outstanding balance at December 31, 2017 and 2016 was $258.0 million and $48.0 million, respectively. Through February 21, 2018, Atlantic Aviation borrowed an additional $16.0 million for general corporate purposes on its revolving credit facility resulting in an outstanding balance of $274.0 million.
The key terms of the term loan and revolving credit facilities are summarized in the table below.
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Facility Terms | Term Loan Facility | Revolving Credit Facility | ||
Facilities | $400.0 million senior secured first lien term loan ($390.0 million outstanding at December 31, 2017) | $350.0 million senior secured first lien revolving credit facility ($258.0 million outstanding at December 31, 2017) | ||
Maturity | October 7, 2021 | October 7, 2021 | ||
Amortization |
2.5% of the initial principal balance per annum for the first year; |
Revolving, payable at maturity | ||
5.0% of the initial principal balance per annum for the next two years; and |
||||
7.5% of the initial principal balance per annum until maturity. |
||||
Interest Rate | LIBOR plus 1.50% to 2.25% or Alternate Base Rate (ABR) plus 0.50% to 1.25%, in each case depending on total leverage ratio. ABR is the highest of (i) the prime rate, (ii) the federal funds rate plus 0.5% and (iii) one-month LIBOR plus 1.0% | LIBOR plus 1.50% to 2.25% or ABR plus 0.50% to 1.25%, in each case depending on total leverage ratio | ||
Commitment Fees | | 0.25% to 0.35% on the undrawn portion, depending on total leverage ratio | ||
Covenants | Maintenance of a maximum total leverage ratio; limitations on, among other things, distributions and other restricted payments, incurrence of debt, liens, fundamental changes, asset sales, investments, affiliate transactions and sale and leasebacks, in each case subject to certain exceptions. | Maintenance of a maximum total leverage ratio; limitations on, among other things, distributions and other restricted payments, incurrence of debt, liens, fundamental changes, asset sales, investments, affiliate transactions and sale and leasebacks, in each case subject to certain exceptions. | ||
Collateral | First priority security interest in (x) the equity securities of AA FBO and certain of its subsidiaries and (y) the personal and material real property of Holdings, AA FBO and certain of its subsidiaries (in each case subject to certain exceptions) | First priority security interest in (x) the equity securities of AA FBO and certain of its subsidiaries and (y) the personal and material real property of Holdings, AA FBO and certain of its subsidiaries (in each case subject to certain exceptions) | ||
Mandatory Prepayment |
With net proceeds from the sale of assets in excess of $10.0 million or from certain insurance recoveries in excess of $5.0 million, that are not reinvested |
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With net proceeds of debt issuances by Holdings, AA FBO and its restricted subsidiaries (other than certain permitted debt) |
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On August 10, 2015, BEC entered into a seven-year, $275.0 million term loan facility and a seven-year, $25.0 million revolving credit facility. Concurrently, BEC entered into amortizing interest rate swap contracts with an original notional of $275.0 million. These contracts are scheduled to amortize concurrently with the term loan debt and fix the floating LIBOR interest rate for six years at 1.786%.
The key terms of the term loan and revolving credit facilities of BEC are summarized in the table below.
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Facility Terms | Term Financing | Revolving Credit Facility | ||
Total Committed Amount | $275.0 million | $25.0 million | ||
Amount Outstanding at December 31, 2017 | $251.0 million | Undrawn | ||
Maturity | August 2022 | August 2022 | ||
Amortization | $10.0 million per annum paid in equal quarterly installments with the balance payable at maturity | Revolving, payable at maturity | ||
Interest Rate |
LIBOR plus 2.125% from August 2015 to August 2020; and |
LIBOR plus 2.125% from August 2015 to August 2020; and |
||
LIBOR plus 2.375% from August 2020 through maturity |
LIBOR plus 2.375% from August 2020 through maturity |
|||
Commitment Fee | | 0.50% per annum | ||
Collateral | First lien on all assets (subject to certain exceptions) | First lien on all assets (subject to certain exceptions) |
At December 31, 2017, the CP segment consisted of seven solar facilities and two wind facilities with senior secured debt outstanding of $325.6 million. This is comprised of $186.0 million in fixed rate term loans and $139.6 million floating rate term loan, of which $132.5 million is fixed with interest rate swaps. One of the solar facility also has a $20.0 million senior secured revolving credit facility that remained undrawn at December 31, 2017. At December 31, 2017, the term loans have a weighted average rate of 4.78%.
The key terms of the term loans at the wind and solar facilities are presented below.
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Facility Terms | Term Loan Facilities | Term Loan Facility | ||
Borrower | Solar Facilities Term Loans | Wind Facility Term Loan | ||
Facilities | $193.1 million outstanding balance at December 31, 2017 | $132.5 million outstanding balance at December 31, 2017 | ||
Maturity | September 2023 to December 2036 | December 2027 | ||
Amortization | Fully amortizing through maturity | Fully amortizing through maturity | ||
Interest Rate |
Fixed: 4.0% to 5.6%; |
LIBOR plus 1.625% at December 31, 2017; |
||
Floating: LIBOR plus 2.00% |
The margin increases by 0.25% every five years through maturity |
|||
Collateral | First lien on the following: | First lien on the following: | ||
Project revenues; |
All property and assets of the Borrower and project companies; and |
|||
Equity of the Borrower; |
Equity interests in the Borrower. |
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All property and assets of the Borrower; and |
||||
Insurance policies and claims or proceeds. |
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|
|
|
||
Facility Terms | Term Loan Facilities | Term Loan Facility | ||
Mandatory Prepayment |
With net proceeds that equal or exceed $250,000 to $500,000 from the sale of assets not used for replacement of assets; |
With net proceeds that equal or exceed $500,000 from the sale of assets; |
||
With insurance proceeds that exceed from $250,000 to $1.0 million not used to repair, restore or replace assets; |
With insurance proceeds that exceed $10.0 million not used to repair, restore or replace assets; |
|||
With condemnation proceeds that exceed from $250,000 to $1.0 million not used to repair, restore or replace assets; and |
With Guaranteed Performance commitment liquidated damages in excess of $250,000; and |
|||
With net proceeds from equity and certain debt issuances. |
With amount necessary to reduce debt to within the revised projected debt service coverage ratio following a substantial change such as additional wind turbines not in engineers plan. |
On February 10, 2016, Hawaii Gas completed the refinancing of its existing $80.0 million term loan and $60.0 million revolving credit facility. The $80.0 million term loan bears interest at a variable rate of LIBOR plus an applicable margin between 1.00% and 1.75%. The variable rate component of the debt is fixed at 0.99% at December 31, 2017 using an interest rate swap contract through February 2020. The revolving credit facility bears interest at a variable rate of LIBOR plus an applicable margin between 1.00% and 1.75% and is unhedged. Through February 21, 2018, Hawaii Gas borrowed $17.0 million for general corporate purposes and repaid $3.0 million drawn on its revolving credit facility resulting in an outstanding balance of $14.0 million.
In February 2017, Hawaii Gas exercised the first of two one-year extensions related to its $80.0 million secured term loan facility and its $60.0 million revolving credit facility extending their respective maturities to February 2022. In February 2018, Hawaii Gas exercised the second of two one-year extensions related to its $80.0 million secured term loan facility and its $60.0 million revolving credit facility extending their respective maturities to February 2023.
The key terms of the term loan, senior secured notes and revolving credit facility of Hawaii Gas are summarized in the table below.
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Facility Terms | Holding Company Debt | Operating Company Debt | ||||
Borrowers | HGC Holdings LLC (HGC) | The Gas Company, LLC (TGC) | ||||
Facilities | $80.0 million Term Loan (fully drawn at December 31, 2017) | $100.0 million Senior Secured Notes (fully drawn at December 31, 2017) | $60.0 million Revolving Credit Facility (undrawn at December 31, 2017) | |||
Maturity (1) | February 2023 | August 2022 | February 2023 | |||
Amortization | Payable at maturity | Payable at maturity | Revolving, payable at maturity | |||
Interest Rate | LIBOR plus 1.75% or Base Rate: 0.75% above the greater of the prime rate or the federal funds rate plus 0.5% | 4.22% payable semi-annually | LIBOR plus 1.25% or Base Rate: 0.25% above the greater of the prime rate or the federal funds rate plus 0.5% | |||
Commitment Fees | ___ | ___ | 0.225% on the undrawn portion | |||
Collateral | First lien on all assets of HGC and its subsidiaries | First lien on all assets of TGC and its subsidiaries | First lien on all assets of TGC and its subsidiaries |
(1) | Maturity for the $80.0 million term loan and $60.0 million revolving credit facility reflects the February 2018 extension. |
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In July 2016, the solar facilities in Hawaii entered into a ten year, $18.0 million amortizing term loan facility. The interest rate on this term loan facility floats at LIBOR plus 2.0%. The interest rate was fixed at 3.38% using an interest rate swap contract through June 30, 2026. At December 31, 2017, the outstanding balance on the term loan was $16.7 million.
At December 31, 2017, the design-build mechanical contractor business had $2.6 million of debt outstanding.
From time to time the Company enters into interest rate agreements to minimize potential variations in cash flows resulting from fluctuations in interest rates and their impact on its variable-rate debt. The Company does not enter into derivative instruments for any purpose other than economic interest rate hedging. That is, the Company does not speculate using derivative instruments. In addition, Hawaii Gas, a business within the Companys MIC Hawaii reportable segment, enters into commodity price hedges to mitigate the impact of fluctuations in propane prices on its cash flows.
By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. Conversely, when the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The Company minimizes the credit risk in derivative instruments by entering into transactions with creditworthy counterparties.
Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest rates is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
The Company and certain of its businesses have in place variable-rate debt. Management believes that it is prudent to limit the variability of a portion of the business interest payments. To meet this objective, the Company enters into interest rate agreements, primarily using interest rate swaps and from time to time using interest rate caps, to manage fluctuations in cash flows resulting from interest rate risk on a portion of its debt with a variable-rate component. Interest rate swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the interest rate swaps, the Company receives variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the portion of the debt that is swapped.
At December 31, 2017, the Company had $3.6 billion of current and long-term debt, of which $1.4 billion was economically hedged with interest rate contracts, $1.6 billion was fixed rate debt and $608.6 million was unhedged. At December 31, 2016, the Company had $3.1 billion of current and long-term debt, of which $1.4 billion was economically hedged with interest rate contracts, $1.6 billion was fixed rate debt and $88.4 million was unhedged. The Company does not use hedge accounting. All movements in the fair value of the interest rate derivatives are recorded directly through earnings.
On June 1, 2015, IMTT, as part of the IMTT refinancing in May 2015, entered into interest rate swap contracts, maturing in June 2021, with a total notional amount of $361.1 million. These swaps fully hedge the floating LIBOR interest rate risk associated with the tax-exempt bonds for six years at 1.677%.
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In October 2016, Atlantic Aviation entered into five-year senior secured $400.0 million term loan facility. The interest rate on the term loan facility floats at LIBOR plus an applicable margin between 1.50% and 2.25%. The term loan facility amortizes 2.5% for the first year, 5.0% for the next two years and 7.5% through maturity of the initial principal balance. On October 21, 2016, the business entered into $400.0 million notional interest rate caps with a strike price of 1.0% to hedge the one month LIBOR floating rate interest exposure on the new Atlantic Aviation term loan facility. The notional amount on the interest rate cap will remain at $400.0 million through maturity in September 2021.
On August 10, 2015, BEC entered into a seven year, $275.0 million term loan facility. The interest rate on this term loan facility floats at LIBOR plus 2.125% at December 31, 2017. Concurrently, BEC entered into amortizing interest rate swap contracts with an original notional of $275.0 million. These contracts are scheduled to amortize concurrently with the term loan debt and fix the floating LIBOR interest rate for six years at 1.786%.
The wind facility located in Idaho has an amortizing term loan debt that will mature in December 2027. At December 31, 2017, the outstanding balance on this term loan debt was $132.5 million. The interest rate on the outstanding debt balance floats at LIBOR plus a fixed margin of 1.625%. The floating rate has been fixed using amortizing interest rate swap contracts that are scheduled to equal the total principal balance outstanding on all of the term loan facilities until maturity. At December 31, 2017, the weighted average rate fixed with the interest rate swap contracts and margin was 4.763%.
In February 2016, in conjunction with the refinancing, Hawaii Gas entered into a new interest rate swap contract for an $80.0 million notional that took effect on August 8, 2016, upon the maturity of the existing interest rate swap, and expires on February 8, 2020. At December 31, 2017, the interest rate swap fixes the interest rate on the $80.0 million term loan at 2.74%.
The solar facilities in MIC Hawaii entered into a ten year, $18.0 million amortizing term loan facility in July 2016. The interest rate on this term loan facility floats at LIBOR plus 2.0%. Concurrently, it entered into an amortizing interest rate swap contract with an original notional value of $18.0 million. The contract is scheduled to amortize concurrently with the term loan and fixes the interest rate at 3.38% as of December 31, 2017.
The risks associated with fluctuations in the prices that Hawaii Gas pays for propane is principally a result of market forces reflecting changes in supply and demand for propane and other energy commodities. Hawaii Gas gross margin (revenue less cost of product sales excluding depreciation and amortization) is sensitive to changes in propane supply costs and Hawaii Gas may not always be able to pass through product cost increases fully or on a timely basis, particularly when product costs rise rapidly. In order to reduce the volatility of the business propane market price risk, Hawaii Gas has used and expects to continue to use over-the-counter commodity derivative instruments including price swaps. Hawaii Gas does not use commodity derivative instruments for speculative or trading purposes. Over-the-counter derivative commodity instruments used by Hawaii Gas to hedge forecasted purchases of propane are generally settled at expiration of the contract. At December 31, 2017, Hawaii Gas had 28.4 million gallons hedged that expire in March 2020.
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The Company measures derivative instruments at fair value using the income approach which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations use primarily observable (level 2) inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals.
The Companys fair value measurements of its derivative instruments and the related location of the assets and liabilities within the consolidated balance sheets at December 31, 2017 and December 31, 2016 were ($ in thousands):
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Assets (Liabilities)
at Fair Value As of December 31, |
||||||||
Balance Sheet Location | 2017 | 2016 | ||||||
Fair value of derivative instruments current assets | $ | 11,965 | $ | 5,514 | ||||
Fair value of derivative instruments noncurrent assets | 24,455 | 30,781 | ||||||
Total derivative contracts assets | $ | 36,420 | $ | 36,295 | ||||
Fair value of derivative instruments current liabilities | $ | (1,710 | ) | $ | (9,297 | ) | ||
Fair value of derivative instruments noncurrent liabilities | (4,668 | ) | (5,966 | ) | ||||
Total derivative contracts liabilities | $ | (6,378 | ) | $ | (15,263 | ) |
The Companys hedging activities for the years ended December 31, 2017, 2016 and 2015 and the related location within the consolidated financial statements were ($ in thousands):
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Amount of Gain (Loss) Recognized in
Consolidated Statements of Operations for the Year Ended December 31, |
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Financial Statement Account | 2017 | 2016 | 2015 | |||||||||
Interest expense interest rate caps | $ | 120 | $ | 8,124 | $ | | ||||||
Interest expense interest rate swaps | 2,835 | (13,107 | ) | (28,454 | ) | |||||||
Cost of product sales commodity swaps | 6,791 | 13,914 | (6,458 | ) | ||||||||
Total | $ | 9,746 | $ | 8,931 | $ | (34,912 | ) |
All of the Companys derivative instruments are collateralized by the assets of the respective businesses.
The Company is authorized to issue (i) 500,000,000 shares of common stock, par value $0.001 per share, (ii) 100 shares of special stock, par value $0.001 per share and (iii) 100,000,000 shares of preferred stock, par value $0.001 per share. At December 31, 2017, the Company had 84,733,957 shares of common stock issued and outstanding and 100 shares of special stock issued and outstanding. There was no preferred stock issued or outstanding at December 31, 2017. Each outstanding share of common stock of the Company is entitled to one vote on any matter with respect to which holders of shares are entitled to vote.
Upon consummation of the Conversion on May 21, 2015, each issued and outstanding LLC interest of MIC LLC was converted into one share of common stock of the Company. The Company also issued 100 shares of special stock to its Manager. The sole purpose for the issuance of special stock to the Manager was to preserve the Managers previously-existing right to appoint one director to serve as the chairman of the board of directors, which right would otherwise have been lost upon the Conversion. The special stock is not listed on any stock exchange and is non-transferable. Holders of special stock are not entitled to any dividends or to share in any distribution of assets upon the liquidation or dissolution of the Company.
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At May 21, 2015, upon consummation of the Conversion, the Company made a non-cash reclassification of $79,000 from LLC interests to common stock , par value $0.001 per share, with the remaining balance of LLC interests reclassified to additional paid in capital for the presentation of the consolidated balance sheet.
On May 18, 2016, the Company adopted the 2016 Omnibus Employee Incentive Plan (Plan). The Plan provides for the issuance of equity awards covering up to 500,000 shares of common stock to attract, retain, and motivate employees, consultants and others who perform services for the Company and its subsidiaries. Under the Plan, the Compensation Committee determines the persons who will receive awards, the time at which they are granted and the terms of the awards. Type of awards include stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash-based awards and other stock-based awards. At December 31, 2017, there were no awards outstanding under this Plan.
On June 24, 2015, the Company entered into an equity distribution agreement providing for the sale by the Company, from time to time, of shares of its common stock having an aggregate gross offering price of up to $400.0 million in privately negotiated transactions and/or any other method permitted by law. Through December 31, 2017, the Company sold 188,592 shares of common stock pursuant to the agreement for net proceeds of $15.4 million (after commissions and fees).
At December 31, 2017, the Company maintained a dividend reinvestment/direct stock purchase program, named MIC Direct, that allowed for the issuance of up to 1.0 million additional shares of common stock to participants in this program. At December 31, 2017, 891,658 shares remained unissued under MIC Direct.
On March 2, 2015, the Company completed an underwritten public offering of 5,312,500 shares. On March 12, 2015, an additional 796,875 shares were sold pursuant to the exercise of the underwriters over-allotment option. The proceeds from the offering of $471.6 million, net of underwriting fees and expenses, were used to fund the acquisition of BEC on April 1, 2015 and for general corporate purposes.
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The following represents the changes and balances to the components of accumulated other comprehensive loss for the years ended December 31, 2017, 2016 and 2015 ($ in thousands):
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|
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|
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Post-Retirement
Benefit Plans, net of taxes (1) |
Translation
Adjustment, net of taxes (2) |
Total Accumulated
Other Comprehensive Loss, net of taxes |
Noncontrolling
Interests |
Total Stockholders
Accumulated Other Comprehensive Loss, net of taxes |
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Balance at December 31, 2014 | $ | (18,837 | ) | $ | (4,859 | ) | $ | (23,696 | ) | $ | 2,146 | $ | (21,550 | ) | ||||||
Change in post-retirement benefit plans | 4,049 | | 4,049 | | 4,049 | |||||||||||||||
Translation adjustment | | (9,671 | ) | (9,671 | ) | 3,877 | (5,794 | ) | ||||||||||||
Balance at December 31, 2015 | $ | (14,788 | ) | $ | (14,530 | ) | $ | (29,318 | ) | $ | 6,023 | $ | (23,295 | ) | ||||||
Change in post-retirement benefit plans | (2,017 | ) | | (2,017 | ) | | (2,017 | ) | ||||||||||||
Translation adjustment | | 2,375 | 2,375 | (1,434 | ) | 941 | ||||||||||||||
Purchase of noncontrolling interest (3) | | | | (4,589 | ) | (4,589 | ) | |||||||||||||
Balance at December 31, 2016 | $ | (16,805 | ) | $ | (12,155 | ) | $ | (28,960 | ) | $ | | $ | (28,960 | ) | ||||||
Change in post-retirement benefit plans | (3,651 | ) | | (3,651 | ) | | (3,651 | ) | ||||||||||||
Translation adjustment | | 2,618 | 2,618 | | 2,618 | |||||||||||||||
Balance at December 31, 2017 | $ | (20,456 | ) | $ | (9,537 | ) | $ | (29,993 | ) | $ | | $ | (29,993 | ) |
(1) | Change in post-retirement benefit plans is presented net of tax benefit of $3.0 million and $1.4 million and tax expense of $2.7 million for the years ended December 31, 2017, 2016 and 2015, respectively. |
(2) | Translation adjustment is presented net of tax expense of $2.0 million and $618,000 and tax benefit of $3.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. |
(3) | On March 31, 2016, IMTT acquired the remaining 33.3% interest in its Quebec terminal that it did not previously own. As part of this transaction, the translation adjustment of $4.6 million, net of taxes, was reclassified from noncontrolling interests to accumulated other comprehensive loss . |
The Companys board of directors have made or declared the following dividends during the years ended December 31, 2017, 2016 and 2015:
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Declared | Period Covered |
$ per
Share |
Record Date | Payable Date | ||||||||||||
February 19, 2018 | Fourth quarter 2017 | $ | 1.44 | March 5, 2018 | March 8, 2018 | |||||||||||
October 30, 2017 | Third quarter 2017 | 1.42 | November 13, 2017 | November 16, 2017 | ||||||||||||
August 1, 2017 | Second quarter 2017 | 1.38 | August 14, 2017 | August 17, 2017 | ||||||||||||
May 2, 2017 | First quarter 2017 | 1.32 | May 15, 2017 | May 18, 2017 | ||||||||||||
February 17, 2017 | Fourth quarter 2016 | 1.31 | March 3, 2017 | March 8, 2017 | ||||||||||||
October 27, 2016 | Third quarter 2016 | 1.29 | November 10, 2016 | November 15, 2016 | ||||||||||||
July 28, 2016 | Second quarter 2016 | 1.25 | August 11, 2016 | August 16, 2016 | ||||||||||||
April 28, 2016 | First quarter 2016 | 1.20 | May 12, 2016 | May 17, 2016 | ||||||||||||
February 18, 2016 | Fourth quarter 2015 | 1.15 | March 3, 2016 | March 8, 2016 | ||||||||||||
October 29, 2015 | Third quarter 2015 | 1.13 | November 13, 2015 | November 18, 2015 | ||||||||||||
July 30, 2015 | Second quarter 2015 | 1.11 | August 13, 2015 | August 18, 2015 | ||||||||||||
April 30, 2015 | First quarter 2015 | 1.07 | May 14, 2015 | May 19, 2015 | ||||||||||||
February 17, 2015 | Fourth quarter 2014 | 1.02 | March 2, 2015 | March 5, 2015 |
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The board of directors regularly reviews the Companys dividend policy and payout ratio. In determining whether to adjust the amount of the quarterly dividend, the board will take into account such matters as the state of the capital markets and general business and economic conditions, the Companys financial condition, results of operations, indebtedness levels, capital requirements, capital opportunities and any contractual, legal and regulatory restrictions on the payment of dividends by the Company to its stockholders or by its subsidiaries to the Company, and any other factors that it deems relevant, subject to maintaining a prudent level of reserves and without creating undue volatility in the amount of such dividends where possible. In particular, each of the Companys businesses has debt commitments and restrictive covenants, which must be satisfied before any of them can make distributions to the Company. In addition, the Companys senior secured credit facility contains restrictions on the Companys ability to pay dividends. Although historically the Company has declared cash dividends on its shares, any or all of these factors or other factors could result in the modification of the dividend policy, or the reduction, modification or elimination of its dividend in the future.
The dividends paid have been recorded as a reduction to additional paid in capital , subsequent to the Conversion (and as a reduction to LLC interests prior to the Conversion), in the stockholders equity section of the consolidated balance sheets.
In 2014, MIC adopted, and MICs stockholders approved, the 2014 Independent Directors Equity Plan (2014 Plan) to replace the 2004 Independent Directors Equity Plan, which expired in December 2014. The purpose of this plan is to promote the long-term growth and financial success of the Company by attracting, motivating and retaining independent directors of outstanding ability. Only the Companys independent directors may participate in the 2014 Plan. The only type of award that may be granted under the 2014 Plan is an award of director shares. Each share is an unsecured promise to transfer one share on the settlement date, subject to satisfaction of the applicable terms and conditions. The maximum number of shares available for issuance under the 2014 Plan is 300,000 shares, of which 272,310 shares remained available for issuance at December 31, 2017. The aggregate grant date fair value of awards granted to an independent director during any single fiscal year (excluding awards made at the election of the independent director in lieu of all or a portion of annual and committee cash retainers) may not exceed $350,000. The 2014 Plan does not provide a formula for the determination of awards and the Compensation Committee will have the authority to determine the size of all awards under the 2014 Plan, subject to the limits on the number of shares that may be granted annually.
Since 2015, the Company has granted and issued the following stock to the board of directors under the Plans:
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Date of Grant | Stock Units Granted | Price of Stock Units Granted | Date of Vesting | |||||||||
June 18, 2015 | 8,660 | $ | 86.61 | May 17, 2016 | ||||||||
May 18, 2016 (1) | 8,604 | 69.72 | May 16, 2017 | |||||||||
November 1, 2016 (2) | 991 | 81.93 | May 16, 2017 | |||||||||
May 17, 2017 | 9,435 | 79.51 | (3) |
(1) | Restricted stock unit grants are net of forfeitures of 2,151 restricted stock unit grants due to the retirement of an independent director on September 30, 2016. |
(2) | Represents additional restricted stock unit grants to a new independent director. |
(3) | Date of vesting will be the day immediately preceding the 2018 annual meeting of the Companys stockholders. |
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At December 31, 2017, the Companys businesses consist of four reportable segments: IMTT, Atlantic Aviation, CP and MIC Hawaii.
IMTT provides bulk liquid storage, handling and other services in North America through seventeen terminals located in the United States, one terminal in Quebec, Canada and one partially owned terminal in Newfoundland, Canada. IMTT derives the majority of its revenue from storage and handling of petroleum products, various chemicals, renewable fuels, and vegetable and tropical oils. Based on storage capacity, IMTT operates one of the largest third-party bulk liquid terminals businesses in the United States. Revenue from IMTT is included in service revenue.
Atlantic Aviation derives the majority of its revenue from fuel delivery services and from other airport services, including de-icing and aircraft hangar rental. All of the revenue of Atlantic Aviation is generated at airports in the U.S. The business currently operates at 70 airports. Revenue from Atlantic Aviation is included in service revenue.
At December 31, 2017, the CP business segment has controlling interests in seven utility-scale solar photovoltaic facilities, two wind facilities and 100% ownership of a gas-fired facility that are in operations in the United States. Revenue from the wind, solar and gas-fired power facilities are included in product revenue.
The wind and solar facilities that are operational at December 31, 2017 have an aggregate generating capacity of 345 megawatt (MW) of wholesale electricity to utilities. These facilities sell substantially all of the electricity generated, subject to agreed upon pricing formulas, to electric utilities pursuant to long-term (typically 20 25 years) power purchase agreements (PPAs). All of the PPAs are accounted for as operating leases, have no minimum lease payments and all of the rental income under these leases are recorded within product revenue when the electricity is delivered at rates stipulated in the respective PPAs.
These projects are primarily held in LLCs, and are treated as partnerships for income tax purposes, with co-investors. The acquisition price on these projects can vary depending on, among other things, factors such as the size of the project, PPA terms, eligibility for tax incentives, debt package, operating cost structure and development stage. A completed project takes out all of the construction risk, testing and costs associated with construction contracts.
The Company has certain rights to make decisions over the management and operations of these wind and solar facilities. The Company has determined that it is appropriate to consolidate these projects, with the co-investors interest reflected as noncontrolling interests in the consolidated financial statements.
The Company owns 100% of BEC, a 512 MW gas-fired facility located in Bayonne, New Jersey, adjacent to IMTTs Bayonne facility. BEC has tolling agreements with a creditworthy off-taker for 62.5% of its power generating capacity and power produced is delivered to New York City via a dedicated transmission cable under New York Harbor. The tolling agreements generate revenue whether or not the facility is in use for power production. In addition to revenue related to the tolling agreement and capacity payments from the grid operator, BEC generates an energy margin when the facility is dispatched. Revenue from BEC is accounted for as an operating lease that does not have minimum lease payments. All of the rental income under the lease is recorded within product revenue when natural gas transportation services are performed.
MIC Hawaii comprises: Hawaii Gas, Hawaiis only government-franchised gas utility and an unregulated liquefied petroleum gas distribution business providing gas and related services to commercial, residential and governmental customers; a mechanical contractor focused on designing and constructing energy efficient and
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related building infrastructure; and controlling interests in two solar facilities on Oahu. Revenue from Hawaii Gas and the solar facilities are recorded in product revenue (see above in CP for further discussion on revenue from PPAs). Revenue from the mechanical contractor business is recorded in service revenue.
Revenue from the Hawaii Gas business is generated from the distribution and sales of synthetic natural gas (SNG), liquefied petroleum gas (LPG) and liquefied natural gas (LNG). Revenue is primarily a function of the volume of SNG, LPG and LNG consumed by customers and the price per British Thermal Unit or gallon charged to customers. Revenue levels, without organic growth, will generally track global commodity prices, namely petroleum and natural gas, as its products are derived from these commodities.
All of the MIC business segments are managed separately and management has chosen to organize the Company around the distinct products and services offered. Selected information by segment is presented in the following tables.
Revenue from external customers for the Companys consolidated reportable segments were ($ in thousands):
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|
||||||||||||||||||
Year Ended December 31, 2017 | ||||||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Intersegment
Revenue |
Total
Reportable Segments |
|||||||||||||||||||
Service revenue | $ | 549,422 | $ | 846,431 | $ | | $ | 54,913 | $ | (4,934 | ) | $ | 1,445,832 | |||||||||||
Product revenue | | | 145,926 | 222,955 | | 368,881 | ||||||||||||||||||
Total revenue | $ | 549,422 | $ | 846,431 | $ | 145,926 | $ | 277,868 | $ | (4,934 | ) | $ | 1,814,713 |
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|
||||||||||||||||||
Year Ended December 31, 2016 | ||||||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Intersegment
Revenue |
Total
Reportable Segments |
|||||||||||||||||||
Service revenue | $ | 532,472 | $ | 740,209 | $ | | $ | 20,762 | $ | (4,881 | ) | $ | 1,288,562 | |||||||||||
Product revenue | | | 150,010 | 213,159 | | 363,169 | ||||||||||||||||||
Total revenue | $ | 532,472 | $ | 740,209 | $ | 150,010 | $ | 233,921 | $ | (4,881 | ) | $ | 1,651,731 |
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|
|||||||||||||||
Year Ended December 31, 2015 | ||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Total
Reportable Segments |
||||||||||||||||
Service revenue | $ | 550,041 | $ | 738,460 | $ | | $ | | $ | 1,288,501 | ||||||||||
Product revenue | | | 123,797 | 226,952 | 350,749 | |||||||||||||||
Total revenues | $ | 550,041 | $ | 738,460 | $ | 123,797 | $ | 226,952 | $ | 1,639,250 |
In accordance with FASB ASC 280, Segment Reporting , the Company has disclosed earnings before interest, taxes, depreciation and amortization (EBITDA) excluding non-cash items as a key performance indicator for the businesses. EBITDA excluding non-cash items is reflective of the businesses ability to effectively manage the volume of products sold or services provided, the operating margin earned on those transactions and the management of operating expenses independent of the capitalization and tax attributes of its businesses. The Company defines EBITDA excluding non-cash items as net income (loss) or earnings the most comparable GAAP measure before interest, taxes, depreciation and amortization and non-cash items including impairments, unrealized derivative gains and losses, adjustments for other non-cash items and pension expense reflected in the statements of operations.
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EBITDA excluding non-cash items for the Companys consolidated reportable segments is shown in the tables below ($ in thousands). Allocations of corporate expenses, intercompany fees and the tax effect have been excluded as they are eliminated in consolidation.
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Year Ended December 31, 2017 | ||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Total Reportable
Segments |
||||||||||||||||
Net income | $ | 363,049 | $ | 124,370 | $ | 21,208 | $ | 25,416 | $ | 534,043 | ||||||||||
Interest expense, net | 38,357 | 14,512 | 23,487 | 7,041 | 83,397 | |||||||||||||||
(Benefit) provision for income taxes | (209,464 | ) | 6,509 | 6,169 | 9,287 | (187,499 | ) | |||||||||||||
Depreciation | 113,558 | 50,797 | 55,872 | 13,776 | 234,003 | |||||||||||||||
Amortization of intangibles | 12,905 | 49,393 | 4,428 | 1,527 | 68,253 | |||||||||||||||
Pension expense | 6,996 | 20 | | 1,090 | 8,106 | |||||||||||||||
Other non-cash expense (income) | 767 | 1,642 | (8,103 | ) | 2,494 | (3,200 | ) | |||||||||||||
EBITDA excluding non-cash items | $ | 326,168 | $ | 247,243 | $ | 103,061 | $ | 60,631 | $ | 737,103 |
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Year Ended December 31, 2016 | ||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Total
Reportable Segments |
||||||||||||||||
Net income | $ | 83,142 | $ | 59,538 | $ | 14,093 | $ | 35,744 | $ | 192,517 | ||||||||||
Interest expense, net | 38,752 | 33,961 | 21,286 | 5,559 | 99,558 | |||||||||||||||
Provision for income taxes | 57,736 | 39,889 | 14,328 | 20,441 | 132,394 | |||||||||||||||
Depreciation | 123,346 | 41,493 | 51,120 | 10,533 | 226,492 | |||||||||||||||
Amortization of intangibles | 11,039 | 49,166 | 4,428 | 792 | 65,425 | |||||||||||||||
Pension expense | 7,219 | 110 | | 1,272 | 8,601 | |||||||||||||||
Other non-cash expense (income) | 657 | 905 | (7,047 | ) | (11,539 | ) | (17,024 | ) | ||||||||||||
EBITDA excluding non-cash items | $ | 321,891 | $ | 225,062 | $ | 98,208 | $ | 62,802 | $ | 707,963 |
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Year Ended December 31, 2015 | ||||||||||||||||||||
IMTT |
Atlantic
Aviation |
Contracted
Power |
MIC
Hawaii |
Total
Reportable Segments |
||||||||||||||||
Net income (loss) | $ | 74,726 | $ | 22,805 | $ | (7,152 | ) | $ | 23,993 | $ | 114,372 | |||||||||
Interest expense, net | 37,378 | 35,735 | 28,390 | 7,279 | 108,782 | |||||||||||||||
Provision for income taxes | 51,520 | 16,081 | 4,887 | 14,261 | 86,749 | |||||||||||||||
Depreciation | 120,950 | 40,249 | 45,490 | 8,554 | 215,243 | |||||||||||||||
Amortization of intangibles | 11,052 | 86,102 | 3,500 | 781 | 101,435 | |||||||||||||||
Pension expense | 6,063 | 112 | | 1,125 | 7,300 | |||||||||||||||
Other non-cash expense (income) | 378 | 2,533 | (6,959 | ) | 4,090 | 42 | ||||||||||||||
EBITDA excluding non-cash items | $ | 302,067 | $ | 203,617 | $ | 68,156 | $ | 60,083 | $ | 633,923 |
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Reconciliation of total reportable segments EBITDA excluding non-cash items to consolidated net income (loss) before income taxes were ($ in thousands):
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Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Total reportable segments EBITDA excluding
non-cash items |
$ | 737,103 | $ | 707,963 | $ | 633,923 | ||||||
Interest income | 199 | 132 | 55 | |||||||||
Interest expense | (110,602 | ) | (116,933 | ) | (123,079 | ) | ||||||
Depreciation | (234,164 | ) | (226,492 | ) | (215,243 | ) | ||||||
Amortization of intangibles | (68,253 | ) | (65,425 | ) | (101,435 | ) | ||||||
Selling, general and administrative expenses Corporate and Other | (25,013 | ) | (13,056 | ) | (11,575 | ) | ||||||
Fees to Manager related party | (71,388 | ) | (68,486 | ) | (354,959 | ) | ||||||
Pension expense | (8,106 | ) | (8,601 | ) | (7,300 | ) | ||||||
Other income, net | 2,182 | 17,024 | 645 | |||||||||
Total consolidated net income (loss) before income taxes | $ | 221,958 | $ | 226,126 | $ | (178,968 | ) |
Capital expenditures, on a cash basis, for the Companys reportable segments were ($ in thousands):
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Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
IMTT | $ | 73,802 | $ | 96,865 | $ | 96,990 | ||||||
Atlantic Aviation | 82,249 | 113,092 | 64,385 | |||||||||
Contracted Power | 129,885 | 69,268 | 15,636 | |||||||||
MIC Hawaii | 29,373 | 35,459 | 17,137 | |||||||||
Total capital expenditures of reportable segments | $ | 315,309 | $ | 314,684 | $ | 194,148 | ||||||
Corporate and other | 25,643 | | | |||||||||
Total consolidated capital expenditure | $ | 340,952 | $ | 314,684 | $ | 194,148 |
Property, equipment, land and leasehold improvements, net, goodwill and total assets for the Companys reportable segments and its reconciliation to consolidated total assets as of December 31 st were ($ in thousands):
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|
||||||||||||||||||
Property, Equipment,
Land and Leasehold Improvements, net |
Goodwill | Total Assets | ||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
IMTT | $ | 2,305,440 | $ | 2,218,256 | $ | 1,427,863 | $ | 1,411,029 | $ | 4,109,448 | $ | 3,978,379 | ||||||||||||
Atlantic Aviation | 559,597 | 465,096 | 495,769 | 468,419 | 1,710,535 | 1,564,668 | ||||||||||||||||||
Contracted Power | 1,466,139 | 1,383,289 | 21,628 | 21,628 | 1,617,658 | 1,516,602 | ||||||||||||||||||
MIC Hawaii | 302,220 | 279,863 | 123,408 | 123,333 | 532,144 | 501,713 | ||||||||||||||||||
Total assets of reportable segments | $ | 4,633,396 | $ | 4,346,504 | $ | 2,068,668 | $ | 2,024,409 | $ | 7,969,785 | $ | 7,561,362 | ||||||||||||
Corporate and other | 26,218 | 32 | | | 39,166 | (2,109 | ) | |||||||||||||||||
Total consolidated assets | $ | 4,659,614 | $ | 4,346,536 | $ | 2,068,668 | $ | 2,024,409 | $ | 8,008,951 | $ | 7,559,253 |
142
At December 31, 2017 and 2016, the Manager held 5,435,442 shares and 4,510,795 shares, respectively, of the Company. Pursuant to the terms of the Third Amended and Restated Management Services Agreement (Management Services Agreement), the Manager may sell these shares at any time. Under the Management Agreement, the Manager, at its option, may reinvest base management fees and performance fees, if any, in shares of the Company.
Since January 1, 2015, the Company paid the Manager cash dividends on shares held for the following periods:
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Declared | Period Covered | $ per Share | Record Date | Payable Date |
Cash Paid to Manager
(in thousands) |
|||||||||||||||
February 19, 2018 | Fourth quarter 2017 | $ | 1.44 | March 5, 2018 | March 8, 2018 | (1) | ||||||||||||||
October 30, 2017 | Third quarter 2017 | 1.42 | November 13, 2017 | November 16, 2017 | $ | 7,484 | ||||||||||||||
August 1, 2017 | Second quarter 2017 | 1.38 | August 14, 2017 | August 17, 2017 | 6,941 | |||||||||||||||
May 2, 2017 | First quarter 2017 | 1.32 | May 15, 2017 | May 18, 2017 | 6,332 | |||||||||||||||
February 17, 2017 | Fourth quarter 2016 | 1.31 | March 3, 2017 | March 8, 2017 | 6,080 | |||||||||||||||
October 27, 2016 | Third quarter 2016 | 1.29 | November 10, 2016 | November 15, 2016 | 5,620 | |||||||||||||||
July 28, 2016 | Second quarter 2016 | 1.25 | August 11, 2016 | August 16, 2016 | 8,743 | |||||||||||||||
April 28, 2016 | First quarter 2016 | 1.20 | May 12, 2016 | May 17, 2016 | 6,981 | |||||||||||||||
February 18, 2016 | Fourth quarter 2015 | 1.15 | March 3, 2016 | March 8, 2016 | 6,510 | |||||||||||||||
October 29, 2015 | Third quarter 2015 | 1.13 | November 13, 2015 | November 18, 2015 | 6,052 | |||||||||||||||
July 30, 2015 | Second quarter 2015 | 1.11 | August 13, 2015 | August 18, 2015 | 5,693 | |||||||||||||||
April 30, 2015 | First quarter 2015 | 1.07 | May 14, 2015 | May 19, 2015 | 7,281 | |||||||||||||||
February 17, 2015 | Fourth quarter 2014 | 1.02 | March 2, 2015 | March 5, 2015 | 4,905 |
(1) | The amount of dividend payable to the Manager for the fourth quarter of 2017 will be determined on March 5, 2018, the record date. |
Under the Management Agreement, subject to the oversight and supervision of the Companys board of directors, the Manager is responsible for and oversees the management of the Companys operating businesses. In addition, the Manager has the right to appoint the Chairman of the Board of the Company, subject to minimum equity ownership, and to assign, or second, to the Company, two of its employees to serve as chief executive officer and chief financial officer of the Company and seconds or makes other personnel available as required.
In accordance with the Management Agreement, the Manager is entitled to a monthly base management fee based primarily on the Companys market capitalization, and potentially a quarterly performance fee based on total shareholder returns relative to a U.S. utilities index. Currently, the Manager has elected to reinvest the future base management fees and performance fees, if any, in additional shares. For the years ended December 31, 2017, 2016 and 2015, the Company incurred base management fees of $71.4 million, $68.5 million and $70.6 million, respectively. For the years ended December 31, 2017 and 2016, the Company did not incur any performance fees. For the year ended December 31, 2015, the Company incurred performance fees of $284.4 million.
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The unpaid portion of the base management fees and performance fees, if any, at the end of each reporting period is included in Due to Manager-related party in the consolidated balance sheets. The following table shows the Managers reinvestment of its base management fees and performance fees, if any, in shares, except as noted:
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Period |
Base Management
Fee Amount ($ in Thousands) |
Performance
Fee Amount ($ in Thousands) |
Shares
Issued |
|||||||||
2017 Activities:
|
||||||||||||
Fourth quarter 2017 | $ | 16,778 | $ | | 248,162 | (1) | ||||||
Third quarter 2017 | 17,954 | | 240,674 | |||||||||
Second quarter 2017 | 18,433 | | 233,394 | |||||||||
First quarter 2017 | 18,223 | | 232,398 | |||||||||
2016 Activities:
|
||||||||||||
Fourth quarter 2016 | $ | 18,916 | $ | | 230,773 | |||||||
Third quarter 2016 | 18,382 | | 232,488 | |||||||||
Second quarter 2016 | 16,392 | | 232,835 | |||||||||
First quarter 2016 | 14,796 | | 234,179 | |||||||||
2015 Activities:
|
||||||||||||
Fourth quarter 2015 | $ | 17,009 | $ | | 227,733 | |||||||
Third quarter 2015 | 18,118 | | 226,914 | |||||||||
Second quarter 2015 | 18,918 | 135,641 | 1,167,873 | (2) | ||||||||
First quarter 2015 | 16,545 | 148,728 | 2,068,038 |
(1) | The Manager elected to reinvest all of the monthly base management fees for the fourth quarter of 2017 in shares. The Company issued 248,162 shares for the quarter ended December 31, 2017, including 83,395 shares that were issued in January 2018 for the December 2017 monthly base management fee. |
(2) | In July 2015, the board requested, and the Manager agreed, that $67.8 million of the performance fee for the quarter ended June 30, 2015 be settled in cash in July 2015 to minimize dilution. The remaining $67.8 million obligation was settled and reinvested in 944,046 shares by the Manager on August 1, 2016 using the June 2016 volume weighted average share price of $71.84. |
The Manager is not entitled to any other compensation and all costs incurred by the Manager, including compensation of seconded staff, are paid by the Manager out of its base management fee. However, the Company is responsible for other direct costs including, but not limited to, expenses incurred in the administration or management of the Company and its subsidiaries, income taxes, audit and legal fees, acquisitions and dispositions and its compliance with applicable laws and regulations. During the years ended December 31, 2017, 2016 and 2015, the Manager charged the Company $892,000, $714,000 and $533,000, respectively, for reimbursement of out-of-pocket expenses. The unpaid portion of the out-of-pocket expenses at the end of the reporting period is included in Due to Manager-related party in the consolidated balance sheets.
On May 21, 2015, to give effect to the Conversion, Macquarie Infrastructure Corporation entered into a Third Amended and Restated Management Services Agreement, among the Company, MIC Ohana Corporation and the Manager. Concurrently with the Conversion, the Manager was issued 100 shares of a new series of special stock of the Company in order to induce the Manager to enter into the Third Amended Agreement. The sole purpose for the issuance of shares of special stock to the Manager was to preserve the Managers existing right to appoint one director who served as the chairman of the board of directors of MIC pursuant to
144
the terms of MICs operating agreement, which right would otherwise have been lost upon consummation of the Conversion. Following the Conversion and the issuance of special stock, the Managers right to elect one director who serves as chairman remains the same as was in effect prior to the Conversion. The Company did not grant any additional rights to the Manager through the special stock issuance. On May 21, 2015, the Company entered into an amended and restated registration rights agreement with the Manager to give effect to the Conversion.
The Company uses the resources of the Macquarie Group with respect to a range of advisory, procurement, insurance, hedging, lending and other services. Engagements involving members of the Macquarie Group are reviewed and approved by the Audit Committee of the Companys board of directors. Macquarie Group affiliates are engaged on an arms length basis and frequently as a member of syndicate of providers whose other members establish the terms of the interaction.
The Macquarie Group, and wholly-owned subsidiaries within the Macquarie Group, including Macquarie Bank Limited (MBL) and Macquarie Capital (USA) Inc. (MCUSA) have provided various advisory and other services and incurred expenses in connection with the Companys equity raising activities, acquisitions and debt structuring for the Company and its businesses. Underwriting fees are recorded in stockholders equity as a direct cost of equity offerings. Advisory fees and out-of-pocket expenses relating to acquisitions are expensed as incurred. Debt arranging fees are deferred and amortized over the term of the credit facility.
In October 2016, the Company completed an underwritten public offering of $402.5 million of aggregate principal amount of convertible senior notes. MCUSA served as an underwriter in this offering and received $403,000 from the Company for such services.
On June 24, 2015, the Company entered into an equity distribution agreement with sales agents, including MCUSA, providing for the sale of shares of its common stock, par value $0.001 per share, from time to time having an aggregate gross offering price of up to $400.0 million. The equity distribution agreement also provides for sales of shares to any sales agent as principal for its own account at a price agreed upon at the time of the sale. For the years ended December 31, 2017, 2016 and 2015, the Company did not engage MCUSA for such activities.
In March 2015, the Company completed an underwritten public offering of 6,109,375 shares. MCUSA served as a joint book-running manager and an underwriter in this offering and received $2.3 million from the Company for such services.
Atlantic Aviations $70.0 million revolving credit facility was provided by various financial institutions, including MBL which provided $15.7 million. For the years ended December 31, 2016 and 2015, Atlantic Aviation incurred and paid $90,000 and $114,000, respectively, in interest expense related to MBLs portion of the revolving credit facility. In October 2016, the revolving credit facility was terminated in conjunction with the completion of the refinancing of Atlantic Aviations new credit facility.
The Company has a $410.0 million senior secured revolving credit facility at the holding company that is provided by various financial institutions, of which $50.0 million is provided by MIHI LLC. For the years ended December 31, 2017, 2016 and 2015, the Company incurred $285,000, $236,000 and $237,000, respectively, in interest expense related to MIHI LLCs portion of the MIC senior secured revolving credit facility.
145
On April 1, 2015, in conjunction with the acquisition of BEC, the Company assumed the existing revolving credit facility, of which $7.5 million was committed by MIHI LLC. The Company also assumed interest rate swap contracts of which MBL was one of its counterparties. During the year ended December 31, 2015, the Company incurred and paid $8,000 in interest expense related to MIHI LLCs portion of the revolving credit facility and paid $396,000 to MBL for interest expense in connection with the interest rate swap settlements. In connection with the repayment of the outstanding balance on BECs debt facilities, the Company paid $4.8 million in interest rate swap breakage fees associated with the termination of out-of-the money interest rate swap contracts to MBL.
Macquarie Energy North America Trading, Inc. (MENAT), an indirect subsidiary of Macquarie Group Limited, entered into contracts with IMTT to lease a total of 154,000 barrels of capacity during the quarter ended June 30, 2015, of which the contract for 56,000 barrels expired within the same quarter. During the year ended December 31, 2016, MENAT entered into additional contracts with IMTT to lease an additional 1.0 million barrels of capacity, of which the contract for 823,000 barrels expired during the year, resulting in 298,000 barrels leased to MENAT at December 31, 2016. These contracts expired during the six months ended June 30, 2017. For the years ended December 31, 2017, 2016 and 2015, IMTT recognized $907,000, $3.9 million and $565,000, respectively, in revenues pursuant to these agreements.
The Company and its subsidiaries are subject to income taxes. The Company files a consolidated U.S. income tax return with its wholly-owned subsidiaries, including its allocated share of the taxable income from the wind and solar facilities. The Company and its subsidiaries file separate and combined state income tax returns.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law and includes provisions that may have an impact on the Companys federal taxable income. The most significant of these are 100% bonus depreciation on qualifying assets (which is scheduled to phase down ratably to 0% between 2023 and 2027) and a reduction in the federal corporate tax rate from 35% to 21% (see further discussion below).
In response to the Tax Cuts and Jobs Act, on December 22, 2017 the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), to provide guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Cuts and Jobs Act in the period of enactment. The SEC Staff noted in SAB 118 that in these cases a company should continue to apply Topic 740, Income Taxes, based on the provisions of the tax laws that were in effect immediately prior to the Tax Cuts and Jobs Act being enacted. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Cuts and Jobs Act enactment date for companies to complete the accounting under Topic 740. While the Company was able to make reasonable estimates of the impact of the changes to provisions of the Internal Revenue Code related to its foreign entities on its tax provision for the year ended December 31, 2017, the final impact of the Tax Cuts and Jobs Act may differ from these estimates, due to, among other things, changes in the interpretations and assumptions of the Tax Cuts and Jobs Act, and additional guidance that may be issued by the Internal Revenue Service. As a result, the Company will continue to gather additional information to determine the final impact of these changes.
The Tax Cuts and Jobs Act also includes a new limitation on the deductibility of net interest expense that generally limits the deduction to 30% of adjusted taxable income. For years before 2022, adjusted taxable income is defined as taxable income computed without regard to certain items, including net business interest expense, the amount of any NOL deduction, tax depreciation and tax amortization. The Company does not expect to incur net interest expense that is greater than adjusted taxable income prior to 2022.
146
Components of the Companys income tax provision (benefit) related to the income (loss) for the years ended December 31, 2017, 2016 and 2015 were ($ in thousands):
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Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Current taxes:
|
||||||||||||
Federal | $ | | $ | | $ | (6,884 | ) | |||||
State | 11,160 | 7,310 | 457 | |||||||||
Total current tax provision (benefit) | $ | 11,160 | $ | 7,310 | $ | (6,427 | ) | |||||
Deferred taxes:
|
||||||||||||
Federal | $ | (250,602 | ) | $ | 79,796 | $ | (46,744 | ) | ||||
State | 4,154 | (1,185 | ) | (14,348 | ) | |||||||
Total deferred tax (benefit) provision | (246,448 | ) | 78,611 | (61,092 | ) | |||||||
Change in valuation allowance | 1,134 | (14,664 | ) | 2,358 | ||||||||
Total tax (benefit) provision | $ | (234,154 | ) | $ | 71,257 | $ | (65,161 | ) |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016, were ($ in thousands):
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At December 31, | ||||||||
2017 | 2016 | |||||||
Deferred tax assets:
|
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Net operating loss carryforwards | $ | 133,934 | $ | 186,948 | ||||
Deferred revenue | 8,854 | 8,681 | ||||||
Accrued compensation | 6,156 | 13,894 | ||||||
Accrued expenses | 25,008 | 32,114 | ||||||
Investment and foreign tax credits | 17,650 | 1,876 | ||||||
Other | 515 | 4,066 | ||||||
Total gross deferred tax assets | 192,117 | 247,579 | ||||||
Less: valuation allowance | (5,453 | ) | (4,319 | ) | ||||
Net deferred tax assets | $ | 186,664 | $ | 243,260 | ||||
Deferred tax liabilities:
|
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Intangible assets | $ | (94,163 | ) | $ | (145,199 | ) | ||
Investment basis difference | (45,271 | ) | (75,105 | ) | ||||
Property and equipment | (660,706 | ) | (892,382 | ) | ||||
Unrealized gains on derivative instruments, net | (9,682 | ) | (14,104 | ) | ||||
Equity component of convertible senior notes | (7,761 | ) | (11,882 | ) | ||||
Prepaid expenses | (1,151 | ) | (704 | ) | ||||
Total deferred tax liabilities | (818,734 | ) | (1,139,376 | ) | ||||
Net deferred tax liabilities | $ | (632,070 | ) | $ | (896,116 | ) |
At December 31, 2017, the Company and its wholly owned subsidiaries had federal income tax NOL carryforwards of $347.3 million, which are available to offset future taxable income, if any, through 2036. The Companys NOL balance begins to expire in 2029. Approximately $28.0 million of these NOLs may be limited, on an annual basis, due to the change of control for tax purposes of the respective subsidiaries in which such losses were incurred. The Company generated federal consolidated taxable income for the year ended December 31, 2017, which decreased the NOL carryforward. The Company believes that it will be able to utilize all federal prior year NOLs.
147
In addition, the Company and its subsidiaries have state NOL carryforwards. State NOL carryforwards are specific to the state in which the NOL was generated and various states impose limitations on the utilization of NOL carryforwards.
In assessing the need for a valuation allowance, management considers whether it is more likely than not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. For the year ended December 31, 2017, the Company increased the valuation allowance by $1.1 million.
As of December 31, 2017, the Company had $632.1 million in noncurrent deferred tax liabilities. A significant portion of the Companys deferred tax liabilities relates to tax basis temporary differences of both property and equipment and intangible assets. The Company records the acquisitions of consolidated businesses under the purchase method of accounting and accordingly recognizes a significant increase to the value of the property and equipment and to intangible assets. For tax purposes, the Company may assume the existing tax basis of the acquired businesses, in which case the Company records a deferred tax liability to reflect the increase in the purchase accounting basis of the assets acquired over the carryover income tax basis. This liability will reduce in future periods as these temporary differences reverse.
For the years ended December 31, 2017, 2016 and 2015, the Company recorded an income tax benefit of $234.2 million, an income tax expense of $71.3 million and an income tax benefit of $65.2 million, respectively. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a provisional $312.3 million tax benefit in the Companys consolidated statement of income for the year ended December 31, 2017. These amounts are different from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income as a result of the following ($ in thousands):
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Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Tax provision (benefit) at U.S. statutory rate | $ | 77,685 | $ | 79,144 | $ | (62,639 | ) | |||||
Permanent differences and other | 1,167 | (469 | ) | 1,299 | ||||||||
State income taxes, net of federal benefit | 10,534 | 8,958 | (10,082 | ) | ||||||||
Income attributable to noncontrolling interest | 621 | (257 | ) | 3,903 | ||||||||
Change in investment and foreign tax credits | (13,030 | ) | (1,455 | ) | | |||||||
Change in U.S. tax law | (312,265 | ) | | | ||||||||
Change in valuation allowance | 1,134 | (14,664 | ) | 2,358 | ||||||||
Total tax (benefit) provision | $ | (234,154 | ) | $ | 71,257 | $ | (65,161 | ) |
The amount of unrecognized tax benefits at December 31, 2017 and 2016 are not significant. The Company does not expect that the amount of unrecognized tax benefits will change in the next 12 months. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the statements of operations, which is consistent with the recognition of these items in prior reporting periods.
The federal statute of limitations on the assessment of additional income tax liabilities has lapsed for all returns filed for years ended on or before December 31, 2014. The various state statutes of limitations on the assessment of additional income taxes have lapsed on all returns filed for the years ended on or before December 31, 2013.
148
The Company leases land, buildings, office space and certain office equipment under non-cancellable operating lease agreements that expire through January 2063.
Future minimum rental commitments at December 31, 2017 are ($ in thousands):
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2018 | $ | 50,028 | ||
2019 | 45,155 | |||
2020 | 43,082 | |||
2021 | 41,815 | |||
2022 | 40,875 | |||
Thereafter | 476,648 | |||
Total | $ | 697,603 |
Rent expense under all operating leases was $54.0 million for the year ended December 31, 2017 and $53.0 million for both the years ended December 31, 2016 and 2015.
IMTT, Atlantic Aviation and the Hawaii Gas business each have a defined contribution plan under Section 401(k) of the Internal Revenue Code, allowing eligible employees to contribute a percentage of their annual compensation up to an annual amount as set by the IRS.
The employer contribution to these plans ranges from 0% to 6% of eligible compensation. Employer contributions were $3.9 million for the year ended December 31, 2017 and $2.5 million for both the years ended December 31, 2016 and 2015.
Except for a plan covering certain employees covered by a collective-bargaining agreement at IMTT-Illinois (see below), substantially all employees of IMTT are eligible to participate in a defined benefit pension plan (IMTT DB Plan). Benefits under the IMTT DB Plan are based on years of service and the employees highest average compensation for a consecutive five year period. IMTTs contributions to the plan are based on the recommendations of its consulting actuary.
On January 1, 2017, the IMTT DB Plan was frozen to new participants, except for the union employees of Bayonne, for whom it was subsequently frozen on January 1, 2018.
Hawaii Gas has a defined benefit pension plan for Classified Employees of GASCO, Inc. (HG DB Plan) that accrues benefits pursuant to the terms of a collective-bargaining agreement. The plan was frozen to new participants in 2008 in connection with an agreement to increase participant benefits over a three year period after which there will be no further increases to the flat rate as described herein. The HG DB Plan is non-contributory and covers all bargaining unit employees who have met certain service and age requirements. The benefits are based on a flat rate per year of service through the date of employment termination or retirement. Future contributions will be made to meet ERISA funding requirements. The HG DB Plans trustee handles the plan assets and, as an investment manager, invests them in a diversified portfolio of primarily equity and fixed-income securities.
149
IMTT, Hawaii Gas and Atlantic Aviation have other insignificant plans that are comprised of the following. These plans are shown below collectively as Other Plan Benefits .
IMTT is the sponsor of a defined benefit plan covering union employees at IMTT-Illinois (IMTT-Illinois Union Plan). Monthly benefits under this plan are computed based on a benefit rate in effect at the date of the participants termination multiplied by the number of years of service. IMTTs contributions to the plan are based on the recommendations of its consulting actuary. On January 1, 2018, the IMTT-Illinois Union Plan was frozen to new participants.
IMTT provides post-retirement life insurance (coverage equal to 25% of final year compensation not to exceed $25,000) and health benefits (coverage for early retirees at least 62 years old on early retirement to age 65, reimbursement of Medicare premiums for the Bayonne terminal employees and some smaller health benefits no longer offered) to retired employees.
Hawaii Gas has a postretirement plan. The GASCO, Inc. Hourly Postretirement Medical and Life Insurance Plan (the PMLI Plan) covers all bargaining unit participants who were employed by Hawaii Gas on April 30, 1999 and who retire after the attainment of age 62 with 15 years of service. Under the provisions of the PMLI Plan, Hawaii Gas pays for medical premiums of the retirees and spouses through the age of 64. After age 64, Hawaii Gas pays for medical premiums up to a maximum of $150 per month. The retirees are also provided $1,000 of life insurance benefits.
Hawaii Gas also has a retiree life insurance program for certain nonunion retirees. This plan is closed to future participants.
Atlantic Aviation sponsors a retiree medical and life insurance plan available to certain employees. Currently, the plan is funded as required to pay benefits and the plan has no assets. The Company accounts for postretirement healthcare and life insurance benefits in accordance with ASC 715, Compensation Retirement Benefits , which requires the accrual of the cost of providing postretirement benefits during the active service period of the employee.
150
Additional information about the fair value of the benefit plan assets, the components of net periodic cost and the projected benefit obligation as of and for the years ended December 31, 2017 and 2016 are ($ in thousands).
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||||||||||||||||||||||||
HG DB
Plan Benefits |
IMTT DB
Plan Benefits |
Other
Plan Benefits |
Total | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Change in benefit obligation:
|
||||||||||||||||||||||||||||||||
Benefit obligation beginning of year | $ | 50,933 | $ | 50,044 | $ | 140,853 | $ | 136,072 | $ | 26,808 | $ | 21,912 | $ | 218,594 | $ | 208,028 | ||||||||||||||||
Service cost | 753 | 744 | 5,316 | 6,285 | 1,041 | 810 | 7,110 | 7,839 | ||||||||||||||||||||||||
Interest cost | 1,982 | 2,046 | 5,808 | 6,172 | 1,087 | 974 | 8,877 | 9,192 | ||||||||||||||||||||||||
Plan amendments | | | | | 243 | | 243 | | ||||||||||||||||||||||||
Participant contributions | | | | | 62 | 53 | 62 | 53 | ||||||||||||||||||||||||
Actuarial losses | 2,082 | 423 | 16,964 | 6,927 | 1,384 | 4,476 | 20,430 | 11,826 | ||||||||||||||||||||||||
Benefits paid | (2,406 | ) | (2,324 | ) | (8,177 | ) | (5,826 | ) | (1,331 | ) | (1,417 | ) | (11,914 | ) | (9,567 | ) | ||||||||||||||||
Liability gain due to curtailment | | | | (8,777 | ) | | | | (8,777 | ) | ||||||||||||||||||||||
Special termination benefits | | | 1,041 | | | | 1,041 | | ||||||||||||||||||||||||
Benefit obligation end of year | $ | 53,344 | $ | 50,933 | $ | 161,805 | $ | 140,853 | $ | 29,294 | $ | 26,808 | $ | 244,443 | $ | 218,594 | ||||||||||||||||
Change in plan assets:
|
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Fair value of plan assets beginning of year | $ | 46,717 | $ | 42,825 | $ | 95,938 | $ | 96,891 | $ | 8,371 | $ | 8,161 | $ | 151,026 | $ | 147,877 | ||||||||||||||||
Actual return on plan assets | 6,555 | 2,716 | 14,015 | 4,873 | 1,305 | 433 | 21,875 | 8,022 | ||||||||||||||||||||||||
Employer contributions | | 3,500 | | | 1,022 | 1,141 | 1,022 | 4,641 | ||||||||||||||||||||||||
Participant contributions | | | | | 62 | 53 | 62 | 53 | ||||||||||||||||||||||||
Benefits paid | (2,406 | ) | (2,324 | ) | (8,177 | ) | (5,826 | ) | (1,331 | ) | (1,417 | ) | (11,914 | ) | (9,567 | ) | ||||||||||||||||
Fair value of plan assets end of year | $ | 50,866 | $ | 46,717 | $ | 101,776 | $ | 95,938 | $ | 9,429 | $ | 8,371 | $ | 162,071 | $ | 151,026 |
During the year ended December 31, 2017, there were no contributions made to any of the plans. Hawaii Gas made a $3.5 million voluntary contribution to the HG DB Plan during the year ended December 31, 2016. As of December 31, 2017, IMTT is not expected to make any cash contribution to the IMTT DB Plan until 2021. As of December 31, 2017, Hawaii Gas is not expected to make any cash contribution to the HG DB Plan for the next ten years. The annual amount of any cash contributions will be dependent upon a number of factors such as market conditions and changes to regulations.
151
The funded status at December 31, 2017 and 2016, are presented in the following table ($ in thousands):
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HG DB
Plan Benefits |
IMTT DB
Plan Benefits |
Other
Plan Benefits |
Total | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Funded status
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Funded status at end of year | $ | (2,478 | ) | $ | (4,216 | ) | $ | (60,029 | ) | $ | (44,915 | ) | $ | (19,865 | ) | $ | (18,437 | ) | $ | (82,372 | ) | $ | (67,568 | ) | ||||||||
Net amount recognized in balance sheet (1) | $ | (2,478 | ) | $ | (4,216 | ) | $ | (60,029 | ) | $ | (44,915 | ) | $ | (19,865 | ) | $ | (18,437 | ) | $ | (82,372 | ) | $ | (67,568 | ) | ||||||||
Amounts recognized in balance sheet consisting of:
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Noncurrent assets | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
Current liabilities | | | | | (1,224 | ) | (1,160 | ) | (1,224 | ) | (1,160 | ) | ||||||||||||||||||||
Noncurrent liabilities | (2,478 | ) | (4,216 | ) | (60,029 | ) | (44,915 | ) | (18,641 | ) | (17,277 | ) | (81,148 | ) | (66,408 | ) | ||||||||||||||||
Net amount recognized in balance sheet (1) | $ | (2,478 | ) | $ | (4,216 | ) | $ | (60,029 | ) | $ | (44,915 | ) | $ | (19,865 | ) | $ | (18,437 | ) | $ | (82,372 | ) | $ | (67,568 | ) |
(1) | Generally accepted accounting principles require measurement of defined benefit pension liabilities utilizing current discount rates. Statutory funding formulas permit measurement of defined benefit pension liabilities utilizing discount rates based on a 25-year average of those rates, which more closely matches the expected payout period for those liabilities. The IMTT and Hawaii Gas defined benefit pension plans both exceed 100% of the statutory funding target as of December 31, 2017. |
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss for the years ended December 31, 2017 and 2016 are presented in the following table ($ in thousands):
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HG DB
Plan Benefits |
IMTT DB
Plan Benefits |
Other
Plan Benefits |
Total | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Prior service (cost) credit | $ | | $ | | $ | | $ | | $ | (163 | ) | $ | 95 | $ | (163 | ) | $ | 95 | ||||||||||||||
Accumulated loss | (9,407 | ) | (12,000 | ) | (18,320 | ) | (9,577 | ) | (5,865 | ) | (5,594 | ) | (33,592 | ) | (27,171 | ) | ||||||||||||||||
Accumulated other comprehensive loss | (9,407 | ) | (12,000 | ) | (18,320 | ) | (9,577 | ) | (6,028 | ) | (5,499 | ) | (33,755 | ) | (27,076 | ) | ||||||||||||||||
Net periodic benefit cost in excess (deficit) of cumulative employer contributions | 6,929 | 7,784 | (41,709 | ) | (35,338 | ) | (13,837 | ) | (12,938 | ) | (48,617 | ) | (40,492 | ) | ||||||||||||||||||
Net amount recognized in balance sheet | $ | (2,478 | ) | $ | (4,216 | ) | $ | (60,029 | ) | $ | (44,915 | ) | $ | (19,865 | ) | $ | (18,437 | ) | $ | (82,372 | ) | $ | (67,568 | ) |
152
The components of net periodic benefit cost and other changes in other comprehensive (income) loss for the plans are shown below ($ in thousands):
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HG DB
Plan Benefits |
IMTT DB
Plan Benefits |
Other
Plan Benefits |
Total | |||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||||||||||
Components of net periodic benefit cost:
|
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Service cost | $ | 753 | $ | 744 | $ | 841 | $ | 5,316 | $ | 6,285 | $ | 6,853 | $ | 1,041 | $ | 810 | $ | 911 | $ | 7,110 | $ | 7,839 | $ | 8,605 | ||||||||||||||||||||||||
Interest cost | 1,982 | 2,046 | 1,988 | 5,808 | 6,172 | 5,914 | 1,087 | 974 | 912 | 8,877 | 9,192 | 8,814 | ||||||||||||||||||||||||||||||||||||
Expected return on plan assets | (2,675 | ) | (2,448 | ) | (2,670 | ) | (5,794 | ) | (6,374 | ) | (7,020 | ) | (473 | ) | (502 | ) | (585 | ) | (8,942 | ) | (9,324 | ) | (10,275 | ) | ||||||||||||||||||||||||
Recognized actuarial loss (gain) | 795 | 854 | 883 | | | (534 | ) | 281 | 91 | (31 | ) | 1,076 | 945 | 318 | ||||||||||||||||||||||||||||||||||
Amortization of prior service cost | | | | | | (78 | ) | (15 | ) | (15 | ) | (5 | ) | (15 | ) | (15 | ) | (83 | ) | |||||||||||||||||||||||||||||
Special Termination
benefits |
| | | 1,041 | | | | | | 1,041 | | | ||||||||||||||||||||||||||||||||||||
Net periodic benefit cost | $ | 855 | $ | 1,196 | $ | 1,042 | $ | 6,371 | $ | 6,083 | $ | 5,135 | $ | 1,921 | $ | 1,358 | $ | 1,202 | $ | 9,147 | $ | 8,637 | $ | 7,379 | ||||||||||||||||||||||||
Other changes recognized in other comprehensive (income) loss:
|
||||||||||||||||||||||||||||||||||||||||||||||||
Prior service cost (credit) arising during the year | $ | | $ | | $ | | $ | | $ | | $ | | $ | 243 | $ | | $ | (110 | ) | $ | 243 | $ | | $ | (110 | ) | ||||||||||||||||||||||
Net (gain) loss arising during the year | (1,798 | ) | 156 | 268 | 8,743 | 8,428 | (5,873 | ) | 552 | 4,545 | (836 | ) | 7,497 | 13,129 | (6,441 | ) | ||||||||||||||||||||||||||||||||
Liability gain due to curtailment | | | | | (8,777 | ) | | | | | | (8,777 | ) | | ||||||||||||||||||||||||||||||||||
Amortization of prior service cost | | | | | | 78 | 15 | 15 | 5 | 15 | 15 | 83 | ||||||||||||||||||||||||||||||||||||
Amortization of (loss)
gain |
(795 | ) | (854 | ) | (883 | ) | | | 534 | (281 | ) | (91 | ) | 31 | (1,076 | ) | (945 | ) | (318 | ) | ||||||||||||||||||||||||||||
Total recognized in other comprehensive (income) loss | $ | (2,593 | ) | $ | (698 | ) | $ | (615 | ) | $ | 8,743 | $ | (349 | ) | $ | (5,261 | ) | $ | 529 | $ | 4,469 | $ | (910 | ) | $ | 6,679 | $ | 3,422 | $ | (6,786 | ) |
The estimated amounts that will be amortized from accumulated other comprehensive (income) loss over the next year are presented in the following table ($ in thousands):
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HG DB
Plan Benefits |
IMTT DB
Plan Benefits |
Other
Plan Benefits |
Total | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Amortization of prior service cost (credit) | $ | | $ | | $ | | $ | | $ | 2 | $ | (15 | ) | $ | 2 | $ | (15 | ) | ||||||||||||||
Amortization of net loss | 563 | 794 | 188 | | 225 | 264 | 976 | 1,058 |
153
The assumptions used in accounting for the HG DB Plan Benefits, IMTT DB Plan Benefits and Other Plan Benefits are:
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HG DB Plan Benefits | IMTT DB Plan Benefits | Other Plan Benefits | ||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||
Weighted average assumptions to determine benefit obligations:
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Discount rate | 3.60% | 4.00% | 4.20% | 3.70% | 4.30% | 4.65% | 3.25% to 3.70% | 3.56% to 4.25% | 3.78% to 4.55% | |||||||||||||||||||||||||||
Rate of compensation increase | N/A | N/A | N/A | 4.57% | 4.57% | 4.57% | 4.57% (1) | 4.57% (1) | 4.57% (1) | |||||||||||||||||||||||||||
Measurement date | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | December 31 | |||||||||||||||||||||||||||
Weighted average assumptions to determine net cost:
|
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Discount rate | 4.00% | 4.20% | 3.90% | 4.30% | 4.65% | 4.25% | 3.56% to 4.25% | 3.78% to 4.55% | 3.45% to 4.15% | |||||||||||||||||||||||||||
Expected long-term rate of return on plan assets | ||||||||||||||||||||||||||||||||||||
during fiscal year | 5.90% | 5.90% | 5.90% | 6.25% | 6.75% | 7.00% | 5.75% (2) | 6.25% (2) | 7.00% (2) | |||||||||||||||||||||||||||
Rate of compensation increase | N/A | N/A | N/A | 4.57% | 4.57% | 4.57% | 4.57% (1) | 4.57% (1) | 4.57% (1) | |||||||||||||||||||||||||||
Assumed healthcare cost trend rates:
|
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Initial health care cost trend rate | 6.98% to 7.0% | 7.20% to 7.25% | 7.50% | |||||||||||||||||||||||||||||||||
Ultimate rate | 4.50% to 5.00% | 4.50% to 5.00% | 4.50% to 5.00% | |||||||||||||||||||||||||||||||||
Year ultimate rate is reached | 2025 to 2028 | 2025 to 2028 | 2025 to 2028 |
(1) | Only applies to IMTT post-retirement life insurance plan. |
(2) | Only applies to IMTT-Illinois Union Plan. |
Pension asset investment decisions are made with assistance of an outside paid advisor to achieve the multiple goals of high rate of return, diversification and safety. The business has instructed the trustee, the investment manager, to maintain the allocation of the defined benefit plans assets between equity mutual fund securities, fixed income mutual fund securities, mixed equity and fixed income mutual fund securities, money market funds and cash within the pre-approved parameters set by the management. The weighted average asset allocation at December 31, 2017 and 2016 was:
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HG DB
Plan Benefits |
IMTT DB
Plan Benefits |
Other
Plan Benefits |
||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||
Equity securities | 36 | % | 56 | % | 44 | % | 51 | % | 46 | % | 51 | % | ||||||||||||
Fixed income securities | 58 | % | 27 | % | 45 | % | 44 | % | 47 | % | 48 | % | ||||||||||||
Mixed income securities | | 7 | % | | | | | |||||||||||||||||
Private equity | | | 3 | % | 4 | % | | | ||||||||||||||||
Global real estate fund | 5 | % | | 7 | % | | 7 | % | | |||||||||||||||
Cash | 1 | % | 10 | % | 1 | % | 1 | % | | % | 1 | % | ||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
154
The expected returns on plan assets were estimated based on the allocation of assets and managements expectations regarding future performance of the investments held in the investment portfolios. The asset allocations as of December 31, 2017 and 2016 measurement dates were ($ in thousands):
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Fair Value Measurements at December 31, 2017
Pension Benefits Plan Assets |
||||||||||||||||||||
Total |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Net
Asset Value (NAV) |
||||||||||||||||
Asset category:
|
||||||||||||||||||||
Cash and money market | $ | 1,280 | $ | 1,280 | $ | | $ | | $ | | ||||||||||
Equity securities | 67,619 | | 67,619 | | | |||||||||||||||
Fixed income securities | 79,130 | | 79,130 | | | |||||||||||||||
Global real estate fund | 9,738 | | 9,738 | | | |||||||||||||||
Domestic private equity | 4,304 | | | | 4,304 | |||||||||||||||
Total | $ | 162,071 | $ | 1,280 | $ | 156,487 | $ | | $ | 4,304 |
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Fair Value Measurements at December 31, 2016
Pension Benefits Plan Assets |
||||||||||||||||||||
Total |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Net
Asset Value (NAV) |
||||||||||||||||
Asset category:
|
||||||||||||||||||||
Cash and money market | $ | 5,890 | $ | 5,890 | $ | | $ | | $ | | ||||||||||
Equity securities | 79,279 | 79,279 | | | | |||||||||||||||
Fixed income securities | 59,028 | 59,028 | | | | |||||||||||||||
Domestic mixed income securities | 3,401 | 3,401 | | | | |||||||||||||||
Domestic private equity | 3,428 | | | | 3,428 | |||||||||||||||
Total | $ | 151,026 | $ | 147,598 | $ | | $ | | $ | 3,428 |
155
The estimated future benefit payments for the next ten years are ($ in thousands):
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HG DB Plan
Benefits |
IMTT DB
Plan Benefits |
Other
Plan Benefits |
Total | |||||||||||||
2018 | $ | 2,910 | $ | 7,921 | $ | 1,548 | $ | 12,379 | ||||||||
2019 | 2,973 | 7,002 | 1,692 | 11,667 | ||||||||||||
2020 | 3,043 | 8,114 | 1,767 | 12,924 | ||||||||||||
2021 | 3,099 | 7,154 | 1,747 | 12,000 | ||||||||||||
2022 | 3,112 | 8,224 | 1,712 | 13,048 | ||||||||||||
Thereafter | 15,676 | 44,855 | 9,013 | 69,544 | ||||||||||||
Total | $ | 30,813 | $ | 83,270 | $ | 17,479 | $ | 131,562 |
The Company and its subsidiaries are subject to legal proceedings arising in the ordinary course of business. In managements opinion, the Company has adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions, and does not believe the outcome of any pending legal proceedings will be material to the Companys financial position or result of operations.
The Bayonne, New Jersey terminal, portions of which have been acquired and aggregated over a 30-year period, contain pervasive remediation requirements that were assumed at the time of purchase from the various former owners. One former owner retained environmental remediation responsibilities for a purchased site as well as sharing other remediation costs. These remediation requirements are documented in two memoranda of agreement and an administrative consent order with the State of New Jersey. Remediation efforts entail removal of free product, soil treatment, repair/replacement of sewer systems, and the implementation of containment and monitoring systems. These remediation activities are estimated to span a period of ten to twenty or more years at a cost ranging from $30.0 million to $65.0 million. The remediation activities at the terminal are estimated based on currently available information, in undiscounted U.S. dollars and is inherently subject to relatively large fluctuation.
On February 19, 2018, the board of directors declared a dividend of $1.44 per share for the quarter ended December 31, 2017, which is expected to be paid on March 8, 2018 to holders of record on March 5, 2018.
156
The data shown below relates to the Companys operations and includes all adjustments which the Company considers necessary for a fair presentation of such amounts.
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Quarter ended | March 31 | June 30 | September 30 | December 31 | ||||||||||||
(In thousands, except per share data) | ||||||||||||||||
2017
|
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Revenue | $ | 451,457 | $ | 438,990 | $ | 453,061 | $ | 471,205 | ||||||||
Operating income | 78,977 | 77,266 | 85,984 | 78,811 | ||||||||||||
Net income attributable to MIC | 36,015 | 26,020 | 40,095 | 349,072 | ||||||||||||
Per share information attributable to MIC:
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Net income per share basic | $ | 0.44 | $ | 0.32 | $ | 0.48 | $ | 4.13 | ||||||||
Net income per share diluted (1) | 0.44 | 0.32 | 0.48 | 3.82 | ||||||||||||
Cash dividends declared per share | $ | 1.32 | $ | 1.38 | $ | 1.42 | $ | 1.44 | ||||||||
2016
|
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Revenue | $ | 396,387 | $ | 397,579 | $ | 420,524 | $ | 437,241 | ||||||||
Operating income | 88,776 | 76,507 | 75,658 | 80,200 | ||||||||||||
Net income attributable to MIC | 22,355 | 19,192 | 42,026 | 72,808 | ||||||||||||
Per share information attributable to MIC:
|
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Net income per share basic | $ | 0.28 | $ | 0.24 | $ | 0.52 | $ | 0.89 | ||||||||
Net income per share diluted (1) | 0.28 | 0.24 | 0.51 | 0.79 | ||||||||||||
Cash dividends declared per share | $ | 1.20 | $ | 1.25 | $ | 1.29 | $ | 1.31 |
(1) | See Note 3, Income (Loss) per Share, for further discussions for potentially dilutive shares. |
157
None.
Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2017. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Companys principal executive and principal financial officers and effected by the Companys Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management used the framework set forth in the report entitled Internal Control-Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission (referred to as COSO) to evaluate the effectiveness of the Companys internal control over financial reporting as of December 31, 2017. As a result of its evaluation, management has concluded that the Companys internal control over financial reporting was effective as of December 31, 2017 based on those criteria.
The effectiveness of the Companys internal control over financial reporting as of December 31, 2017 has been audited by KPMG LLP, the Companys independent registered public accounting firm, as stated in their report appearing on page 159 , which expressed an unqualified opinion on the effectiveness of the Companys internal control over financial reporting as of December 31, 2017.
158
The Board of Directors and Stockholders
Macquarie Infrastructure Corporation:
We have audited Macquarie Infrastructure Corporation and subsidiaries (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements), and our report dated February 21, 2018 expressed an unqualified opinion on those consolidated financial statements.
The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/
KPMG LLP
Dallas, Texas
February 21, 2018
159
No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) was identified in connection with the evaluation described in (b) above during the fiscal quarter ended December 31, 2017 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Not Applicable.
The Company will furnish to the Securities and Exchange Commission a definitive proxy statement not later than 120 days after the end of the fiscal year ended December 31, 2017.
The information required by this Item 10 is included under the captions Election of Directors, Governance Information and Section 16(A) Beneficial Ownership Reporting Compliance in our proxy statement for our 2018 annual meeting of stockholders and is incorporated herein by reference.
Our Code of Business Conduct applies to all of our directors, officers and employees as well as all directors, officers and employees of our Manager involved in the management of the Company and its businesses. Our Code of Business Conduct is posted on the Governance page of our website, www.macquarie.com/mic . You may request a copy of our Code of Business Conduct by contacting Investor Relations at 125 West 55 th Street, New York, NY 10019 ((212) 231-1000). We will post any amendment to the Code of Business Conduct, and any waivers that are required to be disclosed by the rules of either the SEC or the NYSE, on our website.
The information required by this Item 11 is included under the captions Director Compensation, Compensation Discussion and Analysis, Executive Compensation, Governance Information and Compensation Committee Report in our proxy statement for our 2018 annual meeting of stockholders and is incorporated herein by reference.
The table below sets forth information with respect to shares authorized for issuance as of December 31, 2017:
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|||||||||
Plan Category |
Number of Securities
to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) |
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights (b) |
Number of Securities
Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Under Column (a)) (c) |
|||||||||
Equity compensation plans approved by stockholders (1) | 9,435 | $ | __ | (1) | ||||||||
Equity compensation plans not approved by stockholders | | | | |||||||||
Total | 9,435 | $ | | (1) |
(1) | Information in column (a) represents the number of shares issuable upon the vesting of director stock units pursuant to our 2014 Independent Directors Equity Plan (2014 Plan), which was approved in 2014. Only the Companys independent directors may participate in the 2014 Plan. The only type of |
160
award that may be granted under the 2014 Plan is an award of director shares. Each share is an unsecured promise to transfer one share on the settlement date, subject to satisfaction of the applicable terms and conditions. The units vest on the day prior to the following years annual meeting. The Company granted 1,887 restricted stock units to each of its independent directors elected at the 2017 annual stockholders meeting. The maximum number of shares available for issuance under the 2014 Plan is 300,000 shares, with a balance of 272,310 shares remaining available for issuance at December 31, 2017. The aggregate grant date fair value of awards granted to an independent director during any single fiscal year (excluding awards made at the election of the independent director in lieu of all or a portion of annual and committee cash retainers) may not exceed $350,000. The 2014 Plan does not provide a formula for the determination of awards and the Compensation Committee will have the authority to determine the size of all awards under 2014 Plan, subject to the limits on the number of shares that may be granted annually. |
The remaining information required by this Item 12 is included under the caption Share Ownership of Directors, Executive Officers and Principal Stockholders in our proxy statement for our 2018 annual meeting of stockholders and is incorporated herein by reference.
The information required by this Item 13 is included under the caption Certain Relationships and Related Party Transactions and Governance Information in our proxy statement for our 2018 annual meeting of stockholders and is incorporated herein by reference.
The information required by this Item 14 is included under the caption Ratification of Selection of Independent Auditor in our proxy statement for our 2018 annual meeting of stockholders and is incorporated herein by reference.
The consolidated financial statements in Part II, Item 8, and schedule listed in the accompanying exhibit index are filed as part of this report.
The exhibits listed on the accompanying exhibit index are filed as a part of this report.
None.
161
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Macquarie Infrastructure Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 21, 2018.
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MACQUARIE INFRASTRUCTURE CORPORATION
(Registrant) |
||
By:
/s/ Christopher Frost
|
We, the undersigned directors and executive officers of Macquarie Infrastructure Corporation, hereby severally constitute Christopher Frost and Liam Stewart, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, and in our names in the capacities indicated below, any and all amendments to the Annual Report on Form 10-K filed with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys to any and all amendments to said Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Macquarie Infrastructure Corporation and in the capacities indicated on the 21 st day of February 2018.
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|
Signature | Title | |
/s/ Christopher Frost
Christopher Frost |
Chief Executive Officer
(Principal Executive Officer) |
|
/s/ Liam Stewart
Liam Stewart |
Chief Financial Officer
(Principal Financial Officer) |
|
/s/ Robert Choi
Robert Choi |
Principal Accounting Officer | |
/s/ Martin Stanley
Martin Stanley |
Chairman of the Board of Directors | |
/s/ Norman H. Brown, Jr.
Norman H. Brown, Jr. |
Director | |
/s/ George W. Carmany III
George W. Carmany III |
Director | |
/s/ James Hooke
James Hooke |
Director | |
/s/ Ronald Kirk
Ronald Kirk |
Director | |
/s/ Henry E. Lentz
Henry E. Lentz |
Director | |
/s/ Ouma Sananikone
Ouma Sananikone |
Director |
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101.0** | The following materials from the Annual Report on Form 10-K of Macquarie Infrastructure Corporation for the year ended December 31, 2017, filed on February 21, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016, (ii) the Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015, (iii) the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015, (iv) the Consolidated Statements of Stockholders Equity for the years ended December 31, 2017, 2016 and 2015, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 and (vi) the Notes to Consolidated Financial Statements. |
* | Management contract, compensatory plan or arrangement. |
** | Filed herewith. |
*** | A signed original of this written statement required by Section 906 has been provided to Macquarie Infrastructure Corporation and will be retained by Macquarie Infrastructure Corporation and furnished to the Securities and Exchange Commission or its staff upon request. |
| The Registrant does not deem this agreement material pursuant to Regulation S-K Item 601(b)(10). |
Exhibit 10.3
EXECUTION VERSION
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of
January 3, 2018
among
MACQUARIE INFRASTRUCTURE CORPORATION,
as the Borrower,
MIC OHANA CORPORATION,
as the Guarantor
JPMORGAN CHASE BANK, N.A., BARCLAYS BANK PLC, BANK OF AMERICA, N.A., CITIZENS BANK, CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK,
MIZUHO BANK, LTD., REGIONS BANK, ROYAL BANK OF CANADA, SUNTRUST BANK and WELLS FARGO BANK, N.A.
as Issuing Banks,
the Lenders Party Hereto
and
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent
JPMORGAN CHASE BANK, N.A., BARCLAYS BANK
PLC, BANK OF AMERICA, N.A., CITIZENS BANK, CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK, MIZUHO BANK, LTD., REGIONS BANK, ROYAL
BANK OF CANADA, SUNTRUST ROBINSON HUMPHREY, INC. and WELLS FARGO BANK, N.A.
as Joint Bookrunners and Joint Lead Arrangers
TABLE OF CONTENTS
Page | |
Article I Definitions | 1 |
Section 1.01. Defined Terms | 1 |
Section 1.02. Classification of Loans and Borrowings | 26 |
Section 1.03. Terms Generally | 27 |
Section 1.04. Accounting Terms; GAAP | 27 |
Article II The Credits | 27 |
Section 2.01. Commitments | 27 |
Section 2.02. Loans and Borrowings | 28 |
Section 2.03. Requests for Revolving Borrowings | 28 |
Section 2.04. [Reserved] | 29 |
Section 2.05. [Reserved] | 29 |
Section 2.06. Letters of Credit | 29 |
Section 2.07. Funding of Borrowings | 34 |
Section 2.08. Interest Elections | 34 |
Section 2.09. Termination and Reduction of Commitments | 36 |
Section 2.10. Repayment of Loans; Evidence of Debt | 36 |
Section 2.11. Prepayment of Loans | 37 |
Section 2.12. Fees | 37 |
Section 2.13. Interest | 38 |
Section 2.14. Alternate Rate of Interest | 39 |
Section 2.15. Increased Costs | 40 |
Section 2.16. Break Funding Payments | 41 |
Section 2.17. Payments Free of Taxes | 42 |
Section 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs | 46 |
Section 2.19. Mitigation Obligations; Replacement of Lenders | 48 |
Section 2.20. Defaulting Lenders | 49 |
Section 2.21. Incremental Commitments | 51 |
Article III Representations and Warranties | 52 |
Section 3.01. Organization; Powers | 52 |
Section 3.02. Authorization; Enforceability | 52 |
Section 3.03. Governmental Approvals; No Conflicts | 52 |
Section 3.04. Financial Condition; No Material Adverse Change; Solvency | 52 |
Section 3.05. Properties | 53 |
Section 3.06. Litigation and Environmental Matters | 53 |
Section 3.07. Compliance with Laws and Agreements | 53 |
Section 3.08. Investment Company Status | 53 |
Section 3.09. Taxes | 54 |
Section 3.10. ERISA | 54 |
Section 3.11. Disclosure | 54 |
Section 3.12. Anti-Corruption Laws, Anti-Terrorism Laws and Sanctions | 54 |
i |
Section 3.13. Margin Regulations | 55 |
Article IV Conditions | 55 |
Section 4.01. Effective Date | 55 |
Section 4.02. Each Credit Event after the Effective Date | 56 |
Article V Affirmative Covenants | 56 |
Section 5.01. Financial Statements; Ratings Change and Other Information | 56 |
Section 5.02. Notices of Material Events | 57 |
Section 5.03. Existence; Conduct of Business | 58 |
Section 5.04. Payment of Obligations | 58 |
Section 5.05. Maintenance of Properties; Insurance | 58 |
Section 5.06. Books and Records; Inspection Rights | 58 |
Section 5.07. Compliance with Laws | 59 |
Section 5.08. Use of Proceeds and Letters of Credit | 59 |
Section 5.09. Credit Ratings | 59 |
Section 5.10. Cash Distributions | 59 |
Section 5.11. Additional Collateral | 59 |
Article VI Negative Covenants | 60 |
Section 6.01. Indebtedness | 60 |
Section 6.02. Liens | 61 |
Section 6.03. Fundamental Changes | 63 |
Section 6.04. Asset Sales | 63 |
Section 6.05. Restricted Payments | 64 |
Section 6.06. Transactions with Affiliates | 64 |
Section 6.07. Restrictive Agreements | 64 |
Section 6.08. Financial Covenant | 65 |
Section 6.09. Upstream Guarantees; Subsidiary Indebtedness; Grants of Security Interests in Subsidiary Equity Interests | 65 |
Article VII Events of Default | 65 |
Section 7.01. Events of Default | 65 |
Section 7.02. Borrower’s Right to Cure | 68 |
Article VIII The Administrative Agent | 68 |
Article IX Miscellaneous | 71 |
Section 9.01. Notices | 71 |
Section 9.02. Waivers; Amendments | 75 |
Section 9.03. Expenses; Indemnity; Damage Waiver | 76 |
Section 9.04. Successors and Assigns | 78 |
Section 9.05. Survival | 82 |
Section 9.06. Counterparts; Integration; Effectiveness; Electronic Execution | 82 |
Section 9.07. Severability | 83 |
Section 9.08. Right of Setoff | 83 |
Section 9.09. Governing Law; Jurisdiction; Consent to Service of Process | 83 |
Section 9.10. WAIVER OF JURY TRIAL | 84 |
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Section 9.11. Headings | 84 |
Section 9.12. Confidentiality | 84 |
Section 9.13. Material Non-Public Information | 85 |
Section 9.14. Authorization to Distribute Certain Materials to Public-Siders | 85 |
Section 9.15. Interest Rate Limitation | 86 |
Section 9.16. USA PATRIOT Act | 86 |
Section 9.17. Acknowledgement and Consent to Bail-In of EEA Financial Institutions | 86 |
Section 9.18. Effect of Amendment and Restatement | 87 |
Section 9.19. Releases of Pledged Collateral | 88 |
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SCHEDULES :
Schedule 2.01 — Commitments
Schedule 3.06 — Disclosed Matters
Schedule 6.01 — Existing Indebtedness
Schedule 6.07 — Existing Restrictions
Schedule 9.18 – Existing Letter of Credit
EXHIBITS :
Exhibit A — Form of Assignment and Assumption
Exhibit B-1 — U.S. Tax Certificate (For Non-U.S. Lenders that are not Partnerships for U.S. Federal Income Tax Purposes)
Exhibit B-2 — U.S. Tax Certificate (For Non-U.S. Lenders that are Partnerships for U.S. Federal Income Tax Purposes)
Exhibit B-3 — U.S. Tax Certificate (For Non-U.S. Participants that are not Partnerships for U.S. Federal Income Tax Purposes)
Exhibit B-4 — U.S. Tax Certificate (For Non-U.S. Participants that are Partnerships for U.S. Federal Income Tax Purposes)
Exhibit C — Form of Guaranty Agreement
Exhibit D — Form of Pledge Agreement
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AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 3, 2018 (this “ Agreement ”), among MACQUARIE INFRASTRUCTURE CORPORATION (the “ Borrower ”), MIC OHANA CORPORATION (the “ Guarantor ”), the Lenders from time to time party hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent.
The parties hereto agree as follows:
Article
I
Definitions
Section 1.01. Defined Terms . As used in this Agreement, the following terms have the meanings specified below:
“ ABR ”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bear interest at a rate determined by reference to the Alternate Base Rate.
“ Adjusted LIBO Rate ” means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
“ Acquisition ” means the purchase or other acquisition of property and assets or businesses of any Person or of assets constituting a business unit, a line of business or division of such Person, or Equity Interests in a Person that, upon the consummation thereof, will be a Subsidiary of the Borrower (including as a result of a merger or consolidation).
“ Additional Lender ” has the meaning assigned to it in Section 2.21.
“ Administrative Agent ” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders hereunder.
“ Administrative Questionnaire ” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“ Affiliate ” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“ Agency Site ” means the Electronic System established by the Administrative Agent to administer this Agreement.
“ Agent Party ” has the meaning assigned to it in Section 9.01(d).
“ Alternate Base Rate ” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus ½ of 1% and (c) the Adjusted LIBO Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 1%, provided that, for the avoidance of doubt, the Adjusted LIBO Rate for any day shall be based on the LIBO Screen Rate at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate shall be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Effective Rate or the Adjusted LIBO Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 2.14 hereof, then the Alternate Base Rate shall be the greater of clause (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the Alternate Base Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“ Anti-Corruption Laws ” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower and its affiliated companies from time to time concerning or relating to bribery or corruption, including, without limitation, the Foreign Corrupt Practices Act of 1977, as amended.
“ Anti-Terrorism Laws ” means any requirement of law related to money laundering or financing terrorism including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (“PATRIOT Act”) of 2001 (Title III of Pub. L. 107-56), The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act”, 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959), the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) and Executive Order 13224 (effective September 24, 2001)).
“ Applicable Percentage ” means, with respect to any Lender, the percentage of the total Commitments represented by such Lender’s Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.
“ Applicable Rate ” means, for any day, with respect to any ABR Loan or Eurodollar Revolving Loan, or with respect to the commitment fees payable hereunder, as the case may be, the applicable rate per annum set forth below under the caption “ABR Spread”, “Eurodollar Spread” or “Commitment Fee Rate”, as the case may be, based upon the ratings by Fitch, S&P and/or Moody’s (as applicable) applicable on such date to the Facility Debt:
Category |
Debt Ratings
S&P/Moody’s/Fitch |
ABR
Spread |
Eurodollar
Spread |
Commitment Fee
Rate |
||||||||||
Category 1 | BBB/Baa2/BBB or higher | 50.0 bps | 150.0 bps | 22.5 bps | ||||||||||
Category 2 | BBB-/Baa3/BBB- | 75.0 bps | 175.0 bps | 27.5 bps | ||||||||||
Category 3 | BB+/Ba1/BB+ | 100.0 bps | 200.0 bps | 35.0 bps | ||||||||||
Category 4 | BB/Ba2/BB or lower | 125.0 bps | 225.0 bps | 40.0 bps |
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For purposes this definition, “Debt Rating” means, as of any date of determination, the rating as determined by S&P, Moody’s or Fitch (collectively, the “ Debt Ratings ”) of the Facility Debt; provided that (a) at any time that Debt Ratings are available from each of S&P, Moody’s and Fitch and there is a difference in such Debt Ratings, then the majority Debt Rating shall apply, unless there is no majority, in which case the middle Debt Rating shall apply, (b) at any time that Debt Ratings are available from only two of S&P, Moody’s and Fitch and there is a split in such Debt Ratings, then the higher of such Debt Ratings shall apply, unless there is a split in Debt Ratings of more than one level, in which case the level that is one level lower than the higher Debt Rating shall apply, (c) at any time that there is only one Debt Rating from S&P Moody’s or Fitch, then such Debt Rating shall apply and (d) if the Borrower does not have any Debt Rating, Category 4 (as indicated above) shall apply. The Debt Ratings shall be determined from the most recent public announcement of any changes in the Debt Ratings. If the rating system of S&P, Moody’s or Fitch shall change, the Borrower and the Administrative Agent shall negotiate in good faith to amend this definition to reflect such changed rating system and, pending the effectiveness of such amendment (which shall require the approval of the Required Lenders), the Debt Rating shall be determined by reference to the rating most recently in effect prior to such change.
“ Approved Fund ” has the meaning assigned to it in Section 9.04(b).
“ Assignment and Assumption ” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.
“ Atlantic ” means Atlantic Aviation FBO Inc., a Delaware corporation.
“ Available to be Distributed ” means, with respect to unrestricted cash and Cash Equivalents of a Subsidiary, unrestricted cash and Cash Equivalents of such Subsidiary at such time other than any to the extent that declaration of payment of dividends or similar distributions by that Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement (including with respect to pledges of cash or Cash Equivalents), instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or to such cash or Cash Equivalents.
“ Availability Period ” means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments.
“ Bankruptcy Event ” means, with respect to any Person, such Person becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or has taken any corporate action in furtherance of, or has consented to, approved of, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person by a Governmental Authority or instrumentality thereof, unless such ownership interest results in or provides such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
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“ Bail-In Action ” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“ Bail-In Legislation ” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“ Benefit Plan ” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” (as defined in Section 4975 of the Code) or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”
“ Board ” means the Board of Governors of the Federal Reserve System of the United States of America.
“ Borrower ” has the meaning assigned to it in the preamble hereto.
“ Borrower CFADS ” means, at any date of determination and without duplication and as certified by a Financial Officer of the Borrower, the aggregate amount of total cash and Cash Equivalents then on hand (other than proceeds from the incurrence of Indebtedness (including Revolving Loans) by the Borrower or issuance of Equity Interests of the Borrower) generated during the most recently completed Test Period and distributed or Available to be Distributed to the Borrower by the Subsidiaries during the most recently completed Test Period (together with total cash and Cash Equivalents of the Borrower then on hand (other than proceeds from the incurrence of Indebtedness (including Revolving Loans) by the Borrower or issuance of Equity Interests of the Borrower) generated during such Test Period) less, without duplication and solely to the extent actually paid by the Borrower in cash for such Test Period, the aggregate for such period (collectively, “ Ordinary Course Expenses ”) of (i) Taxes, (ii) audit expenses, tax return preparation expenses, rental expense and insurance costs, (iii) management fees and (iv) legal fees and expenses, travel costs, and other costs and expenses of the Borrower, in each case incurred in the ordinary course of business. For the avoidance of doubt, Ordinary Course Expenses shall not include any extraordinary expenses, including any fees, expenses, costs or charges related to any consummated, anticipated, unsuccessful or attempted equity offering, issuance or repurchase, other equity issuance, debt issuance (including a refinancing thereof, whether or not successful), dividend, investment, acquisition (including any Acquisition) (including (y) cash-stay bonuses paid to employees, severance and reorganization costs and expenses in connection with any Acquisition and (z) fees, costs and expenses incurred in connection with the de-listing of public targets and compliance with public company requirements in connection with any Acquisition), asset sale or other disposition, operational changes, repayment of Indebtedness or recapitalization or the breakage of any hedging arrangement permitted hereunder or the incurrence of Indebtedness permitted to be incurred hereunder (including a refinancing thereof) (in each case, whether or not successful), including such fees, expenses, costs or charges related to (i) the offering, syndication, assignment and administration of the credit facility hereunder and any other credit facilities, (ii) credit ratings expenses and (iii) any refinancing, extension, waiver, forbearance, amendment or other modification hereof and of any other credit facilities (in each case, whether consummated, anticipated, unsuccessful, attempted or otherwise). Notwithstanding the foregoing, to the extent that any proceeds of Indebtedness (including Revolving Loans) incurred by the Borrower or proceeds of Equity Interests issued by the Borrower are used during any Test Period to fund operating or working capital expenditures during any Test Period, the amount of such operating or working capital expenditures shall be deducted from Borrower CFADS for such Test Period.
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“ Borrower’s Senior Secured Net Leverage Ratio ” means, at any date of determination, the ratio of (a) Senior Secured Indebtedness as of such date, calculated net of unrestricted cash (without netting the cash proceeds from any Borrowing or other incurrence of debt made in connection with the testing of the ratio) of the Borrower, to (b) Borrower CFADS for the most recently completed Test Period.
“ Borrowing ” means Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.
“ Borrowing Request ” means a request by the Borrower for a Revolving Borrowing in accordance with Section 2.03.
“ Business Day ” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
“ Capital Lease Obligations ” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. Notwithstanding the foregoing, all leases of any Person (including leases entered into after the date hereof) that are or would be treated as operating leases in accordance with GAAP as in effect on December 31, 2013, shall continue to be accounted for as operating leases (and none of the obligations of the lessee thereunder shall constitute Capital Lease Obligations) for purposes of this Agreement regardless of any change in GAAP after such date that would otherwise require any of the obligations of the lessee thereunder to be treated as Capital Lease Obligations.
“ Cash Equivalents ” means any of the following types of investments:
(a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;
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(b) time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System and (ii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 180 days from the date of acquisition thereof;
(c) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least “Prime-2” (or the then equivalent grade) by Moody’s or at least “A-2” (or the then equivalent grade) by S&P, in each case with maturities of not more than 12 months from the date of acquisition thereof;
(d) Investments in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have one of the two highest ratings obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition; and
(e) United States dollars, Euros, any other currency of countries members of the Organization for Economic Co-operation and Development or, in the case of any foreign Subsidiary, any local currencies held by it from time to time.
“ Cash Management Agreement ” means any agreement pursuant to which a bank or other financial institution agrees to provide (a) treasury services, (b) credit card, merchant card, purchasing card or stored value card services (including, without limitation, the processing of payments and other administrative services with respect thereto), (c) cash management services (including, without limitation, controlled disbursements, automated clearinghouse transactions, return items, netting, overdrafts, depository, lockbox, stop payment, electronic funds transfer, information reporting, wire transfer and interstate depository network services) and/or (d) other similar banking products or services.
“ Cash Management Bank ” means any Person who (a) was a Lender or an Affiliate of a Lender at the time of entry into a Cash Management Agreement or at the time of the designation referred to in the following clause (b), and (b) has been designated in writing to the Administrative Agent as a Cash Management Bank by the Borrower.
“ Change in Control ” means (a) any Person or group shall become the beneficial owner of 50% or more of the then outstanding voting capital stock of the Borrower, (b) within any 12 month period beginning on or after the date hereof, the persons who were members of the board of directors (or equivalent governing body) of the Borrower immediately before the beginning of such period (the “ Incumbent Directors ”) shall cease (for any reason other than death or disability) to constitute at least a majority of the board of directors of the Borrower or the board of directors of any successor to the Borrower, provided that any director who was not a director as of the date hereof shall be deemed to be an Incumbent Director if such director was elected to the board of directors by, or on the recommendation of or with the approval of, a majority of the directors who then qualified as Incumbent Directors either actually or by prior operation of this clause (b), (c) the Borrower shall cease to be the beneficial owner of 100% of the outstanding Equity Interests of the Guarantor or (d) any “change of control”, “fundamental change” or any other substantially equivalent event shall occur in respect of any Indebtedness of any Loan Party the aggregate principal amount of which exceeds $50,000,000 that results in holders of such Indebtedness having the right to require the repurchase or redemption thereof prior to a stated maturity thereof.
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“ Change in Law ” means the occurrence after the date of this Agreement or, with respect to any Lender, such later date on which such Lender becomes a party to this Agreement) of (a) the adoption of or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the interpretation or application thereof by any Governmental Authority or (c) compliance by any Lender or any Issuing Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender or by such Lender’s or such Issuing Bank’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that, notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.
“ Code ” means the Internal Revenue Code of 1986, as amended.
“ Commitment ” means, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Letters of Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender’s Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.09, (b) increased from time to time pursuant to Section 2.21 and (c) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04. The initial amount of each Lender’s Commitment is set forth on Schedule 2.01, in the Assignment and Assumption pursuant to which such Lender shall have assumed its Commitment, or in the Incremental Amendment pursuant to which such Lender shall have become a party hereto (or increased its Commitment pursuant thereto), as applicable. The initial aggregate amount of the Lenders’ Commitments is $600,000,000.
“ Commitment Increase ” has the meaning assigned to it in Section 2.21.
“ Commodity Exchange Act ” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“ Communications ” has the meaning assigned to it in Section 9.01(d).
“ Competitor ” shall mean any person that competes in any material respect with the business of the Borrower or any of its Subsidiaries from time to time, in each case as specifically identified by the Borrower to the Administrative Agent from time to time in writing.
“ Connection Income Taxes ” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.
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“ Credit Party ” means the Administrative Agent, any Issuing Bank or any other Lender.
“ Debt Rating ” has the meaning assigned to it in the definition of “Applicable Margin;” provided that if neither S&P nor by Moody’s then rates the Facility Debt, “Debt Rating” shall mean the Borrower’s public corporate credit rating by S&P, the Borrower’s public corporate group rating by Moody’s or the Borrower’s public corporate credit rating by Fitch, as applicable.
“ Default ” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“ Defaulting Lender ” means any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Borrower or any Credit Party in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after request by a Credit Party, acting in good faith, to provide confirmation in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans and participations in then outstanding Letters of Credit under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and substance satisfactory to it and the Administrative Agent, or (d) has become the subject of (A) a Bankruptcy Event or (B) a Bail-In Action. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.20) upon delivery of written notice of such determination to the Borrower, each L/C Issuer and each Lender.
“ Designated Persons ” means any person or entity listed on a Sanctions List.
“ Disclosed Matters ” means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06.
“ Disposition ” or “ Dispose ” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing) outside the ordinary course of business, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith but, for the avoidance of doubt, excluding any sale, transfer, license, lease or other disposal of inventory, obsolete, worn-out or surplus property or property no longer useful or necessary in the business of such Person (or its subsidiaries).
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“ Disqualified Equity Interests ” means any Equity Interest which, by its terms (or the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Equity Interests that are not Disqualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), (b) is redeemable at the option of the holder thereof, in whole or in part, (c) provides for the scheduled payments of dividends in cash, or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is ninety-one days after the Maturity Date; provided that if such Equity Interests are issued pursuant to a plan for the benefit of employees of the Borrower or any Subsidiary or by any such plan to such employees, such Equity Interests shall not constitute Disqualified Equity Interests solely because it may be required to be repurchased by the Borrower or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.
“ Disqualified Institutions ” means (a) those Competitors, banks, financial institutions and other institutional lenders (in each case, together with Affiliates thereof that are clearly identifiable as such on the basis of such Affiliate’s name) identified on a list available to the Lenders on Intra-Links/IntraAgency, Syndtrak or another similar electronic system on the Effective Date (as such list with respect to Competitors may be supplemented from time to time by the Borrower pursuant to clause (b) below) and (b) any other person identified by name in writing to the Administrative Agent at JPMDQ_Contact@jpmorgan.com, with copies pursuant to the contact information set forth in Section 9.01(a)(ii) and the Lenders after the Effective Date to the extent such person becomes a Competitor or is or becomes an Affiliate of a Competitor, which designation shall become effective three Business Days after delivery of each such written supplement to the Administrative Agent and the Lenders (provided that, for the avoidance of doubt, any supplement not sent to JPMDQ_Contact@jpmorgan.com will not be effective), but which shall not apply to retroactively disqualify any persons that, prior to the effectiveness of such designation, (x) acquired an assignment or participation interest in the Loans, (y) entered into a trade for an assignment or participation interest in the Loans or (z) became a Competitor or any Affiliate thereof; provided that a Competitor or an Affiliate of a Competitor shall not include any bona fide debt fund or investment vehicle that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business which is managed, sponsored or advised by any person controlling, controlled by or under common control with such Competitor or Affiliate thereof, as applicable, and for which no personnel involved with the investment of such Competitor or Affiliate thereof, as applicable, (i) makes (or has the right to make or participate with others in making) any investment decisions or (ii) has access to any information (other than information publicly available) relating to the Loan Parties or any entity that forms a part of the Loan Parties’ business (including their subsidiaries).
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“ dollars ” or “ $ ” refers to lawful money of the United States of America.
“ EEA Financial Institution ” means (a) any institution established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent;
“ EEA Member Country ” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“ EEA Resolution Authority ” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“ Effective Date ” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02).
“ Electronic Signature ” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a person with the intent to sign, authenticate or accept such contract or record.
“ Electronic System ” means any electronic system, including e-mail, e-fax, Intralinks®, ClearPar®, Debt Domain, Syndtrak and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Administrative Agent and any Issuing Bank and any of its respective Related Persons or any other Person, providing for access to data protected by passcodes or other security system.
“ Environmental Laws ” means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.
“ Environmental Liability ” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any Loan Party directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“ Equity Cure Amount ” shall have the meaning provided in Section 7.02.
“ Equity Cure Period ” shall have the meaning provided in Section 7.02.
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“ Equity Cure Right ” shall have the meaning provided in Section 7.02.
“ Equity Interests ” means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ ERISA Affiliate ” means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“ ERISA Event ” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30 day notice period is waived); (b) the existence with respect to any Plan of an “ accumulated funding deficiency ” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
“ EU Bail-In Legislation Schedule ” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“ Eurodollar ” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
“ Event of Default ” has the meaning assigned to such term in Article VII.
“ Excluded Swap Obligations ” means, with respect to the Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of such Swap Obligation (or any Guaranty thereof) is or becomes illegal or unenforceable under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time the Guarantee of such Guarantor becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee is or becomes illegal or unenforceable.
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“ Excluded Taxes ” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. Federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan, Letter of Credit or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan, Letter of Credit or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.19(b)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.17, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender acquired the applicable interest in a Loan, Letter of Credit or Commitment or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.17(f) and (d) any withholding Taxes imposed pursuant to or in connection with FATCA.
“ Existing Credit Agreement ” means the Credit Agreement, dated as of July 7, 2014 (as amended, supplemented or otherwise modified prior to the date hereof), among the Borrower, the Guarantor, JPMorgan Chase Bank, N.A., as administrative agent, the other agents party thereto and the lenders party thereto.
“ Existing Revolving Loans ” has the meaning assigned to it in Section 9.18(c).
“ Existing Letters of Credit ” has the meaning assigned to it in Section 9.18(d).
“ Facility Debt ” means the Indebtedness of the Borrower hereunder.
“ FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code (or any amended or successor version described above) and any intergovernmental agreements (and related legislation or official administrative guidance) implementing the foregoing.
“ Federal Funds Effective Rate ” means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
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“ Fee Letters ” means (i) the Fee Letter, dated as of the date hereof, among the Borrower and certain Issuing Banks and (ii) the Amended and Restated Fee Letter, dated as of December 26, 2017, between the Borrower and the JPMorgan Chase Bank, N.A..
“ Financial Officer ” means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower.
“ Financial Statements ” means the financial statements to be furnished pursuant to Sections 5.01(a) and (b).
“ Fitch ” means Fitch Ratings Limited.
“ Foreign Lender ” means a Lender that is not a U.S. Person.
“ GAAP ” means generally accepted accounting principles in the United States of America.
“ Governmental Authority ” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
“ Guarantee ” of or by any Person (the “ guarantor ”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “ primary obligor ”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided , that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.
“ Guarantor ” has the meaning assigned to it in the preamble hereto.
“ Guaranty ” means the Guarantee made by the Guarantor under the Guaranty Agreement.
“ Guaranty Agreement ” means the Guaranty Agreement, executed by the Guarantor on July 16, 2014, in the form attached hereto as Exhibit C.
“ Hazardous Materials ” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
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“ Hedge Bank ” means (a) any Person who was a Lender or an Affiliate of a Lender at the time of entry into a Hedging Agreement or at the time of the designation referred to in the following clause (b), and (b) has been designated in writing to the Administrative Agent as a Hedge Bank by the Borrower.
“ Hedging Agreement ” means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement and all other similar agreements or arrangements designed to alter the risks of any Person arising from fluctuations in interest rate, currency values, commodity prices or equity values.
“ Impacted Interest Period ” has the meaning assigned to it in the definition of “ LIBO Rate. ”
“ IMTT ” means IMTT Holdings, Inc., a Delaware corporation.
“ Incremental Amendment ” has the meaning assigned to such term in Section 2.21.
“ Incremental Commitments ” shall mean, at any time, the commitments of each Incremental Lender at such time to increase its Commitment (in the case of an existing Lender) or to provide its Commitment (in the case of an Additional Lender) in accordance with Section 2.21. Loans made pursuant to any Incremental Commitment shall be on terms identical to the existing Revolving Loans (including with respect to maturity date and interest rate margins). For the avoidance of doubt, as of the date hereof, no Incremental Commitments are in effect.
“ Incremental Effective Date ” has the meaning set forth in Section 2.21.
“ Incremental Lender ” shall mean each Lender or Additional Lender, as applicable, that executes and delivers an Incremental Amendment in accordance with Section 2.21.
“ Indebtedness ” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed (excluding, however, Liens permitted pursuant to Section 6.02(e) so long as such Indebtedness has not been assumed by the Guarantor), (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, and (k) all obligations of such Person in respect of Disqualified Equity Interests. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
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“ Indemnified Taxes ” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in (a) hereof, Other Taxes.
“ Ineligible Institution ” has the meaning assigned to it in Section 9.04(b).
“ Interest Election Request ” means a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.08.
“ Interest Payment Date ” means (a) with respect to any ABR Loan, the last day of each March, June, September and December and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period.
“ Interest Period ” means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, with the consent of each Lender, twelve months) thereafter, as the Borrower may elect; provided , that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“ Interpolated Rate ” means, at any time, for any Interest Period, the rate per annum (rounded to the same number of decimal places as the LIBO Screen Rate) determined by the Administrative Agent (which determination shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear basis between: (a) the LIBO Screen Rate for the longest period for which the Screen Rate is available) that is shorter than the Impacted Interest Period; and (b) the Screen Rate for the shortest period (for which that Screen Rate is available) that exceeds the Impacted Interest Period, in each case, at such time.
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“ Investment Grade Period ” means any time when at least two of the following ratings have been issued by the relevant rating agency and are in effect: (i) in the case of S&P, a “Long-Term Local Issuer Credit Rating” for the Borrower of at least BBB-, (ii) in the case of Moody’s, a “Long-Term Corporate Family Rating” for the Borrower of at least Baa3 or (iii) in the case of Fitch, a “Long-Term Issuer Default Rating” for the Borrower of at least BBB-. If the rating system of S&P, Moody’s or Fitch shall change, the Borrower and the Administrative Agent shall negotiate in good faith to amend this definition to reflect such changed rating system and, pending the effectiveness of such amendment (which shall require the approval of the Required Lenders), the existence of an Investment Grade Period shall be determined by reference to the rating most recently in effect prior to such change.
“ IRS ” means the United States Internal Revenue Service.
“ Issuing Bank ” means JPMorgan Chase Bank, N.A., Barclays Bank PLC, Bank of America, N.A., Citizens Bank, Credit Agricole Corporate and Investment Bank, Mizuho Bank, Ltd., Regions Bank, Royal Bank of Canada, SunTrust Bank, Wells Fargo Bank, N.A. and each other Lender or Affiliate of a Lender that hereafter becomes an Issuing Bank with the approval of the Administrative Agent and the Borrower by agreeing pursuant to an agreement with and in form and substance satisfactory to the Administrative Agent and the Borrower to be bound by the terms hereof applicable to Issuing Banks, in each case, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.06(i). Each Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.
“ Joint Lead Arrangers ” means JPMorgan Chase Bank, N.A., Barclays Bank PLC, Bank of America, N.A., Citizens Bank, Credit Agricole Corporate and Investment Bank, Mizuho Bank, Ltd., Regions Bank, Royal Bank of Canada, SunTrust Robinson Humphrey, Inc. and Wells Fargo Bank, N.A., as joint lead arrangers and joint bookrunners.
“ LC Availability Period ” means the period from and including the Effective Date to but excluding the earlier of (i) the date that is five Business Days prior to the Maturity Date and (ii) the date of termination of the Commitments.
“ LC Disbursement ” means a payment made by any Issuing Bank pursuant to a Letter of Credit.
“ LC Exposure ” means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.
“ Lender Parent ” means, with respect to any Lender, any Person as to which such Lender is, directly or indirectly, a subsidiary.
“ Lenders ” means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption or an Incremental Amendment, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. As the context may require, the term “Lenders” includes the Issuing Banks.
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“ Letter of Credit ” means any letter of credit issued pursuant to this Agreement.
“ Letter of Credit Sublimit ” means (a) with respect to Barclays Bank PLC, $15,000,000, (b) with respect to JPMorgan Chase Bank, N.A., $15,000,000, (c) with respect to Bank of America, N.A., $15,000,000, (d) with respect to Citizens Bank, $15,000,000, (e) with respect to Credit Agricole Corporate and Investment Bank, $15,000,000, (f) with respect to Mizuho Bank, Ltd., $15,000,000, (g) with respect to Regions Bank, $15,000,000, (h) with respect to Royal Bank of Canada, $15,000,000, (i) with respect to SunTrust Bank, $15,000,000, (j) with respect to Wells Fargo Bank, N.A., $15,000,000 and (f) with respect to any other Issuing Bank, such amount as may be agreed among such Issuing Bank, the Borrower and the Administrative Agent; provided, however, that the aggregate outstanding amount of Letters of Credit issued pursuant to Section 2.06 for all Issuing Banks shall not exceed $200,000,000.
“ LIBO Rate ” means, with respect to any Eurodollar Borrowing for any Interest Period, the London interbank offered rate as administered by ICE Benchmark Administration 1 (or any other Person that takes over the administration of such rate) for U.S. Dollars for a period equal in length to such Interest Period as displayed on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on the appropriate page of such other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion; in each case the “ LIBO Screen Rate ”) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period; provided that if the LIBO Screen Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement; provided further that if the LIBO Screen Rate shall not be available at such time for such Interest Period (an “ Impacted Interest Period ”) then the LIBO Rate shall be the Interpolated Rate; provided that if any Interpolated Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“ LIBO Screen Rate ” has the meaning assigned to it in the definition of “ LIBO Rate. ”
“ Lien ” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
1 ICE Benchmark Administration Limited makes no warranty, express or implied, either as to the results to be obtained from the use of the ICE LIBOR and/or the figure at which ICE LIBOR stands at any particular time on any particular day or otherwise. ICE Benchmark Administration Limited makes no express or implied warranties or merchantability or fitness for a particular purpose in respect of use of ICE LIBOR.
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“ Loan Documents ” means (i) this Agreement, (ii) the Guaranty Agreement, (iii) other than during a Pledge Release Period, the Security Documents; (iv) any promissory notes issued pursuant to Section 2.10(e), and (v) each Fee Letter.
“ Loan Parties ” means the Borrower and the Guarantor.
“ Loans ” means the loans made by the Lenders to the Borrower pursuant to this Agreement.
“ Management Agreement ” means the Third Amended and Restated Management Services Agreement by and among the Loan Parties and Macquarie Infrastructure Management (USA) Inc. dated as of May 21, 2015.
“ Margin Stock ” means margin stock within the meaning of Regulations T, U and X of the Board, as in effect from time to time and all official rulings and interpretations thereunder or thereof.
“ Material Adverse Effect ” means a material adverse effect on (a) the business, assets, operations or financial condition of the Borrower and the Subsidiaries taken as a whole, (b) the ability of the Loan Parties to perform their obligations under this Agreement or any other Loan Document or (c) the rights of or benefits available to the Lenders under this Agreement or any other Loan Document.
“ Material Indebtedness ” means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any Loan Party in an aggregate principal amount exceeding $100,000,000. For purposes of determining Material Indebtedness, the “principal amount” of the obligations of any Loan Party in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Loan Party would be required to pay if such Swap Agreement were terminated at such time.
“ Maturity Date ” means the date that is four years after the Effective Date.
“ MGL Entity ” has the meaning assigned to it in Section 9.04(b).
“ Moody’s ” means Moody’s Investors Service, Inc.
“ Multiemployer Plan ” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“ Net Cash Interest Expense ” means for any Test Period, the excess of (A) the sum of, without duplication, cash interest expense in connection with Total Debt, to the extent treated as interest in accordance with GAAP (except as otherwise provided in the definition of Capital Lease Obligations), in each case, of or by each of the Loan Parties on a standalone basis for the most recently completed Test Period over (B) any cash interest income received by the Loan Parties on a standalone basis during such Test Period.
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“ Net Cash Proceeds ” means with respect to any asset sale, the gross cash proceeds (including cash proceeds subsequently received (as and when received) in respect of noncash consideration initially received) and, in the case of any Equity Interest consideration received, the fair market value thereof (as determined by a Financial Officer of the Borrower in his or her good faith judgment (and consistent with the applicable acquisition agreement)), net of (i) selling expenses (including reasonable broker’s fees or commissions, legal fees, transfer and similar taxes and the Borrower’s good faith estimate of income taxes paid or payable in connection with such sale), (ii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such asset sale (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds) and (iii) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness which is secured by the asset sold in such asset sale and which is required to be repaid with such proceeds (other than the Loans or any such Indebtedness assumed by the purchaser of such asset); provided , however , that, if the Borrower shall deliver a certificate of the Borrower to the Administrative Agent at or promptly following the time of receipt thereof setting forth the Borrower’s intent to reinvest such proceeds in assets or businesses used or useful in the business of the Borrower or any of its Subsidiaries within 12 months of receipt of such proceeds, such proceeds shall not constitute Net Cash Proceeds except to the extent not so used at the end of such 12 month period (or, if the Borrower commits to reinvest such proceeds within 12 months following receipt thereof, within 18 months of receipt thereof), at which time such proceeds shall be deemed to be Net Cash Proceeds.
“ Obligations ” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, in each case (including those acquired by assumption), whether absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement of any Bankruptcy Event by or against any Loan Party naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.
“ Other Connection Taxes ” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan, Letter of Credit or Loan Document).
“ Other Taxes ” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19).
“ Participant ” has the meaning assigned to such term in Section 9.04(c).
“ Participant Register ” has the meaning assigned to such term in Section 9.04(c).
“ PBGC ” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
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“ Permitted Borrower Junior Secured Debt ” has the meaning assigned to such term in Section 6.02.
“ Permitted Borrower Secured Debt ” has the meaning assigned to such term in Section 6.02.
“ Permitted Cure Security ” means Equity Interests of the Borrower other than Disqualified Equity Interests.
“ Permitted Guarantor Debt ” means (i) Indebtedness with respect to surety, appeal and performance bonds obtained in the ordinary course of business, and (ii) Indebtedness owed in respect of any Cash Management Agreements and other netting services, overdrafts and related liabilities arising from treasury, depository and cash management services or any swap or hedge arrangement, or in connection with any automated clearing-house transfers of funds.
“ Permitted Encumbrances ” means:
(a) Liens for Taxes that are not yet due or are being contested in compliance with Section 5.04;
(b) bankers’, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s and other Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 60 days or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations and deposits securing liability to insurance carriers under insurance or self-insurance arrangements;
(d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;
(e) Liens on deposit accounts or securities accounts, including bankers’ Liens and rights of setoff arising in the ordinary course of business;
(f) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII; and
(g) easements, restrictions, licenses, reservations, utility easements, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or materially interfere with the ordinary conduct of business of the Borrower and its Subsidiaries, taken as a whole;
provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.
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“ Permitted Refinancing Indebtedness ” means Indebtedness issued or incurred (“ Refinancing Indebtedness ”) (including by means of the extension or renewal of existing Indebtedness) to refinance, refund, extend, renew or replace Indebtedness existing at any time (“ Refinanced Indebtedness ”); provided that (a) the principal amount of such Refinancing Indebtedness is not greater than the principal amount of such Refinanced Indebtedness, plus the amount of any premiums or penalties and accrued, capitalized or unpaid interest paid thereon and reasonable fees and expenses, in each case associated with such Refinancing Indebtedness, (b) such Refinancing Indebtedness has a final maturity that is no earlier than, and a weighted average life to maturity that is no shorter than, such Refinanced Indebtedness, (c) if such Refinanced Indebtedness or any Guarantees thereof or any security therefor are subordinated to the Obligations, such Refinancing Indebtedness and any Guarantees thereof and security therefor are also so subordinated on terms no less favorable to the Lenders and the other Secured Parties, (d) the obligors in respect of such Refinanced Indebtedness immediately prior to such refinancing, refunding, extending, renewing or replacing are the only obligors on such Refinancing Indebtedness, (e) such Refinancing Indebtedness shall not be secured by any collateral except that such Refinancing Indebtedness may be secured with the same (or fewer) assets, if any, that constituted collateral for the applicable Refinanced Indebtedness immediately prior to such refinancing, refunding, extending , renewing or replacing and (f) such Refinancing Indebtedness contains covenants and events of default and is benefited by Guarantees, if any, which, taken as a whole, are no less favorable to the Loan Parties and the Secured Parties in any material respect than the covenants and events of default or Guarantees, if any, in respect of such Refinanced Indebtedness.
“ Person ” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“ Plan ” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“ Pledge Agreement ” means the Amended and Restated Pledge Agreement, executed by the Borrower and the Administrative Agent on the Effective Date, and any additional Pledge Agreement executed after the Effective Date pursuant to Section 9.19(c) in the form attached hereto as Exhibit D.
“ Pledge Release Date ” has the meaning assigned to it in Section 9.19.
“ Pledge Release Period ” means the period beginning on any Pledge Release Date and ending with the next subsequent Pledge Trigger Date.
“ Pledge Trigger Date ” means the first date after any Pledge Release Date on which an Investment Grade Period is not continuing.
“ Pledged Collateral ” has the meaning assigned to it in the Pledge Agreement.
“ Pledged Equity ” has the meaning assigned to it in the Pledge Agreement.
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“ Post-Acquisition Period ” means, with respect to any Acquisition, the period beginning on the date such Acquisition is consummated and ending on the last day of the four full consecutive fiscal quarter immediately following the date on which such Acquisition is consummated.
“ Prime Rate ” means the rate of interest per annum publicly announced by the Administrative Agent as its prime rate in effect at its principal office located in New York, New York; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
“ Pro Forma Adjustment ” means, for any Test Period that includes all or any part of a fiscal quarter included in any Post-Acquisition Period, with respect to the Borrower CFADS, (a) the pro forma increase or decrease in such Borrower CFADS, as the case may be, that is factually supportable and is expected to have a continuing impact and (b) additional good faith pro forma adjustments arising out of cost savings initiatives attributable to such transaction and additional costs associated with the combination of the operations of such Acquisition with the operations of the Borrower and its Subsidiaries, in each case being given pro forma effect, that (i) have been realized or (ii) will be implemented following such transaction and are supportable and quantifiable and expected in good faith to be realized within such Post-Acquisition Period as certified by a Financial Officer of the Borrower, in each case, including, but not limited to, (w) reduction in personnel expenses, (x) reduction of costs related to administrative functions, (y) reductions of costs related to leased or owned properties and (z) reductions from the consolidation of operations and streamlining of corporate overhead) taking into account, for purposes of determining such compliance, the historical financial statements of the acquired entity or business and the consolidated financial statements of the Borrower and its Subsidiaries, assuming such Acquisition, and all other Acquisitions that have been consummated during the period, and any Indebtedness or other liabilities repaid in connection therewith had been consummated and incurred or repaid at the beginning of such period (and assuming that such Indebtedness to be incurred bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the interest rate which is or would be in effect with respect to such Indebtedness as at the relevant date of determination); provided that, so long as such actions are initiated during such Post-Acquisition Period or such costs are incurred during such Post-Acquisition Period, as applicable, for purposes of projecting such pro forma increase or decrease to such Borrower CFADS, as the case may be, it may be assumed that such cost savings will be realizable during the entirety of such Test Period, or such additional costs, as applicable, will be incurred during the entirety of such Test Period; and provided, further, that the aggregate adjustment pursuant to clause (b)(ii) so permitted in any period shall not exceed 15% of the portion of Borrower CFADS attributable to such Acquisition for such period (determined before giving effect to any adjustment thereto pursuant to clause (b)(ii)).
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“ Pro Forma Basis ” and “ Pro Forma Effect ” mean, with respect to compliance with any test hereunder for an applicable period of measurement, that to the extent applicable, the Pro Forma Adjustment shall have been made and related transactions and the following transactions in connection therewith shall be deemed to have occurred as of the first day of the applicable period of measurement (as of the last date in the case of a balance sheet item) in such test: (a) income statement items (whether positive or negative) attributable to the property or Person subject to such transaction, in the case of a disposition of all or substantially all Equity Interests in any Subsidiary of the Borrower or any division, product line, or facility used for operations of the Borrower or any of its Subsidiaries, shall be excluded, (b) any retirement of Indebtedness, (c) calculations of Borrower’s Senior Secured Net Leverage Ratio shall be calculated (i) without giving effect to any netting of cash proceeds from any incurrence of any Indebtedness and (ii) with giving effect to any reduction of cash used for any such related transaction (including any Restricted Payment) and (d) any Indebtedness incurred or assumed by the Borrower or any of its Subsidiaries in connection therewith (calculated without giving effect to any netting of cash proceeds from any such incurrence for purposes of calculations of the Borrower’s Senior Secured Net Leverage Ratio) and if such Indebtedness has a floating or formula rate, shall have an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate which is or would be in effect with respect to such Indebtedness as at the relevant date of determination; provided that, without limiting the application of the Pro Forma Adjustment pursuant to (A) above, the foregoing pro forma adjustments may be applied to any such test solely to the extent that such adjustments are consistent with the definition of Borrower CFADS and give effect to events (including operating expense reductions) that are (as determined by the Borrower in good faith) (i) (x) directly attributable to such transaction, (y) expected to have a continuing impact on the Borrower and its Subsidiaries and (z) factually supportable or (ii) otherwise consistent with the definition of Pro Forma Adjustment.
“ Public-Sider ” means a Lender or any representative of such Lender that does not want to receive material non-public information (within the meaning of the federal and state securities laws) about the Borrower or its Subsidiaries.
“ Ratings Reaffirmation Period ” has the meaning assigned to such term in Section 6.04.
“ Recipient ” means (a) the Administrative Agent, (b) any Lender and (c) any Issuing Bank, as applicable.
“ Register ” has the meaning assigned to such term in Section 9.04(b).
“ Related Parties ” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.
“ Required Lenders ” means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing more than 50% of the sum of the total Revolving Credit Exposures and unused Commitments at such time. If at any time there are two (2) or more Lenders with Revolving Credit Exposure, then at least two (2) such Lenders that otherwise satisfy the foregoing provisions of this definition shall be necessary to constitute Required Lenders (for purposes of determining the number of Lenders under this sentence, a Lender and any other Lenders that are Affiliates or Approved Funds of such Lender shall be counted as a single Lender).
“ Restricted Payment ” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any option, warrant or other right to acquire any such Equity Interests in the Borrower (in each case other than dividends, other distributions or payments payable solely in common stock of the Borrower or options, warrants or rights to purchase shares of such common stock).
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“ Revolving Credit Exposure ” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Revolving Loans and its LC Exposure at such time.
“ Revolving Loan ” means a Loan made pursuant to Section 2.03.
“ S&P ” means S&P Global Ratings, a business unit of Standard & Poor’s Financial Services LLC, and any successor thereto.
“ Sanctioned Country ” means, at any time, a country, region or territory which is the subject or target of any Sanctions.
“ Sanctioned Person ” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person controlled by any such Person.
“ Sanctions ” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by the (a) U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom.
“ SEC ” means the Securities and Exchange Commission of the United State of America.
“ Secured Cash Management Agreement ” means any Cash Management Agreement that is entered into by and between any Loan Party and any Cash Management Bank.
“ Secured Obligations ” means (a) the Obligations, (b) the due and punctual payment and performance of all obligations of any Loan Party under each Hedging Agreement entered into with any counterparty that is a Hedge Bank (other than Excluded Swap Obligations) and (c) the due and punctual payment and performance of all obligations of any Loan Party (including overdrafts and related liabilities) under each Secured Cash Management Agreement.
“ Secured Parties ” means the Lenders, the Issuing Banks, the Administrative Agent and any other holder of any Secured Obligation.
“ Security Documents ” means the Pledge Agreement and each other security agreement executed and delivered pursuant to or in connection with this Agreement or any other Loan Document to secure any of the Secured Obligations.
“ Senior Secured Indebtedness ” means, at any date of determination, the aggregate principal amount of Total Debt outstanding on such date that is secured by a Lien on any asset or property of any Loan Party, which is not, by its terms, subordinated in right of payment to the Obligations.
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“ Solvent ” means, with respect to any Person as of any date of determination, that, as of such date, (a) the value of the assets of such Person is greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person, (b) such Person is able to pay all liabilities of such Person as such liabilities mature and (c) such Person does not have unreasonably small capital in relation to its business. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities shall be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“ Specified Event of Default ” means an Event of Default pursuant to Section 7.01(a), (b), (h) or (i).
“ Statutory Reserve Rate ” means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentage (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve percentage shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“ subsidiary ” means, with respect to any Person (the “ parent ”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
“ Subsidiary ” means any subsidiary of the Borrower.
“ Swap Agreement ” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.
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“ Swap Obligation ” means, with respect to the Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “ swap ” within the meaning of Section 1a(47) of the Commodity Exchange Act.
“ Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“ Test Period ” means, at any date of determination, the period of the most recently completed four fiscal quarters of the Borrower ended on or prior to such date.
“ Total Debt ” shall mean, at any date, the aggregate principal amount of all Indebtedness for borrowed money (including purchase money Indebtedness), unreimbursed drawings under letters of credit, Capital Lease Obligations and Indebtedness obligations evidenced by notes or similar instruments, in each case of any Loan Party outstanding as of such date that would be reflected on a balance sheet of the Borrower prepared as of such date on a consolidated basis in accordance with GAAP (except as otherwise provided in the definition of Capital Lease Obligations).
“ Transactions ” means, the execution, delivery and performance by the Borrower of this Agreement.
“ Type ”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate, the Alternate Base Rate.
“ U.S. Person ” means a “United States person” within the meaning of Section 7701(a)(30) of the Code.
“ U.S. Tax Compliance Certificate ” has the meaning assigned to such term in Section 2.17(f)(ii)(B)(3).
“ Withdrawal Liability ” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“ Write-Down and Conversion Powers ” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
Section 1.02. Classification of Loans and Borrowings . For purposes of this Agreement, Loans may be classified and referred to by class ( e . g ., a “ Revolving Loan ”) or by Type ( e . g ., a “ Eurodollar Loan ”) or by class and Type ( e . g ., a “ Eurodollar Revolving Loan ”). Borrowings also may be classified and referred to by class ( e . g ., a “ Revolving Borrowing ”) or by Type ( e . g ., a “ Eurodollar Borrowing ”) or by class and Type ( e . g ., a “ Eurodollar Revolving Borrowing ”).
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Section 1.03. Terms Generally . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time replaced, amended, amended and restated, supplemented or otherwise modified (subject to any restrictions on such replacements, amendments, amendments and restatements, supplements or modifications set forth herein), (b) any reference to any law or statute herein shall, unless otherwise specified, refer to such law or statute as amended, modified or supplemented from time to time, (c) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (d) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
Section 1.04. Accounting Terms; GAAP . Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Financial Accounting Standards Board Accounting Standards Codification 825 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “ fair value ”, as defined therein.
Article
II
The Credits
Section 2.01. Commitments . Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment or (ii) the aggregate Revolving Credit Exposure of all Lenders exceeding the aggregate Commitments of all Lenders. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.
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Section 2.02. Loans and Borrowings . (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender’s failure to make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is not less than $5,000,000 and any integral multiple of $500,000 in excess thereof. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is not less than $1,000,000 and any integral multiple of $500,000 in excess thereof and; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e). Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of 10 Eurodollar Revolving Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.
Section 2.03. Requests for Revolving Borrowings . To request a Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of the proposed Borrowing; provided that any such notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e) may be given not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
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(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
(v) the location and number of the bank account to which funds are to be disbursed.
If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.
Section 2.04. [ Reserved ].
Section 2.05. [ Reserved ].
Section 2.06. Letters of Credit . (a) General . Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit as the applicant thereof for the support of its or its Subsidiaries’ obligations, in a form reasonably acceptable to the Administrative Agent and the applicable Issuing Bank, at any time and from time to time during the LC Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, any Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. Notwithstanding anything herein to the contrary, (i) Barclays Bank PLC and Royal Bank of Canada will only issue standby Letters of Credit and shall have no obligation hereunder to issue, and shall not issue, any commercial or trade Letters of Credit, (ii) the Issuing Banks shall have no obligation hereunder to issue, and shall not issue, any Letter of Credit the proceeds of which would be made to any Person (y) to fund any activity or business of or with any Sanctioned Person, or in any country, region or territory, that at the time of such funding is the subject of any Sanctions or (z) in any manner that would result in a violation of any Sanctions by any party to this Agreement, (iii) no Issuing Bank shall be under any obligation to amend or extend any Letter of Credit if (y) such Issuing Bank would have no obligation at such time to issue the Letter of Credit in its amended form under the terms hereof or (z) the beneficiary of such Letter of Credit does not accept the proposed amendment thereto and (iv) no Issuing Bank shall be under any obligation to issue any Letter of Credit if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing Bank from issuing such Letter of Credit, or any law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon such Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Effective Date and which such Issuing in good faith deems material to it;
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(B) the issuance of such Letter of Credit would violate one or more policies of such Issuing Bank applicable to letters of credit generally;
(C) except as otherwise agreed by the Administrative Agent and such Issuing Bank, such Letter of Credit is in an initial stated amount less than $10,000;
(D) such Letter of Credit is to be denominated in a currency other than Dollars; or
(E) such Letter of Credit contains any provisions for automatic reinstatement of the stated amount after any drawing thereunder.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions . To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by such Issuing Bank) to an Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension, but in any event no less than three Business Days (or such short period as acceptable to such Issuing Bank)) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the applicable Issuing Bank, the Borrower also shall submit a letter of credit application on such Issuing Bank’s standard form appropriately completed and signed by a Financial Officer of the Borrower including agreed-upon draft language for such Letter of Credit reasonably acceptable to the applicable Issuing Bank in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $200,000,000, (ii) the aggregate undrawn amount of all outstanding Letters of Credit of any Issuing Bank at such time plus the aggregate amount of all LC Disbursements with respect to any such Letters of Credit that have not yet been reimbursed by or on behalf of the Borrower at such time shall not exceed such Issuing Bank’s Letter of Credit Sublimit; provided that any Issuing Bank may agree in its sole discretion and in writing to issue, amend, renew or extend a Letter of Credit in excess of its Letter of Credit Sublimit; provided , further that, for the avoidance of doubt, any such agreement shall not be deemed to increase such Issuing Bank’s Letter of Credit Sublimit and shall be made on a case-by-case basis without any consideration of previous agreements pursuant to the first proviso to this clause (ii) with respect to the applicable Letter of Credit (in the case of an amendment, renewal or extension) or otherwise, (iii) no Lender’s Revolving Credit Exposure shall exceed its Commitment and (iv) the aggregate Revolving Credit Exposure of all Lenders shall not exceed the aggregate Commitments of all Lenders.
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(c) Expiration Date . Each Letter of Credit shall expire (or be subject to termination by notice from the applicable Issuing Bank to the beneficiary thereof) at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date.
(d) Participations . By the issuance of a Letter of Credit by an Issuing Bank (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of such Issuing Bank or the Lenders, such Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of each Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement . If any Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.05 that such payment be financed with an ABR Revolving Borrowing in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.07 with respect to Loans made by such Lender (and Section 2.07 shall apply, mutatis mutandis , to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the applicable Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the applicable Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse any Issuing Bank, then to such Lenders and such Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse any Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving Loans as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.
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(f) Obligations Absolute . The Borrower’s obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by any Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Lenders nor the Issuing Banks, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of an Issuing Bank; provided that the foregoing shall not be construed to excuse any Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by such Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of any Issuing Bank (as finally determined by a court of competent jurisdiction), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank with respect to such Letter of Credit may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures . Each Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit issued by such Issuing Bank. Such Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement.
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(h) Interim Interest . If any Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the reimbursement is due and payable at the rate per annum then applicable to ABR Revolving Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(d) shall apply. Interest accrued pursuant to this paragraph shall be for the account of such Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse such Issuing Bank shall be for the account of such Lender to the extent of such payment.
(i) Replacement or Resignation of the Issuing Bank . Any Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. Any Issuing Bank may resign as an Issuing Bank if it ceases to be a Lender under this Agreement. The Administrative Agent shall notify the Lenders of any such replacement or resignation of such Issuing Bank. At the time any such replacement or resignation shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced or resigned Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of such replaced Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to include reference to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement or resignation of any Issuing Bank hereunder, the replaced or resigned Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement or resignation, but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization . Upon (w) the Maturity Date, (x) termination of the Commitments, (y) the circumstances described in Section 2.20(b)(ii) or (z) if any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, the Issuing Banks or Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to 103% of the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the Maturity Date, termination of the Commitments or the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse each Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of the Issuing Banks or Lenders with LC Exposure representing greater than 50% of the total LC Exposure), be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower upon the Borrower’s written request within three Business Days after all Events of Default have been cured or waived.
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Section 2.07. Funding of Borrowings . (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of a Loan Party maintained with the Administrative Agent in New York City and designated by the Borrower in the applicable Borrowing Request; provided that ABR Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Administrative Agent to the applicable Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.
Section 2.08. Interest Elections . (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.
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(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “ Interest Period ”.
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if a Specified Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as a Specified Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
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Section 2.09. Termination and Reduction of Commitments . (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date and to the extent provided in Section 7.01.
(b) The Borrower may at any time terminate, or from time to time reduce the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is not less than $1,000,000 and any integral multiple of $500,000 in excess thereof and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.11, the sum of the Revolving Credit Exposures would exceed the total Commitments.
(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.
Section 2.10. Repayment of Loans; Evidence of Debt . (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.
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(e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).
Section 2.11. Prepayment of Loans . (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section.
(b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.09, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.09. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13.
Section 2.12. Fees . (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Rate on the daily amount of the unused Commitment of such Lender during the period from and including the Effective Date to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any Revolving Credit Exposure after its Commitment terminates, then such commitment fee shall continue to accrue on the daily amount of such Lender’s Revolving Credit Exposure from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any Revolving Credit Exposure. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any commitment fees accruing after the date on which the Commitments terminate shall be payable on demand. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For purposes of computing commitment fees, the Commitment of any Lender shall be deemed to be used to the extent of the Revolving Credit Exposure of such Lender.
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(b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Rate used to determine the interest rate applicable to Eurodollar Revolving Loans on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender’s Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to each Issuing Bank a fronting fee, which shall accrue at the rate or rates per annum separately agreed upon between the Borrower and such Issuing Bank on the face amount of each Letter of Credit of such Issuing Bank during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, as well as such Issuing Bank’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit of such Issuing Bank or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to any Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.
(d) The Borrower agrees to pay fees in the amounts and at the times agreed pursuant to the Fee Letters.
(e) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Banks, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances.
Section 2.13. Interest . (a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest in the case of a Eurodollar Revolving Loan, at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
(c) [Reserved]
(d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.
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(e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, in the case of Revolving Loans, upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.
Section 2.14. Alternate Rate of Interest . (a) If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(i) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable (including, without limitation, because the LIBO Screen Rate is not available or published on a current basis), for such Interest Period; or
(ii) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (A) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective, and (B) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing.
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(b) If at any time the Administrative Agent determines (which determination shall be conclusive absent manifest error) that (i) the circumstances set forth in clause (a)(i) have arisen and such circumstances are unlikely to be temporary or (ii) the circumstances set forth in clause (a)(i) have not arisen but the supervisor for the administrator of the LIBO Screen Rate or a Governmental Authority having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which the LIBO Screen Rate shall no longer be used for determining interest rates for loans, then reasonably promptly after such determination, the Administrative Agent and the Borrower shall endeavor to establish an alternate rate of interest to the LIBO Rate that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable (but for the avoidance of doubt, such related changes shall not include a reduction of the Applicable Rate). Notwithstanding anything to the contrary in Section 9.02, such amendment shall become effective without any further action or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five Business Days of the date notice of such alternate rate of interest is provided to the Lenders, a written notice from the Required Lenders stating that such Required Lenders object to such amendment. Until an alternate rate of interest shall be determined in accordance with this clause (b) (but, in the case of the circumstances described in clause (ii) of the first sentence of this Section 2.14(b), only to the extent the LIBO Rate for such Interest Period is not available or published at such time on a current basis), (x) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective and (y) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that, if such alternate rate of interest shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
Section 2.15. Increased Costs . (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or any Issuing Bank;
(ii) impose on any Lender or any Issuing Bank or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein; or
(iii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, continuing, converting or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender, such Issuing Bank or such other Recipient of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender, such Issuing Bank or such other Recipient hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender, such Issuing Bank or such other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, such Issuing Bank or such other Recipient, as the case may be, for such additional costs actually incurred or reduction actually suffered.
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(b) If any Lender or any Issuing Bank determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s or such Issuing Bank’s capital or on the capital of such Lender’s or such Issuing Bank’s holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such Lender’s or such Issuing Bank’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction suffered.
(c) A certificate of a Lender or a Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section, and setting forth in reasonable detail the manner in which such amount or amounts shall have been determined, shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Notwithstanding anything to the contrary in this Agreement, no Lender nor Issuing Bank shall be entitled to request any payment or amount under this Section 2.15 unless such Lender or Issuing Bank is generally demanding payment (and certifies to the Borrower that it is generally demanding payment) under comparable provisions of its agreements with similarly situated borrowers of similar credit quality (provided, that the Administrative Agent shall be under no obligation to verify any such request of a Lender). Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 90 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or such Issuing Bank’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 90-day period referred to above shall be extended to include the period of retroactive effect thereof.
Section 2.16. Break Funding Payments . In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.11(b) and is revoked in accordance therewith), (d) [Reserved] or (e) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.19, then, in any such event, the Borrower shall compensate each Lender for the loss (other than loss of profit or Applicable Rate), cost and expense attributable to such event. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section, and setting forth in reasonable detail the manner in which such amount or amounts shall have been determined, shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
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Section 2.17. Payments Free of Taxes . (a) Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable withholding agent) requires the deduction or withholding of any Tax from any such payment by a withholding agent, then the applicable withholding agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 2.17) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(b) Payment of Other Taxes by the Borrower . The Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for, Other Taxes.
(c) Evidence of Payments . As soon as practicable after any payment of Taxes by the Borrower to a Governmental Authority pursuant to this Section 2.17, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(d) Indemnification by the Borrower . The Borrower shall indemnify each Recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
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(e) Indemnification by the Lenders . Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 9.04(c) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f) Status of Lenders . (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, original copies of such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.17(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. Federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of originals as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
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(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. Federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(2) executed originals of IRS Form W-8ECI;
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit B-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “ U.S. Tax Compliance Certificate ”) and (y) executed originals of IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable; or
(4) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or IRS Form W-8BEN-E, as applicable, a U.S. Tax Compliance Certificate substantially in the form of Exhibit B-2 or Exhibit B-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit B-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. Federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
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Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(g) Treatment of Certain Refunds . If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.17 (including by the payment of additional amounts pursuant to this Section 2.17), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.17 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(h) Survival . Each party’s obligations under this Section 2.17 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
(i) Defined Terms . For purposes of this Section 2.17, the term “ Lender ” includes any Issuing Bank and the term “ applicable law ” includes FATCA.
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Section 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-offs . (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 10 South Dearborn, Chicago, Illinois 60603, except payments to be made directly to an Issuing Bank as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
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(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Banks hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Banks, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Banks, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.06(d) or (e), 2.07(b), 2.18(d) or 9.03(c), then the Administrative Agent may, in its discretion and notwithstanding any contrary provision hereof, (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid, and/or (ii) hold such amounts in a segregated account over which the Administrative Agent shall have exclusive control as cash collateral for, and application to, any future funding obligations of such Lender under any such Section until such obligations are satisfied, in the case of each of clause (i) and (ii) above, in any order as determined by the Administrative Agent in its discretion.
(f) The Borrower hereby irrevocably waives the right to direct the application of any and all payments in respect of the Secured Obligations after the occurrence and during the continuance of an Event of Default and agrees that the Administrative Agent may, and, upon either (A) the written direction of the Required Lenders or (B) the acceleration of the Obligations pursuant to Section 7.01, shall, apply all payments in respect of any Secured Obligations of such Borrower and all proceeds of Pledged Collateral in the following order:
first , to pay interest on and then principal of any portion of the Loans that the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or such Borrower;
second , to pay Secured Obligations in respect of any expense reimbursements or indemnities then due to the Administrative Agent;
third , to pay Secured Obligations in respect of any expense reimbursements or indemnities then due to the Lenders and the Issuing Banks;
fourth , to pay Secured Obligations in respect of any fees then due to the Administrative Agent, the Lenders and the Issuing Banks;
fifth , to pay interest then due and payable in respect of the Loans and LC Disbursements;
sixth , ratably to pay or prepay principal amounts on all other Loans and reimbursement obligations with respect to LC Disbursements, to pay all Secured Obligations in respect of Hedge Agreements and Secured Cash Management Agreements and to provide cash collateral for outstanding LC Exposure in respect of undrawn Letters of Credit in an amount equal to 103% of such LC Exposure; and
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seventh , to the ratable payment of all other Secured Obligations;
provided , however , that if sufficient funds are not available to fund all payments to be made in respect of any Secured Obligation described in any of clauses first through eighth above, the available funds being applied with respect to any such Secured Obligation (unless otherwise specified in such clause) shall be allocated to the payment of such Secured Obligation ratably, based on the proportion of the Administrative Agent’s and each Lender’s, Issuing Bank’s, Hedge Bank’s or Cash Management Bank’s interest in the aggregate outstanding Secured Obligations described in such clauses.
Section 2.19. Mitigation Obligations; Replacement of Lenders . (a) If any Lender requests compensation under Section 2.15, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Sections 2.15 or 2.17, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) If (i) any Lender requests compensation under Section 2.15 or the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.17 and, in each case, such Lender has declined or is unable to designate a different lending office in accordance with Section 2.19(a), (ii) any Lender becomes Defaulting Lender or (iii) any Lender refuses to consent to any amendment, waiver or other modification of this Agreement requested by the Borrower that requires the consent of a greater percentage of the Lenders than the Required Lenders and such amendment, waiver or other modification is consented to by the Required Lenders, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights (other than its existing rights to payments pursuant to Sections 2.15 or 2.17) and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) if such assignee is not then a Lender, the Borrower shall have received the prior written consent of the Administrative Agent and the Issuing Banks, which consent shall not be unreasonably withheld or delayed, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) in accordance with the applicable Assignment and Assumption or the Borrower (in the case of all other amounts), (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments and (iv) in the case of any such assignment resulting from a Lender refusing to consent to an amendment, waiver or other modification for which the Required Lenders have consented to, such assignee shall be deemed to have consented to the applicable amendment, waiver or other modification. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
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Section 2.20. Defaulting Lenders . Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) the Commitment and Revolving Credit Exposure of such Defaulting Lender shall not be included in determining whether the Required Lenders have taken or may take any action hereunder (including any consent to any amendment, waiver or other modification pursuant to Section 9.02); provided that this clause (a) shall not apply to the vote of a Defaulting Lender in the case of an amendment, waiver or other modification requiring the consent of such Lender or each Lender affected thereby;
(b) if any LC Exposure exists at the time such Lender becomes a Defaulting Lender then:
(i) all or any part of the LC Exposure of such Defaulting Lender shall be reallocated among the non-Defaulting Lenders in accordance with their respective Applicable Percentages but only to the extent that (x) the sum of all non-Defaulting Lenders’ Revolving Credit Exposures plus such Defaulting Lender’s LC Exposure does not exceed the total of all non-Defaulting Lenders’ Commitments and (y) the conditions set forth in Section 4.02 are satisfied at such time;
(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrower shall within one Business Day following notice by the Administrative Agent, cash collateralize for the benefit of the Issuing Banks only the Borrower’s obligations corresponding to such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.06(j) for so long as such LC Exposure is outstanding;
(iii) if the Borrower cash collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to clause (ii) above, the Borrower shall not be required to pay any fees to such Defaulting Lender pursuant to Section 2.12(b) with respect to such Defaulting Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is cash collateralized;
(iv) if the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the fees payable to the Lenders pursuant to Section 2.12 shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages; and
(v) if all or any portion of such Defaulting Lender’s LC Exposure is neither reallocated nor cash collateralized pursuant to clause (i) or (ii) above, then, without prejudice to any rights or remedies of any Issuing Bank or any other Lender hereunder, all commitment fees that otherwise would have been payable to such Defaulting Lender (solely with respect to the portion of such Defaulting Lender’s Commitment that was unutilized by such LC Exposure) and letter of credit fees payable under Section 2.12 with respect to such Defaulting Lender’s LC Exposure shall be payable to the applicable Issuing Bank until and to the extent that such LC Exposure is reallocated and/or cash collateralized;
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(c) so long as such Lender is a Defaulting Lender, no Issuing Bank shall be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure and the Defaulting Lender’s then outstanding LC Exposure will be 100% covered by the Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrower in accordance with Section 2.20(c), and participating interests in any newly issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a manner consistent with Section 2.20(c)(i) (and such Defaulting Lender shall not participate therein);
(d) No Defaulting Lender shall be entitled to receive any commitment fees payable under Section 2.12(a) for any period during which such Lender is a Defaulting Lender and the Borrower shall not be required to pay any such fee (except as otherwise provided in Section 2.20(b)(v)) that otherwise would have been required to have been paid to such Defaulting Lender; and
(e) So long as any Lender is a Defaulting Lender, such Lender and its Affiliates will not be a Cash Management Bank or Hedge Bank with respect to any Secured Cash Management Agreement or Hedging Agreement entered into while such Lender was a Defaulting Lender.
If (i) a Bankruptcy Event or a Bail-In Action with respect to a Lender Parent shall occur following the date hereof and for so long as such event shall continue or (ii) any Issuing Bank has a good faith belief that any Lender has defaulted in fulfilling its obligations under one or more other agreements in which such Lender commits to extend credit, such Issuing Bank shall not be required to issue, amend or increase any Letter of Credit, unless such Issuing Bank shall have entered into arrangements with the Borrower or such Lender, satisfactory to such Issuing Bank to defease any risk to it in respect of such Lender hereunder.
In the event that the Administrative Agent, the Borrower and each Issuing Bank each agrees that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitment and on such date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage.
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Section 2.21. Incremental Commitments . The Borrower may, by written notice to the Administrative Agent, from time to time and at any time up until and including the date that is five (5) Business Days prior to the Maturity Date, advise of the obtaining of one or more Incremental Commitments (each such increase, a “ Commitment Increase ”) in an aggregate amount not to exceed (a) $100,000,000, plus (b) so long as either a Pledge Release Period is then in effect or after giving effect to such Commitment Increase, the Borrower’s Senior Secured Net Leverage Ratio (assuming such Commitment Increase is fully drawn and otherwise on a Pro Forma Basis as of the then most recently ended Test Period) shall not exceed 2.00:1.00, $100,000,000; provided that, in either case, (i) no Event of Default shall exist after giving effect to the incurrence of such Commitment Increase and (ii) after giving effect to such Commitment Increase, the Borrower shall be in compliance with the financial covenant set forth in Section 6.08 (assuming such Commitment Increase is fully drawn and otherwise on a Pro Forma Basis as of the then most recently ended Test Period); provided , further that, to the extent then available, each Commitment Increase shall apply to clause (b) of this Section 2.21 prior to clause (a). Such notice shall set forth (i) the amount of such Commitment Increase ( provided ; however , that the amount of each Commitment Increase shall be in an aggregate principal amount that is not less than $10,000,000) and (ii) the date on which each such Incremental Commitment is requested to become effective (which shall not be later than the Maturity Date) (each such date, an “ Incremental Effective Date ”). Commitment Increases may be provided by any existing Lender or by any other bank or other financial institution (any such other bank or other financial institution being called an “ Additional Lender ”), provided that the Administrative Agent shall have consented (such consent not to be unreasonably withheld or delayed) to such Lender’s or Additional Lender’s providing such Commitment Increases if such consent would be required under Section 9.04 for an assignment of Revolving Loans or Commitments, as applicable, to such Lender or Additional Lender. Commitments in respect of Commitment Increases shall become Commitments (or in the case of a Commitment Increase to be provided by an existing Lender, an increase in such Lender’s Commitment) under this Agreement pursuant to an amendment (an “ Incremental Amendment ”) to this Agreement, executed by the Borrower, each Lender agreeing to provide such Commitment Increase, if any, each Additional Lender, if any, and the Administrative Agent, and, in the case of an Additional Lender, setting forth the agreement of each Additional Lender to become a party to this Agreement and to be bound by all of the terms and provisions hereof. The Incremental Amendment may, without the consent of any other Lenders, effect such amendments to this Agreement as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section 2.21. No Lender shall be obligated to provide any Commitment Increases, unless it so agrees. Upon each increase in the Commitments pursuant to this Section 2.21, (a) each Lender immediately prior to such increase will automatically and without further act be deemed to have assigned to each Lender providing a portion of the Commitment Increase (each, a “Commitment Increase Lender”) in respect of such increase, and each such Commitment Increase Lender will automatically and without further act be deemed to have assumed, a portion of such Lender’s participations hereunder in outstanding LC Exposure such that, after giving effect to each such deemed assignment and assumption of participations, the percentage of the aggregate outstanding participations hereunder in LC Exposure held by each Lender (including each such Commitment Increase Lender) will equal the percentage of the total Commitments represented by such Lender’s Commitment and (b) if, on the date of such increase, there are any Revolving Loans outstanding, such Revolving Loans shall on or prior to the effectiveness of such Commitment Increase be prepaid from the proceeds of additional Revolving Loans made hereunder (reflecting such increase in Commitments), which prepayment shall be accompanied by accrued interest on the Revolver Loans being prepaid and any costs incurred by any Lender in accordance with Section 2.16. The Administrative Agent and the Lenders hereby agree that the minimum borrowing and pro rata payment requirements contained elsewhere in this Agreement shall not apply to the transactions effected pursuant to the immediately preceding sentence. The Administrative Agent shall promptly notify each Lender of the execution and delivery of each Incremental Amendment. As of each Incremental Effective Date, this Agreement shall be deemed supplemented by each such Incremental Amendment, each such applicable Additional Lender shall be a “ Lender ” hereunder, and each such Incremental Lender’s Incremental Commitment shall be its “ Commitment ” hereunder (in the case of an Additional Lender) or shall increase its Commitment hereunder (in the case of an existing Lender).
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Article
III
Representations and Warranties
The Borrower represents and warrants to the Lenders, as of the Effective Date and on the date that any Loan is made or any Letter of Credit is issued, amended, extended or renewed after the Effective Date, that:
Section 3.01. Organization; Powers . Each Loan Party (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to carry on its business as now conducted and (c) is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except in the case of clauses (b) and (c) where the failure with respect thereto, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
Section 3.02. Authorization; Enforceability . The execution and delivery hereof by the Loan Parties hereof, and the performance of their respective obligations hereunder are within each of the Loan Parties’ corporate powers and have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by each Loan Party hereto and constitutes a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
Section 3.03. Governmental Approvals; No Conflicts . The execution and delivery hereof by the Loan Parties hereof, and the performance of their respective obligations hereunder (a) do not require any Loan Party to obtain, make or take, as applicable, any consent or approval of, registration or filing with, or any other action with respect to, any Governmental Authority, except such as have been obtained, made or taken, as applicable, and are in full force and effect, (b) will not violate any law or regulation applicable to any Loan Party or the charter, by-laws or other organizational documents of any Loan Party or any order of any Governmental Authority to which any Loan Party is subject, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Loan Party or its assets, or give rise to a right thereunder to require any payment to be made by any Loan Party, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party (other than pursuant to any Security Document).
Section 3.04. Financial Condition; No Material Adverse Change; Solvency . (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, stockholders equity and cash flows (i) as of and for the fiscal year ended December 31, 2016, reported on by KPMG LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended September 30, 2017, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above.
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(b) Since December 31, 2016, there has been no change in the business, assets, operations, or financial condition of the Borrower and its Subsidiaries, taken as a whole, that could reasonably be expected to result in a Material Adverse Effect.
(c) Both before and after giving effect to (a) the Loans (if any) made on the Effective Date and (b) the disbursement of the proceeds of such Loans to or as directed by the Borrower, the Loan Parties and their Subsidiaries taken as a whole are Solvent on the Effective Date.
Section 3.05. Properties . (a) Each Loan Party has good title to, or valid leasehold or other interests in, all its real and personal property material to its business, except as could not reasonably be expected to have a Material Adverse Effect.
(b) The Borrower owns, is licensed to use, or has the legal right to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrower does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
Section 3.06. Litigation and Environmental Matters . (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the actual knowledge of the Borrower, threatened against or affecting any Loan Party (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions.
(b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, no Loan Party (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability nor (iv) knows of any basis for any Environmental Liability.
(c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect.
Section 3.07. Compliance with Laws and Agreements . Each Loan Party is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.
Section 3.08. Investment Company Status . No Loan Party is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.
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Section 3.09. Taxes . Each Loan Party has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the applicable Loan Party has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect.
Section 3.10. ERISA . (a) No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on those assumptions used for disclosure of such obligations in corporate financial statements in accordance with GAAP) did not, as of the most recent statements available, exceed the aggregate value of the assets for each plan by an amount in the aggregate for all such plans that would reasonably be expected to have a Material Adverse Effect.
(b) The Borrower is not and will not be using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the Commitments.
Section 3.11. Disclosure . Each Loan Party has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Loan Parties to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished), taken as a whole, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, each Loan Party represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time (it being understood that projected financial information is subject to significant contingencies and assumptions, many of which are beyond the control of the Loan Parties and their respective Subsidiaries, and that no assurance can be given that the projections or forecasts will be realized).
Section 3.12. Anti-Corruption Laws, Anti-Terrorism Laws and Sanctions . The Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Loan Parties, their Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws, Anti-Terrorism Laws and applicable Sanctions, and the Loan Parties, their Subsidiaries and, to the actual knowledge of the Borrower, their respective officers, employees and directors, are in compliance with Anti-Corruption Laws, Anti-Terrorism Laws and applicable Sanctions in all material respects. None of (a) the Loan Parties, their Subsidiaries or, to the actual knowledge of the Borrower, any of their respective directors, officers or employees, or (b) to the knowledge of the Borrower, any agent of the Loan Parties that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person. No proceeds of any Borrowing or any Letter of Credit will be used directly, or to the actual knowledge of the Borrower, indirectly in any manner which would violate Anti-Corruption Laws or applicable Sanctions.
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Section 3.13. Margin Regulations . The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying Margin Stock, or extending credit for the purpose of purchasing or carrying Margin Stock, and no part of the proceeds of any Loans hereunder will be used to buy or carry any Margin Stock.
Article
IV
Conditions
Section 4.01. Effective Date . The obligations of the Lenders to make Commitments and Loans and of the Issuing Banks to issue Letters of Credit hereunder shall not become effective (and the initial Loans (if any are to be made on the Effective Date) shall not be funded) until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received from each party thereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of White & Case LLP, counsel for the Loan Parties, and covering such other matters relating to the Borrower, the Guarantor, the Loan Documents or the Transactions as the Administrative Agent or the Required Lenders shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion.
(c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of each Loan Party, the authorization of the Transactions and any other legal matters relating to the Loan Parties, this Agreement or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.
(d) If any Loans are to be made, or Letters of Credit issued, on the Effective Date (other than those made or used pursuant to Section 9.17), the Administrative Agent shall have received a Borrowing Request in accordance with Section 2.03.
(e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced at least two Business Days prior to the Effective Date, reimbursement or payment of all out of pocket expenses required to be reimbursed or paid by the Borrower hereunder.
(f) The representations and warranties of the Loan Parties set forth in this Agreement shall be true and correct on and as of the Effective Date and the Administrative Agent shall have received a Borrower certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer (or other officer with equivalent duties) of the Borrower, with respect thereto.
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(g) On the Effective Date, the Borrower shall have no outstanding secured Indebtedness for borrowed money other than the Obligations.
(h) Upon the reasonable request of any Lender made at least five Business Days prior to the Effective Date, the Borrower shall have provided to such Lender the documentation and other information so requested in connection with applicable “know your customer” and anti-money-laundering rules and regulations, including the PATRIOT Act, in each case at least three Business Days prior to the Effective Date.
Section 4.02. Each Credit Event after the Effective Date . The obligation of each Lender to make a Loan on the occasion of any Borrowing after the Effective Date, and of the Issuing Banks to issue, amend, renew or extend any Letter of Credit after the Effective Date, is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Borrower set forth in this Agreement shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing.
(c) Such Borrowing or Letter of Credit issuance shall not occur during a Ratings Reaffirmation Period.
Each such Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
Article
V
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated , in each case, without any pending draw, and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that on and after the Effective Date:
Section 5.01. Financial Statements; Ratings Change and Other Information . The Borrower will furnish to the Administrative Agent and each Lender, including their Public-Siders:
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(a) within 90 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by KPMG LLP or other independent public accountants of recognized national standing (without a “going concern” or like qualification commentary or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto and (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 6.08;
(d) promptly after the same become publicly available, copies of all reports on Form 8-K filed by it with the SEC, or any Governmental Authority succeeding to any of or all the functions of the SEC, or copies of all reports distributed to its shareholders, as the case may be; and
(e) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of any Loan Party, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender (through the Administrative Agent) may reasonably request.
Information required to be delivered pursuant to this Section shall be deemed to have been delivered on the date on which the Borrower provides notice (reasonably identifying where the applicable disclosure may be obtained) to the Administrative Agent that such information has been posted on the Borrower’s website on the internet at www.macquarie.com/mic, or on the SEC’s website on the internet at www.sec.gov or at another website identified in such notice and accessible by the Lenders without charge.
Section 5.02. Notices of Material Events . Promptly (and in any event within five Business Days) after any executive officer of the Borrower obtaining actual knowledge thereof, the Borrower will furnish to the Administrative Agent and each Lender written notice of the following:
(a) the occurrence of any Default;
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(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting any Loan Party thereof that could reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of any Loan Party in an aggregate amount exceeding $25,000,000;
(d) the announcement of a change in any Debt Rating established or deemed to have been established for the Facility Debt;
(e) the occurrence of a Pledge Release Date; and
(f) the occurrence of a Pledge Trigger Date;
provided , that in each case the Borrower shall not be required to provide separate notice of any event disclosed in any report promptly filed with the SEC if the Borrower has provided notice to the Administrative Agent in accordance with the last paragraph of Section 5.01 as long as the Borrower has provided notice reasonably identifying where the applicable disclosure may be obtained to the Administrative Agent that such information has been posted.
Section 5.03. Existence; Conduct of Business . Each Loan Party will do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03.
Section 5.04. Payment of Obligations . Each Loan Party will pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings and (b) such Loan Party has set aside on its books adequate reserves with respect thereto in accordance with GAAP.
Section 5.05. Maintenance of Properties; Insurance . Each Loan Party will (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations.
Section 5.06. Books and Records; Inspection Rights . Each Loan Party will keep proper books of record and account in which full, true and correct entries are made of all material dealings and transactions in relation to its business and activities. Each Loan Party will permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and (in the presence of officers of the Borrower, whether by phone or in person) independent accountants (excluding, in each case contracts and other information subject to obligations of any Loan Party under applicable confidentiality provisions or attorney-client privilege), all at such reasonable times and as often as reasonably requested (but, so long as no Event of Default has occurred and is continuing, not more often than once in every twelve (12) month period from the date hereof), all at the expense of the applicable Lender (provided that during the continuation of any Default any expense of the Lenders in connection with the foregoing shall be for the account of the Borrower).
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Section 5.07. Compliance with Laws . Each Loan Party will comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property (including the filing of all Tax returns required to be filed), except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower will maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
Section 5.08. Use of Proceeds and Letters of Credit . The proceeds of the Loans will be used only for general corporate purposes (including without limitation to finance Acquisitions). No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X. The Borrower will not request any Borrowing or Letter of Credit, and the Borrower shall not use, and shall procure that its Subsidiaries and its or their respective directors, officers, employees and agents shall not use, the proceeds of any Borrowing or Letter of Credit (A) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws or Anti-Terrorism Laws, (B) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person, or in any Sanctioned Country, or (C) in any manner that would result in the violation of any Sanctions or Anti-Terrorism Laws applicable to any party hereto.
Section 5.09. Credit Ratings . The Borrower will use commercially reasonable efforts to obtain and maintain (but not obtain or maintain a specific rating) a public corporate credit rating of the Borrower from at least one of S&P and Moody’s.
Section 5.10. Cash Distributions . Upon and during the continuance of any Event of Default, if requested to do so by the Administrative Agent, the Borrower will use commercially reasonable efforts to obtain cash distributions from its Subsidiaries (to the extent such cash is then on hand at the Subsidiaries and Available for Distribution).
Section 5.11. Additional Collateral . Except during a Pledge Release Period, promptly following the acquisition by (including by transfer to or formation of a Subsidiary by) the Borrower of (y) any Pledged Equity or (z) any intercompany notes or instruments referred to in Section 6.01(c) in an aggregate principal amount in excess of $25,000,000, the Borrower shall deliver to the Administrative Agent all certificates, instruments, promissory notes and other documents (in each case, if any) representing such Pledged Equity or intercompany Indebtedness, together with (i) in the case of certificated Equity Interests, undated stock powers endorsed in blank and (ii) in the case promissory notes, instruments and other certificated debt securities, endorsed in blank, in each case executed and delivered by an authorized officer of the Borrower.
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Article
VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated, in each case, without any pending draw, and all LC Disbursements shall have been reimbursed, the Loan Parties covenant and agree with the Lenders that on and after the Effective Date:
Section 6.01. Indebtedness . The Guarantor will not create, incur, assume or permit to exist any Indebtedness of the Guarantor, except:
(a) Guarantees of Indebtedness created under any Loan Document;
(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01;
(c) Indebtedness owing to the Borrower; provided that if such Indebtedness shall be evidenced by intercompany promissory notes, all such notes shall be subject to the Lien of the Pledge Agreement;
(d) Indebtedness owing to any of its Subsidiaries in the aggregate at any time outstanding not in excess of $70,000,000;
(e) Guarantees of Permitted Borrower Secured Debt;
(f) Permitted Guarantor Debt;
(g) Guarantees of Permitted Borrower Junior Secured Debt; provided that such guarantee shall be on a subordinated basis and a representative acting on behalf of the holders of such Permitted Borrower Junior Secured Debt and the Administrative Agent shall have executed and delivered a subordination agreement, the form and substance of which shall be satisfactory to the Administrative Agent in its reasonable judgment;
(h) Guarantees of unsecured Indebtedness incurred by the Borrower; provided that, (i) the proceeds thereof are being concurrently used to finance an acquisition not prohibited by this Agreement and related fees and expenses, (ii) no Event of Default shall exist at the time of such acquisition or, in the case of an acquisition not conditioned on the obtaining of financing therefor, at the time of entering into a binding agreement in respect of such acquisition; (iii) such unsecured Indebtedness shall not be Guaranteed by any Person other than the Guarantor; (iv) the terms and provisions of such unsecured Indebtedness shall not be more restrictive, taken as a whole, to the Loan Parties than those applicable hereto at the time of incurrence of such unsecured Indebtedness, unless such other terms (1) apply only after the Maturity Date at the time of incurrence of such unsecured Indebtedness, (2) shall also apply hereto (which such application shall not require the consent of the Lenders or the Administrative Agent if so reasonably determined by the Borrower) or (3) relate only to mandatory prepayments customary for such type of unsecured Indebtedness, premiums (including make-whole provisions), interest, fees or maturity or amortization; (v) either (x) a Pledge Release Period shall have occurred and be continuing or (y) such Guarantee shall be on a subordinated basis and a representative acting on behalf of the holders of such unsecured Indebtedness and the Administrative Agent shall have executed and delivered a subordination agreement, the form and substance of which shall be satisfactory to the Administrative Agent in its reasonable judgment; and (vi) such Guarantee shall provide for automatic subordination on terms reasonably satisfactory to the Administrative Agent during any period that a Pledge Release Period is not then in effect; and
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(i) (a) any replacement, renewal, refinancing or extension of any Indebtedness referenced in clauses (b), (c), (d) and (f) of this Section 6.01 that does not exceed the aggregate principal amount (plus associated fees and expenses) of the Indebtedness being replaced, renewed, refinanced or extended (except that accrued and unpaid interest not delinquent in accordance with its terms may be part of any refinancing pursuant to this clause) and that otherwise complies with this Agreement and (b) Permitted Refinancing Indebtedness of any Indebtedness referenced in clauses (e), (g) and (h) of this Section 6.01.
Section 6.02. Liens . No Loan Party will create, incur, assume or permit to exist any Lien on any of its property or assets, whether now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:
(a) Liens pursuant to any Loan Document;
(b) Permitted Encumbrances;
(c) any Lien existing on any property or asset prior to the acquisition thereof by the Loan Parties; provided that (i) such Lien does not attach to any Equity Interests or intercompany notes held or acquired by the Borrower, (ii) such Lien was not created in anticipation of such acquisition, (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition and (iv) the aggregate amount of Indebtedness secured by all Liens permitted by this clause (c) shall not exceed at any time outstanding $50,000,000;
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(d) Liens granted by the Borrower securing senior secured first lien or junior lien Indebtedness incurred by the Borrower (such secured Indebtedness, “ Permitted Borrower Secured Debt ”); provided that, (i) no Event of Default shall exist after giving effect to the incurrence of such Permitted Borrower Secured Debt unless the proceeds thereof are being concurrently used to finance an acquisition and such acquisition is not conditioned on the obtaining of financing therefor, in which case no Event of Default shall exist at the time of entering into a binding agreement in respect of such acquisition; (ii) either a Pledge Release Period is then in effect or after giving effect to the incurrence of such Permitted Borrower Secured Debt (on the date of incurrence thereof or, if the proceeds thereof are being concurrently used to finance an acquisition, on the date of entering into a binding agreement in respect of such acquisition), the Borrower’s Senior Secured Net Leverage Ratio (calculated on a Pro Forma Basis as of the then most recently ended fiscal quarter of the Borrower, including, for the avoidance of doubt, with respect to the calculation of Borrower CFADS) shall not exceed 2.00:1.00; (iii) such Permitted Borrower Secured Debt shall not be Guaranteed by any Person other than the Guarantor and shall not be secured by a Lien on any assets other than Pledged Collateral; (iv) subject to the limitations in clauses (v) and (vi) below, the terms and provisions of such Permitted Borrower Secured Debt shall not be more restrictive, taken as a whole, to the Loan Parties than those applicable hereto at the time of incurrence of such Permitted Borrower Secured Debt, unless such other terms (1) apply only after the Maturity Date at the time of incurrence of such Permitted Borrower Secured Debt, (2) shall also apply hereto (which such application shall not require the consent of the Lenders or the Administrative Agent if so reasonably determined by the Borrower) or (3) relate only to mandatory prepayments customary for such type of Permitted Borrower Secured Debt, premiums (including make-whole provisions), interest, fees or (subject to the foregoing) maturity or amortization; (v) the Weighted Average Life to Maturity of such Permitted Borrower Secured Debt shall be no shorter than that hereof in effect at the time of incurrence of such Permitted Borrower Secured Debt; (vi) the Stated Maturity of such Permitted Borrower Secured Debt shall be no shorter than the Maturity Date at the time of incurrence of such Permitted Borrower Secured Debt; (vii) a representative acting on behalf of the holders of such Permitted Borrower Secured Debt and the Administrative Agent shall have executed and delivered a pari passu intercreditor agreement or a second lien intercreditor agreement, as applicable, the form and substance of which shall be satisfactory to the Administrative Agent and the Required Lenders in their reasonable judgment; and (viii) a Pledge Release Period shall not have occurred and be continuing;
(e) Liens granted by the Guarantor on Equity Interests of any of its Subsidiaries securing Indebtedness of such Subsidiary (or its Subsidiaries);
(f) other Liens securing Indebtedness or other obligations in an aggregate principal amount at the time of incurrence of any such Indebtedness or other obligations not exceeding at any time outstanding $100,000,000; provided that, in the case of Indebtedness, such Liens attach only to cash, Cash Equivalents, accounts with banks and other financial institutions (including deposit, savings and securities accounts) and proceeds thereof; and
(g) Liens granted by the Borrower securing junior lien Indebtedness incurred by the Borrower (such secured Indebtedness, “ Permitted Borrower Junior Secured Debt ”); provided that, (i) the proceeds thereof are being concurrently used to finance an acquisition not prohibited by this Agreement and related fees and expenses, (ii) no Event of Default shall exist at the time of such acquisition or, in the case of an acquisition not conditioned on the obtaining of financing therefor, at the time of entering into a binding agreement in respect of such acquisition; (iii) such Permitted Borrower Junior Secured Debt shall not be Guaranteed by any Person other than the Guarantor and shall not be secured by a Lien on any assets other than Pledged Collateral on a junior basis; (iv) the terms and provisions of such Permitted Borrower Junior Secured Debt shall not be more restrictive, taken as a whole, to the Loan Parties than those applicable hereto at the time of incurrence of such Permitted Borrower Junior Secured Debt, unless such other terms (1) apply only after the Maturity Date at the time of incurrence of such Permitted Borrower Junior Secured Debt, (2) shall also apply hereto (which such application shall not require the consent of the Lenders or the Administrative Agent if so reasonably determined by the Borrower) or (3) relate only to mandatory prepayments customary for such type of Permitted Borrower Junior Secured Debt, premiums (including make-whole provisions), interest, fees or maturity or amortization; (v) a representative acting on behalf of the holders of such Permitted Borrower Junior Secured Debt and the Administrative Agent shall have executed and delivered a second lien intercreditor agreement, the form and substance of which shall be satisfactory to the Administrative Agent and the Required Lenders in their reasonable judgment; and (vi) a Pledge Release Period shall not have occurred and be continuing.
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Section 6.03. Fundamental Changes . (a) No Loan Party will merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing, (y) any Subsidiary or other Person may merge into or consolidate with the Borrower in a transaction in which the Borrower is the surviving entity; provided that the Borrower shall pledge all Equity Interests and intercompany notes in any entity that becomes a direct Subsidiary of the Borrower as a result thereof to the Secured Parties in accordance with the Pledge Agreement and Section 5.11 and (z) any Subsidiary or other Person (other than the Borrower) may merge into or consolidate with the Guarantor in a transaction in which the Guarantor is the surviving entity.
(b) No Loan Party will engage or permit its Subsidiaries to engage to any material extent in any business other than (x) businesses of the type conducted by the Loan Parties and their respective Subsidiaries on the date hereof, (y) current or future infrastructure and infrastructure-like businesses and (z) businesses reasonably similar to, or reasonably related or incidental to, any of the foregoing.
Section 6.04. Asset Sales . No Loan Party will sell, transfer, lease or otherwise dispose of (in one transaction or in a series of related transactions) all or substantially all of their Equity Interests in IMTT or Atlantic (or any Subsidiary of the Guarantor which is a direct or indirect holding company of IMTT or Atlantic) or permit the sale, transfer, lease or other disposition of all or substantially all of the assets of IMTT or Atlantic, except that such sales, transfers, leases or other dispositions shall be permitted; provided that (a) no Lender shall have any obligation to make Revolving Loans hereunder during the period commencing with the consummation of such sale, transfer, lease or disposal and ending on the earlier of (y) the date that the Revolving Loans are repaid and the Commitments are permanently reduced by an amount equal to the Net Cash Proceeds thereof (without deducting for any reinvestment) and (z) the date that one of S&P or Moody’s (if only one such rating agency then maintains a Debt Rating) or at least two of S&P, Moody’s and Fitch (if two or more such rating agencies then maintain a Debt Rating) reaffirms its respective Debt Rating after accounting for the effects thereof (such period, the “ Ratings Reaffirmation Period ”) and (b) if (y) neither S&P nor Moody’s then maintains a Debt Rating or (z) S&P or Moody’s (if only one such rating agency then maintains a Debt Rating) or at least two of S&P, Moody’s and Fitch (if two or more such rating agencies then maintain a Debt Rating), as applicable, does not reaffirm (or downgrades) its respective Debt Rating within 30 days of such sale or other disposition, the Net Cash Proceeds thereof (without deducting for any reinvestment) shall be applied (within 5 days thereafter) to repay the Revolving Loans and permanently reduce the Commitments; provided that if S&P or Moody’s (if only one such rating agency then maintains a Debt Rating) or if at least two of S&P, Moody’s and Fitch (if two or more such rating agencies then maintain a Debt Rating) reaffirms or upgrades its Debt Rating within 30 days of such sale or other disposition, such Net Cash Proceeds used to prepay Revolving Loans may be adjusted for any reinvestment pursuant to the definition of Net Cash Proceeds.
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Section 6.05. Restricted Payments . The Borrower will not declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except that the Borrower shall be permitted to (i) declare and make Restricted Payments so long as, on the date of such declaration or agreement to pay (or, if no declaration or agreement is made, on the date such Restricted Payment is made), (a) either a Pledge Release Period is then in effect or after giving effect to such Restricted Payment, the Borrower’s Senior Secured Net Leverage Ratio (calculated on a Pro Forma Basis as of the then most recently ended fiscal quarter of the Borrower) is no greater than 3.00:1.00 and (b) no Event of Default then exists, (ii) purchase, redeem or otherwise acquire or retire for value Equity Interests of the Borrower held by officers, directors or employees or former officers, directors or employees (or their estates or beneficiaries under their estates), upon death, disability, retirement, severance or termination of employment or pursuant to any agreement under which such Equity Interest was issued or any employment agreement approved by Board of Directors of the Borrower, (iii) repurchase, redeem or otherwise acquire for value Equity Interest of the Borrower to the extent deemed to occur in connection with paying cash in lieu of fractional shares of such Equity Interest (including in connection with a share bonus issue, distribution, share subdivision, share consolidation, merger, consolidation or other business combinations), (iv) repurchase Equity Interests to the extent deemed to occur upon the exercise of stock or share options, warrants or other convertible or exchangeable securities, including without limitation in satisfaction of exercise price or tax obligations and (v) pay cash in lieu of the issuance of fractional shares (including upon the exercise of options, warrants or other rights to purchase or the conversion or exchange of Equity Interests).
Section 6.06. Transactions with Affiliates . No Loan Party will sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of their Affiliates, except (a) in the judgment of the Board of Directors of the Borrower (acting in good faith), at prices and on terms and conditions not less favorable to the Loan Parties than could be obtained on an arm’s-length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries not involving any other Affiliate, (c) transactions contemplated by the Management Agreement, (d) any Restricted Payment permitted by Section 6.05 or (e) any arrangements with officers, directors, representatives or other employees relating specifically to employment as such.
Section 6.07. Restrictive Agreements . No Loan Party will, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of such Loan Party to create, incur or permit to exist any Lien upon any of its property or assets, or (b) in the case of the Guarantor, the ability of the Guarantor to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law, by any agreement with respect to Permitted Borrower Secured Debt or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.07 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a subsidiary pending such sale, provided that such restrictions and conditions apply only to the subsidiary that is to be sold and such sale is permitted hereunder, (iv) the foregoing shall not apply to restrictions and conditions imposed by any agreement relating to secured Indebtedness permitted under Sections 6.02(c), (e) or (f) if such restrictions or conditions apply only to the property or assets securing such Indebtedness, and (v) clause (a) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof.
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Section 6.08. Financial Covenant . The minimum ratio of Borrower CFADS to Net Cash Interest Expense of the Loan Parties shall be no less than 4.00 to 1.00 for any period of four consecutive fiscal quarters of the Borrower.
Section 6.09. Upstream Guarantees; Subsidiary Indebtedness; Grants of Security Interests in Subsidiary Equity Interests .
(a) The Borrower will not permit any of its Subsidiaries to Guarantee any Indebtedness of the Borrower unless such Subsidiary Guarantees the Secured Obligations equally and ratably on substantially the same terms; and
(b) No Loan Party will permit any Subsidiary (other than the Guarantor) to Guarantee Indebtedness of any Subsidiary, except Indebtedness of direct or indirect Subsidiaries of any such Subsidiary or any parent company of any such Subsidiary (other than a Loan Party); and
(c) No Loan Party will permit any Subsidiary (other than the Guarantor) to grant any security interest in any of its assets (including any Equity Interests) for the purpose of securing Indebtedness of any Subsidiary, except security interests securing (y) Indebtedness of such Subsidiary or any parent company of such Subsidiary (other than a Loan Party) or (z) Guarantees by such Subsidiary of Indebtedness of its Subsidiaries or any parent company of such Subsidiary (other than a Loan Party).
Notwithstanding the foregoing (i) MIC Hawaii Holdings LLC or any of its subsidiaries may Guarantee (and/or grant security interests to secure) Indebtedness of MIC Hawaii Holdings LLC and/or any of its subsidiaries, (ii) Macquarie Terminal Holdings, LLC or any of its subsidiaries may Guarantee (and/or grant security interests to secure) Indebtedness of Macquarie Terminal Holdings, LLC and/or any of its subsidiaries, (iii) MIC Renewable Energy Holdings, LLC or any of its subsidiaries may Guarantee (and/or grant security interests to secure) Indebtedness of MIC Renewable Energy Holdings, LLC and/or any of its subsidiaries, (iv) Atlantic Aviation FBO Holdings LLC or any of its subsidiaries may Guarantee (and/or grant security interests to secure) Indebtedness of Atlantic Aviation FBO Holdings LLC and/or any of its subsidiaries and its direct and indirect subsidiaries, (v) MIC Logistics Holdings LLC or any of its subsidiaries may Guarantee (and/or grant security interests to secure) Indebtedness of MIC Logistics Holdings LLC and/or any of its subsidiaries and its direct and indirect subsidiaries, and (vi) any directly owned Subsidiary of the Guarantor acquired after the date hereof or any of the subsidiaries of such directly owned Subsidiary may Guarantee (and/or grant security interests to secure) Indebtedness of such directly owned Subsidiary and/or any of its subsidiaries.
Article
VII
Events of Default
Section 7.01. Events of Default . If any of the following events (“ Events of Default ”) shall occur and be continuing after the Effective Date:
(a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
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(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five Business Days;
(c) any representation or warranty made or deemed made by or on behalf of any Loan Party in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02(a), 5.03 (with respect to the Borrower’s legal existence) or 5.08 or in Article VI;
(e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender);
(f) any Loan Party shall fail to make any payment (whether of principal or interest and regardless of amount) beyond the applicable grace period, if any, whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise, in respect of any Material Indebtedness (other than Indebtedness hereunder) having an aggregate outstanding principal amount (individually or in the aggregate with all other Indebtedness as to which such a failure shall exist) of not less than $100,000,000;
(g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Loan Party or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Loan Party or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
(i) any Loan Party shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Loan Party or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against them in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any corporate action for the purpose of effecting any of the foregoing;
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(j) any Loan Party shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate amount in excess of $100,000,000 (to the extent not covered by independent third-party insurance, which has been notified of the potential claim and does not dispute coverage) shall be rendered against the Borrower, the Guarantor or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Loan Party to enforce any such judgment;
(l) ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;
(m) any provision of the Guaranty Agreement or Pledge Agreement after delivery thereof shall for any reason fail or cease to be valid and binding on, or enforceable against, any Loan Party party thereto, or any Loan Party shall so state in writing;
(n) the Pledge Agreement shall for any reason fail or cease to create a valid and enforceable Lien on any Pledged Collateral (as defined therein) purported to be covered thereby or, except as permitted by the Loan Documents, such Lien shall fail or cease to be a perfected and first priority Lien, or any Loan Party shall so state in writing; or
(o) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
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Section 7.02. Borrower’s Right to Cure . Notwithstanding anything to the contrary contained in this Article VII, in the event that the Borrower fails to comply with the requirements of Section 6.08, until the expiration of the tenth Business Day subsequent to the date the certificate calculating such compliance is required to be delivered pursuant to Section 5.01(a) or (b) (the period from such failure to comply to such tenth Business Day, the “ Equity Cure Period ”), the Borrower shall have the right to issue Permitted Cure Securities for cash or otherwise receive cash contributions to the capital of the Borrower (collectively, the “ Equity Cure Right ”), and upon the receipt by the Borrower of such cash before such tenth Business Day (the “ Equity Cure Amount ”) pursuant to the exercise by the Borrower of such Equity Cure Right compliance with the covenants set forth in Section 6.08 shall be recalculated giving effect to the following pro forma adjustments:
(a) Borrower CFADS shall be increased, solely for the purpose of measuring compliance with Section 6.08 and not for any other purpose under this Agreement, by an amount equal to the Equity Cure Amount; and
(b) if, after giving effect to the foregoing recalculations, the Borrower shall then be in compliance with the requirements of Section 6.08, the Borrower shall be deemed to have satisfied the requirements of Section 6.08 as of the relevant date of determination with the same effect as though there had been no failure to comply therewith at such date, and the applicable breach or default of Section 6.08 that had occurred shall be deemed cured for the purposes of this Agreement.
Notwithstanding anything herein to the contrary, (a) in each four-fiscal-quarter period there shall be at least two fiscal quarter in which the Cure Right is not exercised, (b) the Cure Amount shall be no greater than the amount required for purposes of complying with Section 6.08 as of the relevant date of determination, and (c) no more than five (5) Cure Rights may be exercised in the aggregate. Neither the Administrative Agent nor any Lender may exercise any rights or remedies under Section 7.01 (or under any other Loan Document) on the basis of any actual or purported Event of Default resulting from a breach of Section 6.08 until and unless the Equity Cure Period with respect thereto shall have expired without the Equity Cure Amount having been received by the Borrower (it being understood, however, that no Borrowing nor issuance of any Letter of Credit shall occur until receipt by the Borrower of the Equity Cure Amount).
Article
VIII
The Administrative Agent
Each of the Lenders and the Issuing Banks hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.
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The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
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The Administrative Agent is authorized to enter into any intercreditor agreement contemplated hereby with respect to Indebtedness that is (i) required or permitted to be subordinated hereunder and/or (ii) secured by Liens and which Indebtedness contemplates an intercreditor, subordination or collateral trust agreement (any such other intercreditor agreement, an “ Additional Agreement ”), and the parties hereto acknowledge that any Additional Agreement is binding upon them. Each Lender and each Issuing Bank (a) hereby agrees that it will be bound by and will take no actions contrary to the provisions of any Additional Agreement and (b) hereby authorizes and instructs the Administrative Agent to enter into the any Additional Agreement and to subject the Liens on the Collateral securing the Secured Obligations to the provisions thereof. The foregoing provisions are intended as an inducement to the secured parties party to any Additional Agreement to extend credit to the Borrower and such secured parties are intended third-party beneficiaries of such provisions and the provisions of any Additional Agreement.
Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the Issuing Banks and the Borrower. Upon any such resignation, the Required Lenders shall have the right, with the prior written consent of the Borrower (unless a Specified Event of Default has occurred and is then continuing), to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent’s resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges and agrees that the extensions of credit made hereunder are commercial loans and letters of credit and not investments in a business enterprise or securities. Each Lender further represents that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder. Each Lender shall, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning the Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder and in deciding whether or to the extent to which it will continue as a Lender or assign or otherwise transfer its rights, interests and obligations hereunder.
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Article
IX
Miscellaneous
Section 9.01. Notices . (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(i) | if to the Borrower, to it at : |
Macquarie Infrastructure Corporation
125 W. 55th Street, Level 15
New York, NY 10019
Attention of Liam Stewart and Michael Kernan
Telecopy No. (212) 231-1838
(ii) | if to the Administrative Agent, to it at: |
JPMorgan Chase Bank, N.A.,
Loan and Agency Services Group,
10 South Dearborn
Chicago, Illinois 60603
Attention of Duyanna Goodlet
Phone No. (312) 385-7106
Telecopy No. (888) 292-9533
Email: jpm.agency.servicing.4@jpmchase.com
with a copy to:
JPMorgan Chase Bank, N.A.
10 South Dearborn
Chicago, Illinois 60603
Attention of Kenneth J. Fatur
Telecopy No.: (312) 732-1762;
(iii) | if to Barclays Bank PLC, as an Issuing Bank, to it at: |
Barclays Bank PLC
Letter of Credit Department
745 Seventh Avenue
New York, NY 10019
Attention: Dawn Townsend
Phone: (212) 320-7534
Email: Dawn.Townsend@barclays.com and XraLetterofCredit@barclays.com
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(iv) | if to JPMorgan Chase Bank, N.A., as an Issuing Bank, to it at: |
JPMorgan Chase Bank, N.A.,
Chicago LC Agency Activity Team
10 South Dearborn, Floor7
Chicago, Illinois 60603
Attention of: Chicago LC Agency Activity Team
Phone: (855) 609-9959
Email: chicago.lc.agency.activity.team@jpmorgan.com
with a copy to:
JPMorgan Chase Bank, N.A.
10 South Dearborn
Chicago, Illinois 60603
Attention of Kenneth J. Fatur
Telecopy No.: (312) 732-1762;
(v) | if to Bank of America, N.A., as an Issuing Bank, to it at: |
Bank of America, N.A.
700 Louisiana, 8th Floor
Attention of: Adam Rose
Phone: 713 247 7755
Email: adam.rose@baml.com
(vi) | if to Citizens Bank, as an Issuing Bank, to it at: |
Citizens Bank
20 Cabot Road
Medford, MA 02155
Attention of: Connie Chan
Phone: 781-655-4249
Email: dl-intlsblcpart@cfgcustomers.com
(vii) | if to Credit Agricole Corporate and Investment Bank, as an Issuing Bank, to it at: |
Credit Agricole Corporate and Investment Bank
1301 Avenue of the Americas
New York, NY 10019
Attention: Documentary and Guarantees Operations
Phone: (212) 261-3255/3324
Email: cbs.lcadmin@ca-cib.com
(viii) | if to Mizuho Bank, Ltd., as an Issuing Bank, to it at: |
Mizuho Bank, Ltd.
1800 Plaza Ten,
Harborside Financial Ctr.
Jersey City, NJ 07311
Attention of: Brandon Weidenfeld
Phone: (201) 626-9448
Email: lau_uscorp3@mizuhocbus.com
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(ix) | if to Regions Bank, as an Issuing Bank, to it at: |
Regions Bank
201 Milan Parkway, 1st Floor
Birmingham, AL 35211
Attention of: Global Trade Services
Phone: 1-866-828-6928
Email: commerciallcdocuments@regions.com
(x) | if to Royal Bank of Canada, as an Issuing Bank, to it at: |
Royal Bank of Canada
30 Hudson Street, 28th Floor
Jersey City, NJ 07302-4699
Attention of: Credit Administration
Phone: (212) 428-6298
Fax: (212) 428-3015
Email: CM-USA-NYCreditAdministration@rbc.com
(xi) | if to SunTrust Bank, as an Issuing Bank, to it at: |
SunTrust Bank
17th FL (Mail Code 3707)
245 Peachtree Center Ave.
Atlanta, GA 30303
Attention of: Letter of Credit and Trade Services
Phone: (800) 951-7847
Fax: (801) 567-6205
Email: LCandTradeServices@suntrust.com
(xii) | if to Wells Fargo Bank, N.A., as an Issuing Bank, to it at: |
US Standby Trade Services
Wells Fargo Bank
1401 N. Research Pkwy, 1st Floor
Winston-Salem, NC 27101
Phone: 1-800-776-3862 Option 2
Email: sblc-new@wellsfargo.com
(xiii) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.
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Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through Electronic Systems, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
(b) Notices and other communications to the Lenders and the Issuing Banks hereunder may be delivered or furnished by using Electronic Systems pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.
(d) Electronic Systems.
(i) Each Loan Party agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Issuing Banks and the other Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.
(ii) Any Electronic System used by the Administrative Agent is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “ Agent Parties ”) have any liability to any Loan Party, any Lender, any Issuing Bank or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of any Loan Party’s or the Administrative Agent’s transmission of communications through an Electronic System. “ Communications ” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or any Issuing Bank by means of electronic communications pursuant to this Section, including through an Electronic System.
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Section 9.02. Waivers; Amendments . (a) No failure or delay by the Administrative Agent, any Issuing Bank or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, the Issuing Banks and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Subject to Section 2.14(b), neither this Agreement, the Guaranty Agreement nor the Pledge Agreement nor any provision thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) other than during a Pledge Release Period, release all or substantially all of the Pledged Collateral (as defined in the Pledge Agreement) or release the Guarantor from its obligations under the Guaranty Agreement, in each case without the written consent of each Lender; or (vi) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or any Issuing Bank hereunder without the prior written consent of the Administrative Agent and/or such Issuing Bank, as the case may be.
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(c) In addition, notwithstanding anything in this Section to the contrary, if the Administrative Agent and the Borrower shall have jointly identified an obvious error or any error or omission of a technical nature, in each case, in any provision of the Loan Documents, then the Administrative Agent and the Borrower shall be permitted to amend such provision, and, in each case, such amendment shall become effective without any further action or consent of any other party to any Loan Document if the same is not objected to in writing by the Required Lenders to the Administrative Agent within ten Business Days following receipt of notice thereof.
(d) No Person that obtains the benefits of any Pledged Collateral pursuant to a Hedging Agreement and/or Secured Cash Management Agreement shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of the Pledged Collateral (including the release or impairment of any Pledged Collateral) other than in its capacity as a Lender and, in such case, only to the extent expressly provided in the Loan Documents. Notwithstanding any other provision hereof, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Secured Obligations arising under Secured Cash Management Agreements or Hedging Agreements unless the Administrative Agent has received written notice of such Secured Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Person.
(e) Neither the Administrative Agent nor any Issuing Bank shall have any responsibility or liability for monitoring the list or ascertaining the identities of, or enforcing provisions related to, Disqualified Institutions.
(f) None of the agents identified on the cover page or signature pages of this Agreement as a Joint Bookrunner or Joint Lead Arranger shall have any rights, powers, obligations, liabilities, responsibilities or duties under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender, or an Issuing Bank hereunder. Without limiting any other provision of this Article, none of such agents in their respective capacities as such shall have or be deemed to have any fiduciary relationship with any Lender or any other Person by reason of this Agreement or any other Loan Document.
Section 9.03. Expenses; Indemnity; Damage Waiver . (a) Regardless of whether the Effective Date shall occur, the Borrower shall pay (i) all reasonable, documented out of pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements for no more than one (1) outside counsel and, if necessary one (1) local counsel in each relevant material jurisdiction for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation, execution, delivery, administration and enforcement of the Loan Documents or any amendments, modifications or waivers of the provisions thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable, documented out-of-pocket expenses incurred by any Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (iii) all out-of-pocket expenses incurred by the Administrative Agent, any Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, any Issuing Bank or any Lender, in connection with investigations, proceedings, and threatened actions arising out of, in connection with, or as a result of the execution, delivery or performance of any Loan Document, including preparation of a defense thereto and (iv) all out-of-pocket expenses incurred by the Administrative Agent, any Issuing Bank or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, any Issuing Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
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(b) Each of the Borrower and the Guarantor shall indemnify the Administrative Agent, each Issuing Bank, each Lender, each Joint Lead Arranger and each Related Party of any of the foregoing Persons (each such Person being called an “ Indemnitee ”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable, documented fees, charges and disbursements of one (1) counsel to all Indemnitees, taken as a whole, and, if reasonably necessary, one (1) local counsel in each relevant material jurisdiction to the Administrative Agent, taken as a whole, and, in the case of an actual or potential conflict of interest, one (1) additional counsel to all affected Indemnitees, taken as a whole), incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution, delivery or performance of any Loan Document or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by an Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not such claim, litigation, investigation or proceeding is brought by the Borrower, the Borrower’s equity holders affiliates, creditors or any other third Person and whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (y) are determined by a judgment of a court of competent jurisdiction in a final and non-appealable judgment to have resulted by reason of the gross negligence, bad faith or willful misconduct of, or material breach by, such Indemnitee (or any of its Related Parties) or (z) arise out of any claim, litigation, investigation or proceeding brought by any Indemnitee (or its Related Parties) against any another Indemnitee (or its Related Parties) (other than any claim, litigation, investigation or proceeding brought by or against the Administrative Agent, acting in its capacity as Administrative Agent, any Issuing Bank, acting in its capacity as Issuing Bank, and any Joint Lead Arranger, acting its capacity as Joint Lead Arranger) that does not involve any impermissible act or omission of the Borrower or any of its Subsidiaries. Neither the Borrower nor the Guarantor shall be liable for any settlement of any proceeding referred to in this Section 9.03(b) effected without such Borrower’s or Guarantor’s written consent (such consent not to be unreasonably withheld or delayed); provided , however, that Borrower and the Guarantor shall indemnify the Indemnitees from and against any loss or liability by reason of such settlement if such proceeding was settled with the written consent of such Borrower or Guarantor or such settlement is entered into in connection with a final and non-appealable judgment by a court of competent jurisdiction, subject to, in each case, the Borrower’s or Guarantor’s, as applicable, right in this Section 9.03(b) to claim an exemption from such indemnity obligations. This Section 9.03(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims or damages arising from any non-Tax claim.
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(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent or any Issuing Bank under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent or such Issuing Bank, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent or such Issuing Bank in its capacity as such.
(d) To the extent permitted by applicable law, no party hereto shall assert, and each such party hereby waives, any claim against any other party, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof; provided that, nothing in this clause (d) shall relieve the Borrower or the Guarantor of any obligation it may have to indemnify an Indemnitee against special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.
(e) All amounts due under this Section shall be payable not later than 30 days after receipt of written demand therefor together with an invoice thereof in reasonable detail.
Section 9.04. Successors and Assigns . (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Persons (other than an Ineligible Institution) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment, participations in Letters of Credit and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:
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(A) the Borrower, provided that, the Borrower shall be deemed to have consented to an assignment unless it shall have objected thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof; provided that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if a Specified Event of Default has occurred and is continuing, any other assignee; provided , further that the consent of the chief executive officer of the Borrower shall be required with respect to any assignment made to an MGL Entity (whether or not an Event of Default then exists) and such consent must be in writing and shall not be deemed given;
(B) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment of any Commitment to an assignee that is a Lender (other than a Defaulting Lender) with a Commitment immediately prior to giving effect to such assignment; and
(C) each Issuing Bank.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender’s Commitment, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing;
(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;
(C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; and
(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more Credit Contacts to whom all syndicate-level information (which may contain material non-public information about the Loan Parties and their related parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws.
For the purposes of this Section 9.04(b), the term “ Approved Fund , ” “ Ineligible Institution ” and “ MGL Entity ” have the following meanings:
“ Approved Fund ” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
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“ Ineligible Institution ” means a (a) natural person, (b) a Defaulting Lender, (c) a Disqualified Institution, and (d) the Borrower or any of its Affiliates other than any Affiliate that (y) is managed by a professional advisor, who is not such natural person or a relative thereof, having significant experience in the business of making or purchasing commercial loans, and (z) has assets greater than $25,000,000 and a significant part of its activities consist of making or purchasing commercial loans and similar extensions of credit in the ordinary course of its business.
“ MGL Entity ” means Macquarie Group Limited or any of its subsidiaries, Affiliates or managed funds or investment vehicles.
(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv) The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount (and stated interest) of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “ Register ”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Banks and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, any Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.05(c), 2.06(d) or (e), 2.07(b), 2.18(d) or 9.03(c), the Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
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(c) Any Lender may, without the consent of the Borrower (except that a participation to any MGL Entity shall require the consent of the chief executive officer of the Borrower), the Administrative Agent or the Issuing Banks, sell participations to one or more banks or other entities (a “ Participant ”), other than an Ineligible Institution, in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged; (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; and (C) the Borrower, the Administrative Agent, the Issuing Banks and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 (subject to the requirements and limitations therein, including the requirements under 2.17(f) and (g)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Section 2.19 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Section 2.15 or 2.17, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation or if the participation is made with the Borrower’s consent. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.19(b) with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender; provided that such Participant agrees to be subject to Section 2.18(c) as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “ Participant Register ”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any Commitments, Loans, Letters of Credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan, Letter of Credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
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(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank or any other central bank having jurisdiction over such Lender, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
Section 9.05. Survival . All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.
Section 9.06. Counterparts; Integration; Effectiveness; Electronic Execution . (a)This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
(b) Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of an original executed counterpart of this Agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as an original executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
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Section 9.07. Severability . Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
Section 9.08. Right of Setoff . If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
Section 9.09. Governing Law; Jurisdiction; Consent to Service of Process . (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County, Borough of Manhattan, and of the United States District Court for the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final non-appealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
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(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
Section 9.10. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 9.11. Headings . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
Section 9.12. Confidentiality . Each of the Administrative Agent, the Issuing Banks and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantively similar as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, any Issuing Bank or any Lender on a non-confidential basis from a source other than the Borrower; provided , however , that with respect to disclosures pursuant to clause (b) (other than any such disclosure in connection with any routine compliance examination or examination of the financial condition of such Lender by such regulatory authority) and clause (c) of this Section, unless prohibited by law or applicable court order, each Lender and the Administrative Agent shall attempt to notify the Borrower of any request by any governmental agency or representative thereof or other Person for disclosure of Information after receipt of such request, and if reasonable, practicable and permissible, before disclosure of such Information. For the purposes of this Section, “ Information ” means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, any Issuing Bank or any Lender on a non-confidential basis prior to disclosure by the Borrower. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Notwithstanding anything to the contrary contained in this Section 9.12, in no event shall any Information be disclosed to any Disqualified Institution.
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Section 9.13. Material Non-Public Information .
(a) EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION 9.12(a) FURNISHED TO IT PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER AND ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING FEDERAL AND STATE SECURITIES LAWS.
(b) ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE LOAN PARTIES AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.
Section 9.14. Authorization to Distribute Certain Materials to Public-Siders .
(a) If the Borrower does not file this Agreement with the SEC, then the Borrower hereby authorizes the Administrative Agent to distribute the execution version of this Agreement and the Loan Documents to all Lenders, including their Public-Siders. The Borrower acknowledges its understanding that Public-Siders and their firms may be trading in any of the Parties’ respective securities while in possession of the Loan Documents.
(b) The Borrower represents and warrants that none of the information in the Loan Documents constitutes or contains material non-public information within the meaning of the federal and state securities laws. To the extent that any of the executed Loan Documents constitutes at any time a material non-public information within the meaning of the federal and state securities laws after the date hereof, the Company agrees that it will promptly make such information publicly available by press release or public filing with the SEC.
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Section 9.15. Interest Rate Limitation . Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the “ Charges ”), shall exceed the maximum lawful rate (the “ Maximum Rate ”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
Section 9.16. USA PATRIOT Act . Each Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “ Act ”) hereby notifies the Borrower that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act. This notice is given in accordance with the requirements of the Act and is effective for the Administrative Agent, each Issuing Bank and each Lender.
Section 9.17. Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
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Section 9.18. Effect of Amendment and Restatement .
(a) On and as of the Effective Date, the Existing Credit Agreement shall be amended, restated and superseded in its entirety by this Agreement. The parties hereto acknowledge and agree that (i) this Agreement and the other Loan Documents, whether executed and delivered in connection herewith or otherwise, do not constitute a novation, payment or reborrowing, or termination of the “Obligations” (as defined in the Existing Credit Agreement) as in effect prior to the Effective Date and (ii) such “Obligations” are in all respects continuing (as amended and restated hereby) with only the terms thereof being modified as provided in this Agreement. Each reference to the “Credit Agreement” in any Loan Document shall be deemed to be a reference to this Agreement.
(b) The Borrower and the Guarantor hereby confirm that each Loan Document to which it is a party or otherwise bound and all Pledged Collateral encumbered thereby will continue to guarantee or secure, as the case may be, to the fullest extent possible in accordance with the Loan Documents, the payment and performance of all Secured Obligations under each of the Loan Documents to which it is a party. The Borrower and the Guarantor acknowledge and agree that (i) any of the Loan Documents to which it is a party or is otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid, enforceable, ratified and confirmed in all respects and shall not be impaired or limited by the execution or effectiveness of this Agreement and (ii) all security interests created under any of the Security Documents shall continue in full force and effect pursuant to the terms of such Security Documents.
(c) If, immediately prior to the Effective Date, there are any Revolving Loans outstanding under the Existing Credit Agreement (the “ Existing Revolving Loans ”), such Existing Revolving Loans shall, on the Effective Date, be prepaid from the proceeds of additional Revolving Loans hereunder (deemed to be made after giving effect to this Agreement), which prepayment shall be accompanied by accrued interest on the Existing Revolving Loans and any costs incurred by any “Lender” (as defined in the Existing Credit Agreement) in accordance with Section 2.16 of the Existing Credit Agreement, such that after giving effect to such prepayment and such new Revolving Loans, all Revolving Loans will be held by the Lenders ratably in accordance with their Applicable Percentages hereunder.
(d) On the Effective Date, without further action by any party hereto (including the delivery of a notice of the issuance of a Letter of Credit pursuant to Section 2.06 or any consent of, or confirmation by or to, the Administrative Agent), (i) each “Letter of Credit” (as defined in the Existing Credit Agreement) listed on Schedule 9.19 hereto that was issued by an Issuing Bank (such letters of credit, collectively, “ Existing Letters of Credit ”) shall become a Letter of Credit outstanding under this Agreement, shall be deemed to be a Letter of Credit issued under this Agreement and shall be subject to the terms and conditions hereof as if each such Existing Letter of Credit were issued by the applicable Issuing Bank pursuant to this Agreement and (ii) each Issuing Bank that has issued an Existing Letter of Credit shall be deemed to have granted each Revolving Lender, and each Revolving Lender shall be deemed to have acquired from such Issuing Bank, on the terms and conditions of Section 2.06 hereof, for such Lender’s own account and risk, an undivided interest and participation in such Issuing Bank’s obligations and rights under each such Existing Letter of Credit equal to such Lender’s Applicable Percentage of the face amount of such Letter of Credit (including all obligations of the Borrower for whose account such Letter of Credit was issued and any security or guaranty pertaining thereto).
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(e) Each party hereto that was a “Lender” (as defined in the Existing Credit Agreement) with “Commitments” (as defined in the Existing Credit Agreement) outstanding immediately prior to the Effective Date hereby consents to the amendment and restatement of the Existing Credit Agreement in its entirety and in accordance with this Agreement and Section 9.02 of the Existing Credit Agreement.
Section 9.19. Releases of Pledged Collateral .
(a) Notwithstanding anything to the contrary contained herein or in any other Loan Document, the Administrative Agent is hereby irrevocably authorized by each Lender and each Issuing Bank (without requirement of notice to or consent of any Lender or any Issuing Bank) to take, and the Administrative Agent hereby agrees to take promptly, at the Borrower’s expense, any action requested by the Borrower having the effect of releasing, or evidencing the release of, the Pledged Collateral under the circumstances described in this Section 9.19.
(b) At any time during an Investment Grade Period, upon request by the Borrower, all of the Liens in or on the Pledged Collateral securing the Secured Obligations shall be released (the date on which such release occurs, the “ Pledge Release Date ”); provided that (i) any other Liens securing any Permitted Borrower Secured Debt or Permitted Borrower Junior Secured Debt have been, or shall be contemporaneously, released and (ii) no Event of Default then exists and is continuing.
(c) If at any time after a Pledge Release Date, a Pledge Trigger Date shall occur, then (i) the Liens in or on the Pledged Collateral shall automatically reinstate on a first priority basis subject only to Liens permitted by Section 6.02 and (ii) the Borrower will, and will cause the Guarantor to, at the Borrower’s own expense, promptly, and in any event within 5 Business Days (or by such later date as the Administrative Agent in its discretion may consent), execute and take such further action to affirm the grant of security interests or other Liens on a first priority basis and evidence and re-perfect such security interest or other Liens in and on the Pledged Collateral as the Administrative Agent may reasonably request (it being understood and agreed that, in the Borrower’s discretion (or in accordance with the terms thereof), contemporaneously therewith (or at any time thereafter) Liens thereon securing any Permitted Borrower Secured Debt or Permitted Borrower Junior Secured Debt may also be reinstated if permitted to exist pursuant to Section 6.02(d) or (g), in each case subject to the priorities and intercreditor arrangements contemplated thereby).
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
MACQUARIE INFRASTRUCTURE CORPORATION , | ||
By: | /s/ Liam Stewart | |
Name: Liam Stewart Title: Chief Financial Officer and Vice President |
By: | /s/ Christopher Frost | |
Name: Christopher Frost Title: Chief Executive Officer, President, and Chief Operating Officer |
||
MIC OHANA CORPORATION , | ||
By: | /s/ Liam Stewart | |
Name: Liam Stewart Title: Chief Financial Officer and Treasurer |
||
By: | /s/ Christopher Frost | |
Name: Christopher Frost Title: President |
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
JPMORGAN CHASE BANK, N.A. , as Administrative Agent, an Issuing Bank and a Lender | ||
By: | /s/ Anson Williams | |
Name: Anson Williams Title: Authorized Officer |
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
Barclays Bank PLC
,
as an Issuing Bank and a Lender |
||
By: | /s/ Sydney G. Dennis | |
Name: Sydney G. Dennis Title: Director |
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
Bank of America, N.A.
,
as an Issuing Bank and a Lender |
||
By: | /s/ Adam C. Rose | |
Name: Adam C. Rose Title: Senior Vice President |
By: | /s/ Adam C. Rose | |
Name: Adam C. Rose Title: Senior Vice President |
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
Citizens Bank
,
as an Issuing Bank and a Lender |
||
By: | /s/ Scott M. Lankford | |
Name: Scott M. Lankford Title: Senior Vice President |
||
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
CrÉdit Agricole Corporate and Investment Bank
,
as an Issuing Bank and a Lender |
||
By: | /s/ Omer Balaban | |
Name: Omer Balaban Title: Managing Director |
||
By: | /s/ Peter Manis | |
Name: Peter Manis Title: Managing Director |
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
MIHI LLC, as a “Lender” (as defined under the Existing Credit Agreement),solely for purposes of Section 9.18(e) hereto |
||
By: | /s/ Michael Barrish | |
Name: Michael Barrish Title: Authorized Signatory |
||
By: | /s/ Mimi Shih | |
Name: Mimi Shih Title: Authorized Signatory |
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
Mizuho Bank, Ltd.
,
as an Issuing Bank and a Lender |
||
By: | /s/ Nelson Chang | |
Name: Nelson Chang Title: Authorized Signatory |
||
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
Regions Bank
,
as an Issuing Bank and a Lender |
||
By: | /s/ Brian J. Walsh | |
Name: Brian J. Walsh Title: Director |
||
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
Royal Bank of Canada
,
as an Issuing Bank and a Lender |
||
By: | /s/ Benjamin Lennon | |
Name: Benjamin Lennon Title: Authorized Signatory |
||
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
SunTrust Bank
,
as an Issuing Bank and a Lender |
||
By: | /s/ Carmen Malizia | |
Name: Carmen Malizia Title: Director |
||
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
Wells Fargo Bank, N.A.
,
as an Issuing Bank and a Lender |
||
By: | /s/ Yann Blindert | |
Name: Yann Blindert Title: Director |
||
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
Macquarie Capital Funding LLC
,
as a Lender |
||
By: | /s/ Michael Barrish | |
Name: Michael Barrish Title: Authorized Signatory |
||
By: | /s/ Mimi Shih | |
Name: Mimi Shih Title: Authorized Signatory |
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
America Savings Bank, F.S.B.
,
as a Lender |
||
By: | /s/ Edward Chin | |
Name: Edward Chin Title: First Vice President |
||
[SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT]
SCHEDULE 2.01
Commitments
Lender | Commitment | |||
JPMorgan Chase Bank, N.A. | $ | 55,000,000 | ||
Barclays Bank PLC | $ | 55,000,000 | ||
Bank of America, N.A. | $ | 55,000,000 | ||
Citizens Bank | $ | 55,000,000 | ||
Credit Agricole Corporate and Investment Bank | $ | 55,000,000 | ||
Mizuho Bank, Ltd. | $ | 55,000,000 | ||
Regions Bank | $ | 55,000,000 | ||
Royal Bank of Canada | $ | 55,000,000 | ||
SunTrust Bank | $ | 55,000,000 | ||
Wells Fargo Bank, N.A. | $ | 55,000,000 | ||
Macquarie Capital Funding LLC | $ | 40,000,000 | ||
America Savings Bank, F.S.B. | $ | 10,000,000 | ||
Total: | $ | 600,000,000 |
EXHIBIT C
[FORM OF] GUARANTY AGREEMENT
GUARANTY AGREEMENT (this “ Guaranty ”), dated as of [______________________], 20[__], by and among MIC Ohana Corporation (the “ Guarantor ”) and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “ Administrative Agent ”) for the Secured Parties (as defined in the Credit Agreement referred to below).
Capitalized terms used herein without definition shall have the meaning assigned to them in that certain Credit Agreement, dated as of January 3, 2018 among Macquarie Infrastructure Corporation, a Delaware corporation (the “ Borrower ”), MIC Ohana Corporation, JPMorgan Chase Bank, N.A., as administrative agent (in such capacity and including any successors in such capacity) and each of the financial institutions from time to time party thereto (as amended, restated or otherwise modified from time to time, the “ Credit Agreement ”).
1. Guaranty. The Guarantor hereby absolutely, irrevocably and unconditionally guarantees, as a guaranty of payment and performance and not merely as a guaranty of collection, full and punctual payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of any and all of the Secured Obligations and whether arising under any Loan Document (including all renewals, extensions, amendments and other modifications thereof and all reasonable costs, attorneys’ fees and expenses incurred by the Secured Parties in connection with the collection or enforcement thereof to the extent provided in the Credit Agreement), and whether recovery upon such indebtedness and liabilities may be or hereafter become unenforceable or shall be an allowed or disallowed claim under any proceeding or case commenced by or against the Guarantor or the Borrower during a Bankruptcy Event, and including interest that accrues after the commencement by or against the Borrower of any proceeding during such a Bankruptcy Event (collectively, the “ Guaranteed Obligations ”). This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Guaranteed Obligations or any instrument or agreement evidencing any Guaranteed Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Guaranteed Obligations which might otherwise constitute a defense to the obligations of the Guarantor under this Guaranty, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing to the extent permissible under the applicable law. The Guarantor and each Secured Party (by its acceptance of the benefits of this Guaranty) hereby confirms that it is its intention that this Guaranty not constitute a fraudulent transfer or conveyance for purposes of Title 11 of the United States Code (the “ Bankruptcy Code ”), the Uniform Fraudulent Conveyance Act of any similar Federal or state law. To effectuate the foregoing intention, the Guarantor and each Secured Party (by its acceptance of the benefits of this Guaranty) hereby irrevocably agrees that the Guaranteed Obligations guaranteed by the Guarantor shall be limited to such amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of the Guarantor that are relevant under such laws (and, if applicable, after giving effect to any rights to contribution pursuant to any agreement providing for an equitable contribution among the Guarantor and any other guarantor), result in the Guaranteed Obligations of the Guarantor in respect of such maximum amount not constituting a fraudulent transfer or conveyance.
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EXHIBIT C
It is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantor hereunder which shall remain absolute and unconditional under any and all circumstances as described above:
(a) at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
(b) any of the acts mentioned in any of the provisions of the Loan Documents, if any, or any other agreement or instrument referred to herein or therein shall be done or omitted;
(c) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be amended in any respect in the manner permitted by the Credit Agreement, or any right under the Loan Documents or any other agreement or instrument referred to herein or therein shall be amended or waived in any respect or any other guarantee of any of the Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or
(d) any Lien or security interest granted to, or in favor of, any Secured Party or the Administrative Agent as security for any of the Guaranteed Obligations shall fail to be perfected.
This Guaranty shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to any right of offset with respect to the Guaranteed Obligations at any time or from time to time held by Secured Parties, and the obligations and liabilities of the Guarantor hereunder shall not be conditioned or contingent upon the pursuit by the Secured Parties or any other person at any time of any right or remedy against the Borrower or against any other person which may be or become liable in respect of all or any part of the Guaranteed Obligations or against any collateral security or guarantee therefor or right of offset with respect thereto. This Guaranty shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Guarantor and the successors and permitted assigns thereof, and shall inure to the benefit of the Secured Parties, and their respective successors and permitted assigns.
2. Representations and Warranties. The Guarantor represents and warrants to the Secured Parties, as of the Effective Date, that (i) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization; (ii) the execution and delivery hereof by the Guarantor, and the performance of its obligations hereunder are within the Guarantor’s corporate powers and have been duly authorized by all necessary corporate action; and (iii) this Guaranty has been duly executed and delivered by the Guarantor and constitutes a legal, valid and binding obligation of the Guarantor, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
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EXHIBIT C
3. Rights of Lenders. The Guarantor consents and agrees that the Administrative Agent may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof: (a) amend in accordance with the Credit Agreement, extend, renew, compromise, discharge, accelerate or otherwise change the time for payment or the terms of the Guaranteed Obligations or any part thereof; (b) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment of this Guaranty or any Guaranteed Obligations; (c) apply such security and direct the order or manner of sale thereof as the Administrative Agent in its sole discretion may determine; and (d) release or substitute one or more of any endorsers or other guarantors of any of the Guaranteed Obligations. Without limiting the generality of the foregoing, the Guarantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of the Guarantor under this Guaranty or which, but for this provision, might operate as a discharge of the Guarantor.
4. Certain Waivers. The Guarantor waives, to the extent permitted by applicable law, (a) any defense arising by reason of any disability or other defense of the Borrower or any other guarantor, or the cessation from any cause whatsoever (including any act or omission of the Secured Parties) of the liability of the Borrower; (b) any defense based on any claim that the Guarantor’s obligations exceed or are more burdensome than those of the Borrower; (c) the benefit of any statute of limitations affecting the Guarantor’s liability hereunder; (d) any right to require the Secured Parties to proceed against the Borrower, proceed against or exhaust any security for the Guaranteed Obligations, or pursue any other remedy in the Secured Parties’ power whatsoever; (e) any benefit of and any right to participate in any security now or hereafter held by the Secured Parties; and (f) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties. The Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Guaranteed Obligations, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Guaranteed Obligations. In connection with the foregoing, the Guarantor covenants that its obligations hereunder shall not be discharged, except by complete performance.
5. Obligations Independent . The obligations of the Guarantor hereunder are those of primary obligor, and not merely as surety, and are independent of the Guaranteed Obligations and the obligations of any other guarantor, and a separate action may be brought against the Guarantor to enforce this Guaranty whether or not the Borrower or any other person or entity is joined as a party.
6. Subrogation. The Guarantor shall not exercise any right of subrogation, contribution , indemnity, reimbursement or similar rights with respect to any payments it makes under this Guaranty until all of the Guaranteed Obligations (other than any contingent obligations for which no amounts are then due) and any amounts payable under this Guaranty have been paid and performed in full and any commitments of the Secured Parties or facilities provided by the Secured Parties with respect to the Guaranteed Obligations are terminated. If any amounts are paid to the Guarantor in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of the Secured Parties and shall forthwith be paid to the Secured Parties to reduce the amount of the Guaranteed Obligations, whether matured or unmatured.
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EXHIBIT C
7. Termination; Reinstatement. This Guaranty is a continuing and irrevocable guaranty of all Guaranteed Obligations under the Loan Documents now or hereafter existing and shall remain in full force and effect until all Guaranteed Obligations and any other amounts payable under this Guaranty are paid in full in cash and any commitments of the Secured Parties under the Loan Documents or facilities provided by the Secured Parties under the Loan Documents with respect to the Guaranteed Obligations are terminated. Notwithstanding the foregoing, this Guaranty shall continue in full force and effect or be revived, as the case may be, if any payment by or on behalf of the Borrower or the Guarantor is made, or the Secured Parties exercise their right of setoff , in respect of the Guaranteed Obligations and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Secured Parties in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under the Bankruptcy Code or otherwise, all as if such payment had not been made or such setoff had not occurred and whether or not the Secured Parties are in possession of or has released this Guaranty and regardless of any prior revocation, rescission, termination or reduction. The obligations of the Guarantor under this paragraph shall survive termination of this Guaranty.
8. Subordination. The Guarantor hereby subordinates the payment of all obligations and indebtedness of the Borrower owing to the Guarantor, whether now existing or hereafter arising, including but not limited to any obligation of the Borrower to the Guarantor as subrogee of the Secured Parties or resulting from the Guarantor’s performance under this Guaranty, to the payment in full of all Guaranteed Obligations. If the Administrative Agent so requests after the occurrence and during the continuance of an Event of Default, any such obligation or indebtedness of the Borrower to the Guarantor shall be enforced and performance received by the Guarantor as trustee for the Secured Parties and the proceeds thereof shall be paid over to the Secured Parties on account of the Guaranteed Obligations, but without reducing or affecting in any manner the liability of the Guarantor under this Guaranty.
9. Stay of Acceleration. In the event that acceleration of the time for payment of any of the Guaranteed Obligations is stayed, in connection with any case commenced by or against the Guarantor or the Borrower under the Bankruptcy Code, or otherwise, all such amounts shall nonetheless be payable by the Guarantor immediately upon demand by the Secured Parties.
10. Expenses . The Guarantor shall pay on demand all reasonable, documented out-of-pocket expenses (but limited, in the case of legal fees and expenses, to the reasonable and documented fees and expenses of one outside counsel) in any way relating to the enforcement or protection of the Lender’s rights under this Guaranty or in respect of the Guaranteed Obligations, including any incurred during any “workout” or restructuring in respect of the Guaranteed Obligations and any incurred in the preservation, protection or enforcement of any rights of the Lender in any proceeding the Bankruptcy Code. The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.
11. Miscellaneous. No provision of this Guaranty may be waived, amended, supplemented or modified, except by a written instrument executed by the Administrative Agent (with the consent of the Lenders or Required Lenders if required under the Credit Agreement) and the Guarantor. No failure by the Lender to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy or power hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein provided are cumulative and not exclusive of any remedies provided by law or in equity. The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision herein.
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EXHIBIT C
12. Condition of Borrower. The Guarantor acknowledges and agrees that it has the sole responsibility for, and has adequate means of, obtaining from the Borrower and any other guarantor such information concerning the financial condition, business and operations of the Borrower and any such other guarantor as the Guarantor requires, and that the Administrative Agent has no duty, and the Guarantor is not relying on the Administrative Agent at any time, to disclose to the Guarantor any information relating to the business, operations or financial condition of the Borrower or any other guarantor (the guarantor waiving any duty on the part of the Administrative Agent to disclose such information and any defense relating to the failure to provide the same).
13. Setoff. If and to the extent any payment is not made when due hereunder, the Administrative Agent may setoff and charge from time to time any amount so due against any or all of the Guarantor’s accounts or deposits with the Administrative Agent.
14. Binding Effect; Several Agreement; Assignments . Whenever in this Guaranty any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party; and all covenants, promises and agreements by or on behalf of the Guarantor that are contained in this Guaranty shall bind and inure to the benefit of each party hereto and their respective successors and permitted assigns. This Guaranty shall become effective as to the Guarantor when a counterpart hereof executed on behalf of the Guarantor shall have been delivered to the Administrative Agent and a counterpart hereof shall have been executed on behalf of the Administrative Agent, and thereafter shall be binding upon the Guarantor and the Administrative Agent and their respective successors and permitted assigns, and shall inure to the benefit of the Guarantor, the Administrative Agent and the other Secured Parties, and their respective successors and permitted assigns, except that the Guarantor shall not have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void) without the prior written consent of the Required Lenders or as otherwise permitted by the Credit Agreement. The Administrative Agent is hereby expressly authorized to, and agrees upon request of the Borrower it will, release any Guarantor from its obligations hereunder (including its Guaranty) in upon payment in full of the Guaranteed Obligations, or as otherwise permitted under the Credit Agreement.
15. Governing Law. This Guaranty AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT shall be governed by, and construed AND INTERPRETED in accordance with, the laws of the State of New York.
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EXHIBIT C
16. Jurisdiction; Notices . (a) Each party hereto hereby irrevocably and unconditionally submits for itself and its property in any legal action or proceeding relating to this Guaranty, or for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof, in each case that are located in the Borough of Manhattan, The City of New York, (b) the Guarantor hereby irrevocably and unconditionally (i) agrees that any such action or proceeding shall be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same, (ii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Guarantor at its address set forth in the Guarantor’s signature page below or at such other address of which the Administrative Agent shall have been notified pursuant thereto, (iii) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right of the Administrative Agent to sue in any other jurisdiction and (iv) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. All notices and other communications to the Guarantor under this Guaranty shall be in writing and given as provided in Section 9.01 of the Credit Agreement.
17. WAIVER OF JURY TRIAL; FINAL AGREEMENT. EACH OF THE GUARANTOR AND THE LENDER PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY WITH RESPECT TO ANY LEGAL OR PROCEEDING RELATING TO THIS GUARANTY OR THE GUARANTEED OBLIGATIONS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first above written.
MIC OHANA CORPORATION, | ||
as Guarantor | ||
By: | ||
Name: | ||
Title: |
GUARANTY AGREEMENT
J PMORGAN CHASE BANK, N.A., | ||
as Administrative Agent | ||
By: | ||
Name: | ||
Title: |
GUARANTY AGREEMENT
EXHIBIT D
AMENDED AND RESTATED PLEDGE AGREEMENT
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (this “ Agreement ”), dated to be effective as of January 3, 2018 (the “ Effective Date ”), is entered into by and between Macquarie Infrastructure Corporation , a Delaware corporation (hereinafter “ Debtor ”) and JPMorgan Chase Bank, N.A. , for itself and as agent for each of the Secured Parties (in such capacity, the “ Administrative Agent ”). Debtor hereby grants to the Secured Parties a continuing security interest in and to, and a Lien on (subject to any Permitted Liens), all of the “Pledged Collateral”, as defined in Section 2 of this Agreement. Debtor and the Secured Parties hereby further agree as follows:
1. OBLIGATIONS . The security interest hereby granted shall secure the full, prompt and complete payment and performance of the “ Secured Obligations ”, as that term is defined in the Credit Agreement.
2. COLLATERAL . The collateral in which a security interest is hereby granted comprises all of Debtor’s rights, titles and interests in and to the following, whether now owned or existing or hereafter arising or acquired, regardless of where any such assets and property are located (all of such assets and property and all of the below described assets and property being, collectively, the “ Pledged Collateral ”):
(a) all Equity Interests (whether now owned or existing or hereafter arising or acquired, whether the same constitutes “general intangibles”, “investment property”, a “security” or other personal property under the Uniform Commercial Code, and whether such interest is certificated or uncertificated) (i) in any Pledged Company or Minority Investment Issuer and (ii) the Equity Interests described on or referred to in Schedule I (the foregoing described property being, the “ Pledged Equity ”);
(b) the certificate(s) or instrument(s), if any, representing the Pledged Equity;
(c) all (i) dividends and distributions (in cash, instruments, Equity Interests or otherwise) on all of the Pledged Equity, including Debtor’s share of the profits and losses of the Pledged Company, (ii) rights to subscribe for, purchase or sell any or all of the Pledged Equity and (iii) other rights and property from time to time received, receivable or otherwise distributed or distributable, in each case in respect of or in exchange for any or all of the Pledged Equity;
(d) all Indebtedness (whether now owned or existing or hereafter arising or acquired, whether the same constitutes “general intangibles”, “instruments”, “investment property”, a “security” or other personal property under the Uniform Commercial Code, and whether such interest is represented by a promissory note) owed to Debtor by any Pledged Company or any Minority Investment Issuer, including the Indebtedness described on or referred to in Schedule I , and all promissory notes and instruments (as that term is defined in the Uniform Commercial Code), if any, issued by any such Person to Debtor (the foregoing described property being, the “ Pledged Debt ”);
(e) the certificate(s) or instrument(s) representing the Pledged Debt;
(f) all books and records pertaining to any of the foregoing; and
EXHIBIT D
(g) all cash and non-cash proceeds, interest, profits and other income of or on any of the foregoing described property and other supporting obligations given with respect to any of the foregoing.
Notwithstanding the foregoing, the “Pledged Collateral” shall not include any property (other than proceeds of Pledged Collateral) held in a securities account.
3. DEFINITIONS. In addition to the capitalized terms defined elsewhere in this Agreement, as used herein, the following capitalized terms will have the following meanings:
(a) “ Credit Agreement ” means the Amended and Restated Credit Agreement, dated as of the date hereof, by and among Debtor, MIC Ohana Corporation, the Administrative Agent and the lenders from time to time party thereto, as the same may hereafter be further amended, restated, amended and restated, supplemented, or otherwise modified from time to time.
(b) “ Existing Pledge Agreement ” means the Pledge Agreement dated as of July 16, 2014, between the Debtor and the Administrative Agent.
(c) “ Issuer ” means any issuer of any Pledged Debt.
(d) “ Minority Investment Issuer ” means any Person (i) in which the Borrower and its Subsidiaries, collectively, own 5% or more of any class of Equity Interests and (ii) in which the Borrower and its Subsidiaries, collectively, own Equity Interests and Indebtedness of $25,000,000 or more (based upon the initial amount of such investments and extensions of credit).
(e) “ Permitted Liens ” means (i) Permitted Encumbrances and (ii) the Liens in favor of Secured Parties.
(f) “ Pledged Company ” means MIC Ohana Corporation and any other Subsidiary in which the Debtor directly holds rights or interest in the Equity Interests of such Person.
(g) “ Uniform Commercial Code ” means the Uniform Commercial Code as adopted in each applicable jurisdiction, as amended or superseded from time to time. The “ New York UCC ” means the Uniform Commercial Code, as adopted in New York, as amended or superseded from time to time.
All of the uncapitalized terms contained in this Agreement which are now or hereafter defined in the New York UCC will, unless the context expressly indicates otherwise, have the meanings provided for now or hereafter in the New York UCC, as such definitions may be enlarged or expanded from time to time by amendment or judicial decision. Any capitalized term used but not defined herein shall have the meaning ascribed thereto in the Credit Agreement.
EXHIBIT D
4. REPRESENTATIONS AND WARRANTIES . To, among other things, induce Lenders to make Loans and other extensions of credit pursuant to the Loan Documents, Debtor represents to the Secured Parties that the following statements are, as of the Effective Date and as of each other date on which certain representations and warranties set forth in the Credit Agreement are required to be, or are deemed to be, remade pursuant thereto, true:
(a) Debtor is, and as to any property which at any time forms a part of the Pledged Collateral shall be, the owner of each and every item of the Pledged Collateral, free from any Lien except any Permitted Lien;
(b) Debtor has full corporate right to grant the security interest hereby granted;
(c) Debtor is the legal and beneficial owner of the Pledged Equity and Pledged Debt, subject to any Permitted Liens;
(d) No authorization, approval or other action by, and no notice to or filing with any governmental authority is required either: (i) for the Lien on the Pledged Collateral granted pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Debtor or (ii) in the case of Pledged Equity issued by any Pledged Company, for the exercise by the Administrative Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Equity pursuant to this Agreement (except, in each case, (A) for those authorizations, approvals, actions, notices and filings that have been obtained or that are being obtained concurrently herewith, (B) as may be required by laws affecting the offering and sale of securities generally or, in the case of exercise of remedies, applicable to creditors generally (including without limitation under the Uniform Commercial Code) and (C) for the filing of a UCC financing statement against Debtor in favor of the Secured Parties covering the Pledged Collateral); and
(e) (i) The Pledged Equity of MIC Ohana Corporation constitutes 100% of the issued and outstanding Equity Interests in MIC Ohana Corporation on a fully diluted basis, (ii) as of the Effective Date, there are no outstanding subscriptions, options, rights, warrants or other commitments pursuant to which MIC Ohana Corporation is obligated to issue or transfer any additional Equity Interests MIC Ohana Corporation except as described on Schedule I and (iv) as of the Effective Date, (y) all of the Pledged Equity of any Pledged Company and (z) all outstanding Pledged Debt is described opposite Debtor’s name on Schedule I .
(f) The security interest granted pursuant to this Agreement shall constitute a valid and continuing perfected security interest in favor of the Administrative Agent in the Pledged Collateral for which perfection is governed by the Uniform Commercial Code upon (i) in the case of all Pledged Collateral in which a security interest may be perfected by filing a financing statement under the Uniform Commercial Code, the completion of the filings contemplated by Section 4.01(b) of the Credit Agreement and (ii) the delivery to, and continuing possession by, the Administrative Agent of all Pledged Collateral consisting of instruments and certificated securities, in each case properly endorsed for transfer to the Administrative Agent or in blank.
(h) The organizational documents of any Pledged Company governing any Pledged Equity do not prohibit (i) the Administrative Agent from exercising all of the rights of the Debtor therein, (ii) a transferee or assignee of Equity Interests of such Pledged Company from becoming a member, partner or, as the case may be, other holder of such Pledged Equity to the same extent as the Debtor in such Pledged Company, entitled to participate in the management of such Pledged Company and (iii) upon the transfer of the entire interest of Debtor, Debtor ceasing to be a member, partner or, as the case may be, other holder of such Pledged Equity.
EXHIBIT D
5. DEBTOR’S RESPONSIBILITIES . Until the Termination of this Agreement in accordance with Section 9(j) of this Agreement:
(a) Debtor will: (i) use commercially reasonable efforts to defend the Pledged Collateral against all claims of all Persons at any time claiming any interest in any of the Pledged Collateral or claiming any interest therein adverse to Secured Parties except to the extent of any Permitted Lien; (ii) execute and deliver such supplemental instruments, in the form of assignments or otherwise, as the Administrative Agent shall reasonably require for the purpose of confirming, perfecting and maintaining perfection and priority of the Secured Parties’ security interest in and Lien on any or all of the Pledged Collateral, or as is necessary to provide Secured Parties with control (within the meaning of the Uniform Commercial Code) over the Pledged Collateral of any Pledged Company or any portion thereof to perfect its Lien thereon promptly after written request therefor by the Administrative Agent; (iii) upon the request of the Administrative Agent in its reasonable discretion exercised in good faith, make available to the Administrative Agent, at reasonable times and upon reasonable prior notice (but, so long as no Event of Default has occurred and is continuing, not more often than once in every twelve (12) month period from the date hereof), any and all of Debtor’s books, records, written memoranda, correspondence, and other instruments or writings that in any way evidence or relate to the Pledged Collateral at the expense of the Administrative Agent (provided that during the continuation of any Default any expense of the Administrative Agent in connection with the foregoing shall be for the account of the Debtor); (iv) provide the Administrative Agent with prior notice of any change in its jurisdiction of organization or form of organization (and, in each case, shall promptly make all filings required under the Uniform Commercial Code or other applicable law and take all other actions reasonably requested by the Administrative Agent to ensure that the Administrative Agent shall continue at all times following such change to have a valid, legal, enforceable (subject to applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and to general principles of equity and principles of good faith and fair dealing) and perfected Lien in such Pledged Collateral); and (v) pay (A) all costs of filing any financing, continuation or termination statements with respect to the Lien created hereby and (B) all reasonable and documented expenses, including reasonable attorneys’ fees, of the Administrative Agent incurred by the Administrative Agent in the exercise (including enforcement) of any of the Secured Parties’ rights or remedies under this Agreement or applicable law, and Debtor agrees that said expenses and fees shall constitute part of the Secured Obligations and be secured by the Pledged Collateral.
(b) To protect, perfect, or enforce, from time to time, the Secured Parties’ rights or interests in the Pledged Collateral, the Administrative Agent may, in its discretion (but without any obligation to do so): (i) discharge any Liens (other than Permitted Liens to the extent that no Event of Default has occurred and is continuing) at any time levied or placed on the Pledged Collateral, and (ii) obtain any record from any service bureau and pay such service bureau the cost thereof. All documented and reasonable costs and expenses incurred by the Administrative Agent in exercising its discretion under this subparagraph (b) will be part of the Secured Obligations secured by the Pledged Collateral.
EXHIBIT D
(c) Debtor will not consent to the dissolution, termination or liquidation, of any Pledged Company.
(d) Debtor will not permit any Pledged Company to issue any Equity Interests or to issue any instruments representing Indebtedness in an aggregate principal amount in excess of $25,000,000, in addition to, or in exchange or substitution for, the Pledged Equity or Pledged Debt, except that any Pledged Company may issue additional, exchange or substitute Equity Interests or instruments (all of which shall be “Pledged Collateral” under this Agreement) if all such Equity Interests or instruments are delivered to the Administrative Agent no later than 30 days after issuance, along with any powers, pledge agreements, or other documents deemed necessary by the Administrative Agent, in its reasonable discretion exercised in good faith, to grant to the Secured Parties a continuing security interest in and to, and a perfected Lien on, such Equity Interests or instruments.
(e) Debtor will not grant “control” (within the meaning of such term under Article 9-106 of the NY UCC) over any Pledged Collateral to any Person other than the Administrative Agent.
(f) Debtor will not, without the consent of the Administrative Agent, agree to any amendment of any organizational document of any Pledged Company that in any way adversely affects the rights of the Secured Parties in the Pledged Collateral pledged by Debtor hereunder.
6. POWER OF ATTORNEY . Debtor hereby irrevocably appoints the Administrative Agent (or its nominee) to be its attorney and in its name and otherwise on its behalf to do all acts and things and to sign, seal, execute, deliver, perfect and do all deeds, instruments, documents, acts and things upon and during the continuance of any Event of Default which may be required: (i) for carrying out any obligation imposed on Debtor by or pursuant to this Agreement after Debtor’s failure to do so, (ii) for carrying out any sale or other disposition of the Pledged Collateral by the Administrative Agent, including the transfer of the Pledged Collateral to the Administrative Agent or its designee, and (ii) generally for enabling the Administrative Agent to exercise the powers conferred on it by or pursuant to this Agreement or by law. The Administrative Agent shall have full power to delegate the power conferred on it by this Section 6 , but no such delegation shall preclude the subsequent exercise of such power by the Administrative Agent itself or preclude the Administrative Agent from making a subsequent delegation thereof to some other Person; any such delegation may be revoked by the Administrative Agent at any time. It is understood and agreed that the foregoing power of attorney shall be deemed to be a power coupled with an interest which cannot be revoked until the Termination of this Agreement in accordance with Section 9(j) of this Agreement.
7. VOTING RIGHTS; DEFAULT .
7.1 Voting Rights; Dividends and Distributions .
7.1.1 Absent an Event of Default . So long as no Event of Default occurs and is continuing and until such time as Debtor shall have received a written election from the Administrative Agent pursuant to Section 7.1.2 below: (i) Debtor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Equity or any part thereof; provided that no vote shall be cast or any consent given which would result in a breach of any covenant contained in any of the Loan Documents; and (ii) Debtor shall be entitled to receive and retain any and all dividends, payments, distributions and interest paid in respect of the Pledged Equity and Pledged Debt to the extent and in the manner not constituting a breach of the Credit Agreement or consented to in a writing signed by the Required Lenders after the Effective Date.
EXHIBIT D
7.1.2 Upon an Event of Default . Upon the occurrence and during the continuance of an Event of Default: (i) all rights of Debtor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 7.1.1 and to receive the distributions and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 7.1.1 shall cease, at the Administrative Agent’s prior written election delivered to Debtor, and all such rights shall thereupon become vested in the Administrative Agent, or such nominee(s) of the Administrative Agent as the Administrative Agent shall designate in writing to Debtor, who shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such distributions and interest payments; (ii) all distributions and interest payments which are received by Debtor contrary to the provisions of Section 7.1 shall be received in trust for the benefit of the Secured Parties, shall be segregated from other funds of Debtor, and shall be forthwith paid over to the Administrative Agent, or such nominee(s) of the Administrative Agent as the Administrative Agent shall designate in writing to Debtor as Pledged Collateral in the same form as so received (with any necessary indorsement(s); and (iii) if the Administrative Agent exercises its right to vote any of such Pledged Equity in accordance with this Agreement, Debtor hereby appoints the Administrative Agent, Debtor’s true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged Equity in any manner the Administrative Agent deems necessary for or against all matters submitted or which may be submitted to a vote of stockholders. The power-of-attorney and proxy granted hereby is coupled with an interest and shall be irrevocable. After all Events of Default have been cured or waived, Debtor’s right to exercise the voting and consensual rights and powers that it would otherwise be entitled to exercise pursuant to the terms of this Section 7.1.1 shall be reinstated.
7.2 Default .
7.2.1 Generally . If an Event of Default occurs and is continuing, then, in any such event and without limitation of the Administrative Agent’s rights and remedies in Section 7.1 , the Administrative Agent may, with prior written notice to Debtor, resort to the rights and remedies available at law, in equity and under this Agreement and the other Loan Documents, including the rights and remedies of the Administrative Agent under the Uniform Commercial Code. No remedy set forth herein is exclusive of any other available remedy or remedies, but each is cumulative and in addition to every other remedy under this Agreement, the other Loan Documents or now or hereafter existing at law or in equity or by statute. After the occurrence and during the continuance of an Event of Default, the Administrative Agent may proceed to protect and enforce its rights by any action at law or in equity or by any other appropriate proceedings. No failure on the part of the Administrative Agent to enforce any of the rights hereunder shall be deemed a waiver of such rights or of any Event of Default, and no waiver of any Event of Default will be deemed to be a waiver of any subsequent Event of Default. The Administrative Agent’s compliance with applicable local, state or federal law requirements, in addition to those imposed by the Uniform Commercial Code, in connection with a disposition of any or all of the Pledged Collateral will not be considered to adversely affect the commercial reasonableness of any disposition of any or all of the Pledged Collateral under the Uniform Commercial Code.
EXHIBIT D
7.2.2 Pledged Equity . (a) Without limiting any other rights or remedies available to the Administrative Agent under Section 7.2.1 , at any time after an Event of Default occurs and is continuing (including after any applicable requirement for notice and an opportunity to cure), the Administrative Agent, at its option and without any obligation to do so, may, at any time, transfer to or register in its name, or the name of any nominee(s), all or any part of the Pledged Equity, and the Administrative Agent may exercise in respect of the Pledged Equity, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies under applicable law and of a the Administrative Agent on default under the Uniform Commercial Code; and Secured Parties may also, with fifteen (15) days prior written notice to Debtor, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker’s board or any of the Administrative Agent’s offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. The Administrative Agent shall be authorized at any such sale (if it deems it necessary to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Pledged Collateral for their own account in compliance with (i) Regulation D of the Securities Act of 1933, as amended, and applicable state securities laws or (ii) any other applicable exemption available under such laws.
(b) Debtor agrees that at least fifteen (15) days written notice to Debtor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of the Pledged Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, upon fifteen (15) days prior written notice to Debtor, be made at the time and place it was so adjourned. Any cash held by the Administrative Agent as Pledged Collateral and all cash proceeds received by the Administrative Agent in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the reasonable discretion of the Administrative Agent, be held by the Administrative Agent as Pledged Collateral for, and/or then or at any time thereafter in whole or in part may be applied by the Administrative Agent against, all or any parts of the Secured Obligations in accordance with Section 2.18 of the Credit Agreement. Any surplus of such cash or cash proceeds held by the Administrative Agent and remaining after payment in full of all of the Secured Obligations (other than contingent indemnification obligations which survive termination of the Credit Agreement) shall be paid over to Debtor or to whomsoever may be lawfully entitled to receive such surplus. Without precluding any other methods of sale, the sale of the Pledged Collateral, or any part thereof, shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of banks or finance companies disposing of similar property.
(c) Debtor recognizes that federal, state and/or foreign securities and other laws may limit the flexibility desired to achieve an otherwise commercially reasonable disposition of the Pledged Equity, and in the event of potential conflict between such laws or regulations and what in other circumstances might constitute commercial reasonableness, it is intended that consideration for such laws and regulations will prevail over attempts to achieve such commercial reasonableness. In connection with any sale or other disposition of the Pledged Equity, compliance by the Administrative Agent with the written advice of its counsel concerning the potential effect of any such law or regulation shall not be cause for Debtor, or any other Person, to claim that such sale or other disposition was not commercially reasonable, it being the intent of Debtor that the Administrative Agent not be obligated to risk contravening any such law or regulation in order to effect what, but for such law or regulation, would be a commercially reasonable disposition.
EXHIBIT D
(d) The Administrative Agent shall be under no duty to sell or otherwise realize upon the Pledged Collateral. At any time, the Administrative Agent (at the direction of the Required Lenders) may release or surrender all or any part of the Pledged Collateral to Debtor.
8. WAIVERS; RIGHTS OF SECURED PARTIES . Debtor acknowledges and agrees that Debtor, by signing this Agreement, is subjecting the Pledged Collateral to the Lien of Secured Parties for the payment and performance of all Secured Obligations.
9. GENERAL PROVISIONS .
(a) All rights of Secured Parties shall inure to the benefit of its successors and permitted assigns, and all obligations of Debtor shall bind the successors and assigns of Debtor.
(b) This Agreement and the other Loan Documents to which Debtor is a party contain the entire agreement of the parties with respect to the subject matter of this Agreement, and no oral agreement whatsoever, whether made contemporaneously herewith or hereafter shall amend, modify or otherwise affect the terms of this Agreement. This Agreement may be executed in multiple counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. This Agreement may be signed by facsimile signatures or other electronic delivery of an image file reflecting the execution hereof, and, if so signed: (A) may be relied on by each party as if the document were a manually signed original and (B) will be binding on each party for all purposes. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except pursuant to an agreement in writing entered into by each of the parties required under Section 9.02 of the Credit Agreement; provided , however , that Schedule I of this Agreement may be supplemented from time to time by Debtor (and acknowledged by Administrative Agent) to reflect Pledged Equity and Pledged Debt held by the Debtor at such time.
(c) Any notice required, permitted or contemplated hereunder shall, except as expressly provided in this Agreement, be in writing and given in accordance with Section 9.01 the Credit Agreement.
(d) All rights and liabilities hereunder shall be governed and limited by and construed in accordance with the laws of the State of New York.
(e) If any provision of this Agreement is found invalid by a court of competent jurisdiction, the invalid term will be considered excluded from this Agreement and will not invalidate the remaining provisions of this Agreement.
(f) Debtor hereby irrevocably authorizes the Administrative Agent at any time and from time to time to file in any filing office in any jurisdiction any initial financing statements and amendments thereto, including financing statements that provide any other information required by Article 9 of the Uniform Commercial Code for the sufficiency or filing office acceptance of any financing statement or amendment, including whether Debtor is an organization, the type of organization and any organizational identification number issued to Debtor. Debtor hereby irrevocably authorizes the Administrative Agent at any time and from time to time to correct or complete, or to cause to be corrected or completed, any financing statements, continuation statements or other such documents as have been filed naming Debtor as debtor and the Administrative Agent, for the benefit of the Secured Parties, as Secured Parties.
EXHIBIT D
(g) The Administrative Agent shall have no duty of care with respect to the Pledged Collateral except that the Administrative Agent shall exercise reasonable care with respect to the Pledged Collateral in the Administrative Agent’s custody. The Administrative Agent shall be deemed to have exercised reasonable care if: (i) such property is accorded treatment substantially equal to that which the Administrative Agent accords its own property that is similar to the Pledged Collateral or (ii) the Administrative Agent takes such action with respect to the Pledged Collateral as Debtor shall reasonably request in writing.
(h) The definition of any document, instrument or agreement includes all schedules, attachments and exhibits thereto and all renewals, extensions, supplements, restatements and amendments thereof. All exhibits and schedules attached to this Agreement are incorporated into, made and form an integral part of, this Agreement for all purposes. As used in this Agreement, “hereunder,” “herein,” “hereto,” “this Agreement” and words of similar import refer to this entire document; “including” is used by way of illustration and not by way of limitation, unless the context clearly indicates the contrary; and the singular includes the plural and conversely.
(i) SECURED PARTIES AND DEBTOR HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(j) This Agreement will automatically terminate (“ Termination ”) upon (i) the later to occur of: (A) the full performance, payment in full in cash and satisfaction of the Obligations (other than contingent indemnification obligations which survive termination of the Credit Agreement) and (B) the termination of all commitments to extend credit and other obligations of the Administrative Agent, Issuing Banks and Lenders under the Credit Agreement and (ii) the occurrence of a Pledge Release Date pursuant to Section 9.19(b) of the Credit Agreement. Upon such Termination, the Liens on the Pledged Collateral granted hereunder shall automatically be released without further action of the Administrative Agent, and the Administrative Agent shall, at Debtor’s expense, promptly execute and deliver to Debtor proper documentation acknowledging such release, and shall duly assign and deliver to Debtor such of the Pledged Collateral as has been released and is in the possession of the Administrative Agent, pursuant to one or more instruments of re-conveyance prepared by the Administrative Agent, and shall deliver UCC termination statements or partial release statements or the like with respect to its Liens on the Pledged Collateral. Upon (i) any sale or other transfer permitted under the Loan Documents by the Borrower of any Pledged Collateral (including any transfer to the Guarantor or a Subsidiary of the Guarantor) or (ii) the effectiveness of any written consent to the release of the security interest granted hereby in any Pledged Collateral pursuant to the Credit Agreement, the security interest in such Pledged Collateral shall be automatically released and, in connection with any such release, the Administrative Agent shall promptly execute and deliver to the Borrower, at the Borrower’s expense, all UCC termination statements and similar documents that the Borrower shall reasonably request to evidence such release.
EXHIBIT D
10. EFFECT OF AMENDMENT AND RESTATEMENT
(a) On and as of the Effective Date, the Existing Pledge Agreement shall be amended, restated and superseded in its entirety by this Agreement. The parties hereto acknowledge and agree that (i) this Agreement does not constitute a novation or termination of the “Secured Obligations” (as defined in the Existing Pledge Agreement) as in effect prior to the Effective Date and (ii) such “Secured Obligations” are in all respects continuing (as amended and restated hereby) with only the terms thereof being modified as provided in this Agreement. Each reference to the “Pledge Agreement” in any Loan Document shall be deemed to be a reference to this Agreement.
(b) Each party hereto that was a “Lender” (as defined in the Existing Credit Agreement) hereby consents to the amendment and restatement of the Existing Pledge Agreement in its entirety and in accordance with this Agreement and Section 9.02 of the Existing Credit Agreement.
[ Signature Pages Follow ]
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the Effective Date.
MACQUARIE INFRASTRUCTURE CORPORATION | ||
By: | ||
Name: | ||
Title: | ||
By: | ||
Name: | ||
Title: |
SIGNATURE PAGE TO
AMENDED AND RESTATED PLEDGE AGREEMENT
JPMORGAN CHASE BANK, N.A. , as Administrative Agent | ||
By: | ||
Name: | ||
Title: |
SIGNATURE PAGE TO
AMENDED AND RESTATED PLEDGE AGREEMENT
EXHIBIT D
[●]
as a “Lender” (as defined in the Existing Credit Agreement) |
||
By: | ||
Name: | ||
Title: |
SIGNATURE PAGE TO
AMENDED AND RESTATED PLEDGE AGREEMENT
SCHEDULE I
I. Equity Interests in Pledged Companies :
Pledged Company |
% of Equity Interest/Number of
Outstanding Units |
Cert. # | ||||||
MIC Ohana Corporation | 100 | 3 |
II. Outstanding subscriptions, options, rights, warrants or other agreements or commitments pursuant to which any Pledged Company is obligated to issue or transfer any additional equity interests or other economic interests: None.
III. Pledged Debt :
Issuer |
Principal Amount of Pledged Debt |
Cert. # | ||||||
N/A | N/A | N/A |
GUARANTY AGREEMENT
Exhibit 10.24
Execution Version
AMENDMENT NO. 2
AMENDMENT NO. 2, dated as of February 12, 2018 (this “ Amendment No. 2 ”), to the Amended and Restated Credit Agreement, dated as of February 10, 2016 (as amended on February 21, 2017, and as may be further amended, modified, restated and supplemented from time to time, the “ HGC Credit Agreement ”), among HGC Holdings LLC, a Hawaii limited liability company (the “ Borrower ”), the several lenders from time to time parties thereto (the “ Lenders ”) and Wells Fargo Bank, National Association, as administrative agent (the “ Administrative Agent ”).
WITNESSETH :
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to the HGC Credit Agreement;
WHEREAS, the Borrower has requested that (i) certain provisions of the HGC Credit Agreement be amended and waived as set forth herein and (ii) pursuant to Section 2.5 of the HGC Credit Agreement, each Lender extend its Term Loan Maturity Date for one additional year from the Term Loan Maturity Date in effect under the HGC Credit Agreement immediately prior to this Amendment No. 2;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Defined Terms . Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the HGC Credit Agreement.
SECTION 2. Amendments to the HGC Credit Agreement .
(a) Additional Defined Term . The following definition is hereby added in the appropriate alphabetical order to Section 1.1 of the HGC Credit Agreement:
“ Second Amendment Effective Date ” means the date on which all conditions precedent to the second amendment to this Agreement are satisfied.
(b) Amendments to Section 5.18 and Schedule 5.18 . (i) Section 5.18 is hereby amended by replacing the term “First Amendment Effective Date” in Section 5.18 with the term “Second Amendment Effective Date” and (ii) Schedule 5.18 to the HGC Credit Agreement is hereby amended and restated in its entirety as set forth in Exhibit A hereto.
(c) Amendment to Section 10.10(b)(iv) . Section 10.10(b)(iv) is hereby amended by replacing the phrase “(including without limitation, any Excluded Entity)” with the phrase “or any Excluded Entity”.
(d) Amendment to Section 10.10(d) . Section 10.10(d) is hereby amended by replacing the phrase “including without limitation, any Excluded Entity” with the phrase “or any Excluded Entity”.
SECTION 3. Extension . Pursuant to Section 2.5 of the HGC Credit Agreement, the Borrower has notified the Administrative Agent of its request to extend the Term Loan Maturity Date set forth in clause (a) of the definition thereof for an additional year from February 10, 2022 to February 10, 2023. As of the date hereof, Lenders (the “ Extending Lenders ”) holding more than 50% of the outstanding Loans (who, for the avoidance of doubt, constitute the Required Lenders) (i) along with the Administrative Agent and Borrower, waive the notice requirements set forth in Section 2.5(b) and Section 2.5(c) of the HGC Credit Agreement and (ii) have approved the Borrower’s request to extend their outstanding Loans and, subject to the satisfaction of the conditions precedent set forth in Section 4 herein (and the other terms and conditions set forth in the HGC Credit Agreement), the Term Loan Maturity Date as to the Extending Lenders shall be extended for an additional year from the then-applicable Term Loan Maturity Date. The Term Loan Maturity Date as to any Non-Extending Lender remains unchanged.
SECTION 4. Effective Date . This Amendment No. 2 shall become effective on the date (the “ Effective Date ”) on which conditions set forth in this Section 4 have been satisfied:
(a) the Administrative Agent shall have received (i) a counterpart of this Amendment No. 2, executed and delivered by a Responsible Officer of the Borrower and (ii) counterparts of this Amendment No. 2, executed and delivered by each Extending Lender, which Lenders shall constitute the Required Lenders;
(b) no Default shall have occurred and be continuing on the Effective Date;
(c) the representations and warranties contained in the HGC Credit Agreement that are qualified by materiality shall be true and correct on and as of the date of such extension and after giving effect thereto, and such representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the date of such extension and after giving effect thereto, in each case as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, true and correct in all material respects as of such specific date ( provided , that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) and, the representations and warranties contained in Section 5.15 of the HGC Credit Agreement shall be deemed to refer to the most recent statements delivered pursuant to clauses (a) and (b) of Section 6.1 of the HGC Credit Agreement);
(d) the Administrative Agent shall have received a certificate executed and delivered by a Responsible Officer of the Borrower certifying as to the matters set forth in clauses (b) and (c) above; and
(e) the Borrower shall have paid (i) to the Administrative Agent, for the account of each Extending Lender, an extension fee in an amount equal to 0.06% of such Extending Lender’s outstanding Loans as of the Effective Date, which extension fee once paid shall be fully earned and nonrefundable and (ii) all other fees and reasonable expenses of the Administrative Agent and the Lenders required under the HGC Credit Agreement and any other Loan Document to be paid on or prior to the Effective Date (including reasonable fees and expenses of counsel) in connection with this Agreement.
SECTION 5. Acknowledgment and Confirmation of the Borrower . The Borrower hereby confirms and agrees that after giving effect to this Amendment No. 2, the HGC Credit Agreement and the other Loan Documents remain in full force and effect and enforceable against the Borrower in accordance with their respective terms and shall not be discharged, diminished, limited or otherwise affected in any respect. The Borrower represents and warrants to the Lenders that it has no knowledge of any claims, counterclaims, offsets, or defenses to or with respect to its obligations under the Loan Documents, or if the Borrower has any such claims, counterclaims, offsets, or defenses to the Loan Documents or any transaction related to the Loan Documents, the same are hereby waived, relinquished, and released in consideration of the execution of this Amendment No. 2. This acknowledgment and confirmation by the Borrower is made and delivered to induce the Administrative Agent and the Lenders to enter into this Amendment No. 2.
2 |
SECTION 6. GOVERNING LAW; WAIVER OF JURY TRIAL . THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY AGREES AS SET FORTH IN SECTION 10.6 OF THE HGC CREDIT AGREEMENT AS IF SUCH SECTION WERE SET FORTH IN FULL HEREIN.
SECTION 7. Miscellaneous .
(a) Except as expressly modified hereby, the HGC Credit Agreement and the other Loan Documents shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the HGC Credit Agreement, “hereinafter,” “hereto,” “hereof,” and words of similar import shall, unless the context otherwise requires, mean the HGC Credit Agreement after giving effect to this Amendment No. 2. Any reference to the HGC Credit Agreement or any of the other Loan Documents herein or in any such documents shall refer to the HGC Credit Agreement and Loan Documents as modified hereby. This Amendment No. 2 is limited as specified and shall not constitute or be deemed to constitute an amendment, modification or waiver of any provision of the Credit Agreement except as expressly set forth herein. This Amendment No. 2 shall constitute a Loan Document under the terms of the HGC Credit Agreement.
(b) This Amendment No. 2 may be executed in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same document.
(c) With respect to successors and assigns, each party hereto hereby agrees as set forth in Section 10.10 of the HGC Credit Agreement as if such section were set forth in full herein.
(d) Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
[Remainder of page intentionally left blank.]
3 |
Execution Version
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.
HGC HOLDINGS LLC | ||
By: | /s/ James Westerhaus | |
Name: | James Westerhaus | |
Title: | Chief Financial Officer |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
4 |
WELLS FARGO BANK, NATIONAL | ||
ASSOCIATION, as Administrative | ||
Agent and Lender | ||
By: | /s/ Keith Luettel | |
Name: | Keith Luettel | |
Title: | Director |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
5 |
AMERICAN SAVINGS BANK, FSB | ||
as a Lender | ||
By: | /s/ Edward Chin | |
Name: | Edward Chin | |
Title: | First Vice President |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
6 |
Bank of Hawaii, | ||
as a Lender | ||
By: | /s/ Nicole Matsuo | |
Name: | Nicole Matsuo | |
Title: | Vice President |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
7 |
Central Pacific Bank, | ||
as a Lender | ||
By: | /s/ Lisa Nillos | |
Name: | Lisa Nillos | |
Title: | Senior Vice President |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
8 |
CoBank, ACB, | ||
as a Lender | ||
By: | /s/ Josh Batchelder | |
Name: | Josh Batchelder | |
Title: | Managing Director |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
9 |
First Commercial Bank, Ltd., New York Branch, | ||
as a Lender | ||
By: | /s/ Bill Wang | |
Name: | Bill Wang | |
Title: | Senior Vice President & General Manager |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
10 |
Hua Nan Commercial Bank Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Gary Hsu | |
Name: | Gary Hsu | |
Title: | VP & General Manager |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
11 |
Regions Bank, | ||
as a Lender | ||
By: | /s/ Brian Walsh | |
Name: | Brian Walsh | |
Title: | Director |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
12 |
Taiwan Business Bank, Los Angeles Branch , | ||
as a Lender | ||
By: | /s/ Cindy Lin | |
Name: | Cindy Lin | |
Title: | DGM |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
13 |
Taiwan Cooperative Bank, Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Tao-Lun Lin | |
Name: | Tao-Lun Lin | |
Title: | VP & General Manager |
[Signature Page to A&R HGC Credit Agreement Amendment No. 2]
14 |
Exhibit 10.25
Execution Version
AMENDMENT NO. 2
AMENDMENT NO. 2, dated as of February 12, 2018 (this “ Amendment No. 2 ”), to the Amended and Restated Credit Agreement, dated as of February 10, 2016 (as amended on February 21, 2017, and as may be further amended, modified, restated and supplemented from time to time, the “ TGC Credit Agreement ”), among The Gas Company, LLC, a Hawaii limited liability company (the “ Borrower ”), the several lenders from time to time parties thereto (the “ Lenders ”) and Wells Fargo Bank, National Association, as administrative agent (the “ Administrative Agent ”).
WITNESSETH :
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to the TGC Credit Agreement;
WHEREAS, the Borrower has requested that (i) certain provisions of the TGC Credit Agreement be amended and waived as set forth herein and (ii) pursuant to Section 2.7 of the TGC Credit Agreement, each Lender extend its Revolving Credit Maturity Date for one additional year from the Revolving Credit Maturity Date in effect under the TGC Credit Agreement immediately prior to this Amendment No. 2;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Defined Terms . Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the TGC Credit Agreement.
SECTION 2. Amendments to the TGC Credit Agreement .
(a) Additional Defined Term . The following definition is hereby added in the appropriate alphabetical order to Section 1.1 of the TGC Credit Agreement:
“ Second Amendment Effective Date ” means the date on which all conditions precedent to the second amendment to this Agreement are satisfied.
(b) Amendments to Section 6.18 and Schedule 6.18 . (i) Section 6.18 is hereby amended by replacing the term “First Amendment Effective Date” in Section 6.18 with the term “Second Amendment Effective Date” and (ii) Schedule 6.18 to the TGC Credit Agreement is hereby amended and restated in its entirety as set forth in Exhibit A hereto.
(c) Amendment to Section 11.10(b)(iv) . Section 11.10(b)(iv) is hereby amended by replacing the phrase “(including without limitation, any Excluded Entity)” with the phrase “or any Excluded Entity”.
(d) Amendment to Section 11.10(d) . Section 11.10(d) is hereby amended by replacing the phrase “including without limitation, any Excluded Entity” with the phrase “or any Excluded Entity”.
SECTION 3. Extension . Pursuant to Section 2.7 of the TGC Credit Agreement, the Borrower has notified the Administrative Agent of its request to extend the Revolving Credit Maturity Date set forth in clause (a) of the definition thereof for an additional year from February 10, 2022 to February 10, 2023. As of the date hereof, Lenders (the “ Extending Lenders ”) holding more than 50% of the Commitments (who, for the avoidance of doubt, constitute the Required Lenders) (i) along with the Administrative Agent and Borrower, waive the notice requirements set forth in Section 2.7(b) and Section 2.7(c) of the TGC Credit Agreement and (ii) have approved the Borrower’s request to extend their Commitments and, subject to the satisfaction of the conditions precedent set forth in Section 4 herein (and the other terms and conditions set forth in the TGC Credit Agreement), the Revolving Credit Maturity Date as to the Extending Lenders shall be extended for an additional year from the then-applicable Revolving Credit Maturity Date. The Revolving Credit Maturity Date as to any Non-Extending Lender remains unchanged.
SECTION 4. Effective Date . This Amendment No. 2 shall become effective on the date (the “ Effective Date ”) on which conditions set forth in this Section 4 have been satisfied:
(a) the Administrative Agent shall have received (i) a counterpart of this Amendment No. 2, executed and delivered by a Responsible Officer of the Borrower and (ii) counterparts of this Amendment No. 2, executed and delivered by each Extending Lender, which Lenders shall constitute the Required Lenders;
(b) no Default shall have occurred and be continuing on the Effective Date;
(c) the representations and warranties contained in the TGC Credit Agreement that are qualified by materiality shall be true and correct on and as of the date of such extension and after giving effect thereto, and such representations and warranties that are not qualified by materiality shall be true and correct in all material respects on and as of the date of such extension and after giving effect thereto, in each case as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, true and correct in all material respects as of such specific date ( provided , that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) and, the representations and warranties contained in Section 6.15 of the TGC Credit Agreement shall be deemed to refer to the most recent statements delivered pursuant to clauses (a) and (b) of Section 7.1 of the TGC Credit Agreement);
(d) the Administrative Agent shall have received a certificate executed and delivered by a Responsible Officer of the Borrower certifying as to the matters set forth in clauses (b) and (c) above; and
(e) the Borrower shall have paid (i) to the Administrative Agent, for the account of each Extending Lender, an extension fee in an amount equal to 0.06% of such Extending Lender’s Commitment as of the Effective Date, which extension fee once paid shall be fully earned and nonrefundable and (ii) all other fees and reasonable expenses of the Administrative Agent and the Lenders required under the TGC Credit Agreement and any other Loan Document to be paid on or prior to the Effective Date (including reasonable fees and expenses of counsel) in connection with this Agreement.
SECTION 5. Acknowledgment and Confirmation of the Credit Parties . Each of the Credit Parties hereby confirms and agrees that after giving effect to this Amendment No. 2, the TGC Credit Agreement and the other Loan Documents remain in full force and effect and enforceable against each Credit Party in accordance with their respective terms and shall not be discharged, diminished, limited or otherwise affected in any respect. Each of the Credit Parties represents and warrants to the Lenders that it has no knowledge of any claims, counterclaims, offsets, or defenses to or with respect to its obligations under the Loan Documents, or if a Credit Party has any such claims, counterclaims, offsets, or defenses to the Loan Documents or any transaction related to the Loan Documents, the same are hereby waived, relinquished, and released in consideration of the execution of this Amendment No. 2. This acknowledgment and confirmation by the Credit Parties is made and delivered to induce the Administrative Agent and the Lenders to enter into this Amendment No. 2.
2 |
SECTION 6. GOVERNING LAW; WAIVER OF JURY TRIAL . THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY AGREES AS SET FORTH IN SECTION 11.6 OF THE TGC CREDIT AGREEMENT AS IF SUCH SECTION WERE SET FORTH IN FULL HEREIN.
SECTION 7. Miscellaneous .
(a) Except as expressly modified hereby, the TGC Credit Agreement and the other Loan Documents shall continue in full force and effect in accordance with the provisions thereof on the date hereof. As used in the TGC Credit Agreement, “hereinafter,” “hereto,” “hereof,” and words of similar import shall, unless the context otherwise requires, mean the TGC Credit Agreement after giving effect to this Amendment No. 2. Any reference to the TGC Credit Agreement or any of the other Loan Documents herein or in any such documents shall refer to the TGC Credit Agreement and Loan Documents as modified hereby. This Amendment No. 2 is limited as specified and shall not constitute or be deemed to constitute an amendment, modification or waiver of any provision of the Credit Agreement except as expressly set forth herein. This Amendment No. 2 shall constitute a Loan Document under the terms of the TGC Credit Agreement.
(b) This Amendment No. 2 may be executed in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same document
(c) With respect to successors and assigns, each party hereto hereby agrees as set forth in Section 11.10 of the TGC Credit Agreement as if such section were set forth in full herein.
(d) Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
[Remainder of page intentionally left blank.]
3 |
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed and delivered by their respective proper and duly authorized officers as of the day and year first above written.
THE GAS COMPANY, LLC | ||
By: | /s/ James Westerhaus | |
Name: | James Westerhaus | |
Title: | Chief Financial Officer |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
4 |
WELLS FARGO BANK, NATIONAL | ||
ASSOCIATION, as Administrative | ||
Agent and Lender | ||
By: | /s/ Keith Luettel | |
Name: | Keith Luettel | |
Title: | Director |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
5 |
AMERICAN SAVINGS BANK, FSB | ||
as a Lender | ||
By: | /s/ Edward Chin | |
Name: | Edward Chin | |
Title: | First Vice President |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
6 |
Bank of Hawaii, | ||
as a Lender | ||
By: | /s/ Nicole Matsuo | |
Name: | Nicole Matsuo | |
Title: | Vice President |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
7 |
Central Pacific Bank, | ||
as a Lender | ||
By: | /s/ Lisa Nillos | |
Name: | Lisa Nillos | |
Title: | Senior Vice President |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
8 |
CoBank, ACB, | ||
as a Lender | ||
By: | /s/ Josh Batchelder | |
Name: | Josh Batchelder | |
Title: | Managing Director |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
9 |
First Commercial Bank, Ltd., New York Branch, | ||
as a Lender | ||
By: | /s/ Bill Wang | |
Name: | Bill Wang | |
Title: | Senior Vice President & General Manager |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
10 |
Hua Nan Commercial Bank Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Gary Hsu | |
Name: | Gary Hsu | |
Title: | VP & General Manager |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
11 |
Regions Bank, | ||
as a Lender | ||
By: | /s/ Brian Walsh | |
Name: | Brian Walsh | |
Title: | Director |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
12 |
Taiwan Business Bank, Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Cindy Lin | |
Name: | Cindy Lin | |
Title: | DGM |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
13 |
Taiwan Cooperative Bank, Los Angeles Branch, | ||
as a Lender | ||
By: | /s/ Tao-Lun Lin | |
Name: | Tao-Lun Lin | |
Title: | VP & General Manager |
[Signature Page to A&R TGC Credit Agreement Amendment No. 2]
14 |
Exhibit 21.1
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Subsidiary | Jurisdiction | |
AA Charter Brokerage LLC | Delaware | |
AAC Subsidiary, LLC | Delaware | |
ACM Property Services, LLC | Delaware | |
Ascend Development HWD, LLC | California | |
Atlantic Aviation Albuquerque, Inc. | New Mexico | |
Atlantic Aviation Corporation | Delaware | |
Atlantic Aviation FBO Holdings LLC | Delaware | |
Atlantic Aviation FBO, Inc. | Delaware | |
Atlantic Aviation Flight Support, Inc. | Delaware | |
Atlantic Aviation Holding Corporation | Delaware | |
Atlantic Aviation Investors, Inc. | California | |
Atlantic Aviation of Santa Monica, L.P. | California | |
Atlantic Aviation Oklahoma City, Inc. | Delaware | |
Atlantic Aviation Oregon FBO, Inc. | Oregon | |
Atlantic Aviation Oregon General Aviation Services, Inc. | Oregon | |
Atlantic Aviation Philadelphia, Inc. | Delaware | |
Atlantic Aviation Stewart LLC | Delaware | |
Atlantic Aviation-Boca Raton LLC | Delaware | |
Atlantic Aviation-Florida Inc. | Delaware | |
Atlantic Aviation-Kansas City LLC | Missouri | |
Atlantic Aviation-Montrose, LLC | Delaware | |
Atlantic Aviation-Opa Locka LLC | Delaware | |
Atlantic Aviation-Orlando Executive LLC | Delaware | |
Atlantic Aviation-Orlando LLC | Delaware | |
Atlantic Aviation-Oxford LLC | Delaware | |
Atlantic Aviation-Salt Lake City LLC | Delaware | |
Atlantic Aviation-St. Augustine LLC | Delaware | |
Atlantic Aviation-Steamboat-Hayden LLC | Delaware | |
Atlantic Aviation-Stuart LLC | Delaware | |
Atlantic Aviation-West Palm Beach LLC | Delaware | |
Atlantic SMO GP LLC | Delaware | |
Atlantic SMO Holdings LLC | Delaware | |
Aviation Contract Services, Inc. | California | |
Bagfy Holdings LLC | Delaware | |
BASI Holdings, LLC | Delaware | |
Bayonne Energy Center Urban Renewal II, LLC | New Jersey | |
Bayonne Energy Center Urban Renewal, LLC | New Jersey | |
Bayonne Energy Center, LLC | Delaware | |
Bayonne Industries, Inc. | New Jersey | |
Brahms Wind, LLC | Delaware | |
Brainard Airport Services, Inc. | Connecticut | |
Bridgeport Airport Services, Inc. | Connecticut | |
Broadview Energy Prime II Investments, LLC | Delaware | |
Broadview Energy Prime II, LLC | New Mexico | |
Broadview Energy Prime Investments, LLC | Delaware | |
Broadview Energy Prime, LLC | New Mexico | |
Bryan Solar Equity Holdings, LLC | Delaware | |
Bryan Solar Project Holdings, LLC | Delaware | |
Bryan Solar, LLC | Delaware | |
Burley Butte Wind Park, LLC | Idaho |
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|
Subsidiary | Jurisdiction | |
Camp Reed Wind Park, LLC | Idaho | |
Charter Oak Aviation, Inc. | Connecticut | |
COAI Holdings, LLC | Delaware | |
Corporate Wings-CGF, LLC | Ohio | |
Corporate Wings-Hopkins, LLC | Ohio | |
Critchfield Pacific, Inc. | Hawaii | |
CT MIC Bluff Road Venture, LLC | Delaware | |
Davis Monthan Project Holdings, LLC | Delaware | |
DM Petroleum Operations Company | Louisiana | |
DMAFB Equity Holdings, LLC | Delaware | |
Eagle Aviation Resources, Ltd. | Nevada | |
East Jersey Railroad and Terminal Company | New Jersey | |
Epic Midstream LLC | Delaware | |
Equuleus Community Solar Gardens, LLC | Minnesota | |
Equuleus CSG1, LLC | Minnesota | |
Equuleus CSG2, LLC | Minnesota | |
Equuleus CSG3, LLC | Minnesota | |
Equuleus CSG4, LLC | Minnesota | |
Equuleus CSG5, LLC | Minnesota | |
Executive Air Support, Inc. | Delaware | |
Exergy Idaho Holdings, LLC | Idaho | |
FLI Subsidiary, LLC | Delaware | |
Flightways of Long Island, Inc. | New York | |
General Aviation Holdings, LLC | Delaware | |
General Aviation of New Orleans, L.L.C. | Louisiana | |
General Aviation, L.L.C. | Louisiana | |
Gilmerton Energy Center, LLC | Delaware | |
Golden Valley Wind Park, LLC | Idaho | |
GWE Solar-Storage HI 1, LLC | Delaware | |
Hawaii Clean Energy, LLC | Delaware | |
HGC Holdings LLC | Delaware | |
HGC Investment Corporation | Delaware | |
High Horizons, Inc. | Delaware | |
Idaho Wind Partners 1, LLC | Delaware | |
ILG Avcenter, Inc. | Delaware | |
IMTT Holdings LLC | Delaware | |
IMTT-Bayonne LLC | Delaware | |
IMTT-BC LLC | Delaware | |
IMTT-BX LLC | Delaware | |
IMTT-Finco, LLC | Delaware | |
IMTT-Geismar | Delaware | |
IMTT-Gretna LLC | Delaware | |
IMTT-Illinois LLC | Delaware | |
IMTT-NTL, LTD | Canada | |
IMTT-Petroleum Management LLC | Delaware | |
IMTT-Pipeline LLC | Delaware | |
IMTT-Quebec Inc. | Quebec | |
IMTT-Richmond-CA | Delaware | |
IMTT-Virginia LLC | Delaware | |
International Environmental Services LLC | Louisiana | |
International-Matex Tank Terminals LLC | Delaware | |
IP Aragorn, LLC | Delaware |
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Subsidiary | Jurisdiction | |
IP Aramis, LLC | Delaware | |
IP Athos, LLC | Delaware | |
IP Delta Ranch, LLC | Delaware | |
IP Land Holdings, LLC | Delaware | |
IP Malbec, LLC | Delaware | |
IP Portfolio I, LLC | Delaware | |
IP Porthos, LLC | Delaware | |
IP Renewable Energy Holdings LLC | Delaware | |
IP Titan, LLC | Delaware | |
ITT Holdings LLC | Delaware | |
ITT-Geismar Storage LLC | Louisiana | |
ITT-Geismar, LLC | Louisiana | |
ITT-NTL, Inc. | Louisiana | |
ITT-Richmond-CA LLC | California | |
ITT-Richmond-CA Storage LLC | California | |
ITT-USA, Inc. | Louisiana | |
Jet Center Property Services, LLC | Delaware | |
JetSouth LLC | Alabama | |
Keystone Aviation Services, LLC | Delaware | |
Macquarie Airports North America Inc. | Delaware | |
Macquarie Aviation North America 2 Inc. | Delaware | |
Macquarie Aviation North America Inc. | Delaware | |
Macquarie District Energy Holdings II LLC | Delaware | |
Macquarie District Energy Holdings III LLC | Delaware | |
Macquarie HGC Investment LLC | Hawaii | |
Macquarie Terminal Holdings LLC | Delaware | |
Matex New Jersey Power, LLC | Delaware | |
MCT Holdings LLC | Delaware | |
Mercury Air Center-Addison, Inc. | Texas | |
Mercury Air Center-Bakersfield, Inc. | California | |
Mercury Air Center-Birmingham, LLC | Alabama | |
Mercury Air Center-Burbank, Inc. | California | |
Mercury Air Center-Charleston, LLC | South Carolina | |
Mercury Air Center-Corpus Christi, Inc. | Texas | |
Mercury Air Center-Fresno, Inc. | California | |
Mercury Air Center-Ft. Wayne, LLC | Indiana | |
Mercury Air Center-Hartsfield, LLC | Georgia | |
Mercury Air Center-Hopkins, LLC | Ohio | |
Mercury Air Center-Jackson, LLC | Mississippi | |
Mercury Air Center-Johns Island, LLC | South Carolina | |
Mercury Air Center-Los Angeles, Inc. | California | |
Mercury Air Center-Nashville, LLC | Delaware | |
Mercury Air Center-Newport News, LLC | Virginia | |
Mercury Air Center-Ontario, Inc. | California | |
Mercury Air Center-Peachtree-DeKalb, LLC | Georgia | |
Mercury Air Center-Reno, LLC | Nevada | |
Mercury Air Centers, Inc. | Delaware | |
Mercury Air Center-Santa Barbara, Inc. | California | |
Mercury Air Center-Tulsa, LLC | Oklahoma | |
MIC 650 Oakdale, LLC | Delaware | |
MIC Airports, LLC | Delaware | |
MIC Bayonne Holdings, LLC | Delaware |
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Subsidiary | Jurisdiction | |
MIC Bluff Road Holdings, LLC | Delaware | |
MIC Global Services, LLC | Delaware | |
MIC Hawaii Holdings, LLC | Hawaii | |
MIC Logistics Holdings, LLC | Delaware | |
MIC Oakdale Holdings, LLC | Delaware | |
MIC Ohana Corporation | Delaware | |
MIC Renewable Energy Holdings, LLC | Delaware | |
Milner Dam Wind Park, LLC | Idaho | |
MKC Aviation Fuel, LLC | Missouri | |
MREH Idaho Wind A, LLC | Delaware | |
Nagfy Holdings LLC | Delaware | |
Newfoundland Transshipment Limited | Quebec | |
Newport FBO Two LLC | Delaware | |
Oil Mop, L.L.C. | Louisiana | |
Oregon Trail Wind Park, LLC | Idaho | |
OTWC HI2 LLC | Delaware | |
Palm Springs FBO Two LLC | Delaware | |
Palomar Airport Center LLC | California | |
Palomar Airport Fuel LLC | California | |
Payne's Ferry Wind Park, LLC | Idaho | |
Picture Rocks Project Holdings, LLC | Delaware | |
Picture Rocks Solar, LLC | Delaware | |
Pilgrim Stage Station Wind Park, LLC | Idaho | |
ProAir Aviation Maintenance, LLC | Delaware | |
Ragfy Holdings LLC | Delaware | |
Ramona Equity Holdings, LLC | Delaware | |
Rancho Mesa Partners LLC | Delaware | |
Rifle Air, LLC | Colorado | |
Rifle Jet Center Maintenance, LLC | Colorado | |
Rifle Jet Center, LLC | Colorado | |
Salmon Falls Wind Park, LLC | Idaho | |
SB Aviation Group, Inc. | New Mexico | |
SBN, Inc. | Indiana | |
SEH Bryan Solar Holdings, LLC | Delaware | |
SEH DMAFB Holdings, LLC | Delaware | |
SEH Imperial Valley Holdings, LLC | Delaware | |
SEH Picture Rocks Holdings, LLC | Delaware | |
SEH Ramona Holdings, LLC | Delaware | |
SEH Valley Center Holdings, LLC | Delaware | |
SEH Waihonu Holdings, LLC | Hawaii | |
Sierra Aviation, Inc. | Delaware | |
SJJC Airline Services, LLC | Delaware | |
SJJC Aviation Services, LLC | Delaware | |
SJJC FBO Services, LLC | Delaware | |
Sol Orchard San Diego 20 LLC | Delaware | |
Sol Orchard San Diego 21 LLC | Delaware | |
Sol Orchard San Diego 22 LLC | Delaware | |
Sol Orchard San Diego 23 LLC | Delaware | |
St. Rose Nursery, LLC | Louisiana | |
Sun Valley Aviation, Inc. | Idaho | |
SunE DM, LLC | Delaware | |
SW Cogen Project, LLC | Hawaii |
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Subsidiary | Jurisdiction | |
The Gas Company, LLC | Hawaii | |
Thousand Springs Wind Park, LLC | Idaho | |
Trajen FBO, LLC | Delaware | |
Trajen Flight Support, LP | Delaware | |
Trajen Funding, Inc. | Delaware | |
Trajen Holdings, Inc. | Delaware | |
Trajen Limited, LLC | Delaware | |
Tuana Gulch Wind Park, LLC | Idaho | |
Tucson Equity Holdings, LLC | Delaware | |
Utah Red Hills HoldCo, LLC | Delaware | |
Utah Red Hills Renewable Park, LLC | Delaware | |
Utah Red Hills RP HS1, LLC | Delaware | |
Valley Center Equity Holdings, LLC | Delaware | |
Waihonu Equity Holdings, LLC | Hawaii | |
Waihonu North, LLC | Hawaii | |
Waihonu South, LLC | Hawaii | |
Waukesha Flying Services, Inc. | Wisconsin | |
WEH Brahms Holdings LLC | Delaware | |
WEH Magic Valley Holdings, LLC | Delaware | |
Yahoo Creek Wind Park, LLC | Idaho | |
Zone J Tolling Co., LLC | Delaware |
Exhibit 23.1
The Board of Directors
Macquarie Infrastructure Corporation:
We consent to the incorporation by reference in the registration statements on Form S-8 (Registration Nos. 333-213139, 333-204349 and 333-181779) and registration statement on Form S-3 (Registration No. 333-210615) of Macquarie Infrastructure Corporation of our reports dated February 21, 2018, with respect to the consolidated balance sheets of Macquarie Infrastructure Corporation as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), stockholders equity, and cash flows, for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements), and the effectiveness of internal control over financial reporting as of December 31, 2017, which reports appear in the December 31, 2017 annual report on Form 10-K of Macquarie Infrastructure Corporation.
/s/
KPMG LLP
Dallas, Texas
February 21, 2018
Exhibit 31.1
I, Christopher Frost, certify that:
1. | I have reviewed this annual report on Form 10-K of Macquarie Infrastructure Corporation (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: February 21, 2018
By: |
/s/ Christopher Frost
Christopher Frost Chief Executive Officer |
Exhibit 31.2
I, Liam Stewart, certify that:
1. | I have reviewed this annual report on Form 10-K of Macquarie Infrastructure Corporation (the registrant); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: February 21, 2018
By: |
/s/ Liam Stewart
Liam Stewart Chief Financial Officer |
Exhibit 32.1
In connection with the Annual Report of Macquarie Infrastructure Corporation (the Company) on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Christopher Frost, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: |
/s/ Christopher Frost
Christopher Frost Chief Executive Officer February 21, 2018 |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
In connection with the Annual Report of Macquarie Infrastructure Corporation (the Company) on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Liam Stewart, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: |
/s/ Liam Stewart
Liam Stewart Chief Financial Officer February 21, 2018 |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.