Cerence will enjoy considerable interest savings after refinancing its debt. The company has sold $175 million worth of three percent convertible senior notes due 2025, and obtained a $125 million senior secured term loan A credit facility. It then used the money generated through those activities to pay off its existing senior secured term loan B.
The upshot is that the new arrangement will dramatically reduce the size of Cerence’s interest payments moving forward. The interest rate for the company’s old term loan B was a whopping 7.00 percent. The new interest rate for the term loan A is only half that figure (3.50 percent), and would have saved the company $5.7 million in cash had it been in effect for the first six months of the 2020 fiscal year.
The annual savings could be as high as $11.5 million, based on a debt figure of $270 million.
“The proceeds from the convertible offering and the term loan A have already been used to pay down the entire remaining balance of the term loan B resulting in immediate significant interest expense savings on a go forward basis,” explained Cerence CFO Mark Gallenberger. “The remaining proceeds after the pay down of the term loan B credit facility will be used for general corporate purposes.”
The convertible notes sale was completed on May 29, while the term loan A was finalized on June 12. That loan includes a $125 million principal amount and a $50 million revolving credit facility, and is expected to yield savings of 53 percent on before-tax cash interest expenses.
Cerence posted GAAP revenues of $86.5 million in its report for the second quarter of 2020, improving on the first quarter’s $77.5 million result. However, the company has withdrawn its fiscal guidance for the year due to the uncertainty created by the COVID-19 pandemic.