Item 1.01 Entry into a Material Definitive Agreement
On October 21, 2022, Illinois Tool Works Inc. (the “Company”) entered into a $3.0 billion, five-year credit facility (the “Credit Facility”) with JPMorgan Chase Bank, N.A., as Agent, Citibank, N.A. as Syndication Agent, and a syndicate of lenders, that replaces the Company’s previous credit facility that was set to terminate on September 27, 2024. As of October 21, 2022, no amounts were outstanding under either facility.
Under the Credit Facility, the Company pays a fee on the unused amount of the commitments that varies between 0.045% and 0.09%, depending on the Company’s credit rating. Any borrowings denominated in U.S. Dollars will carry, at the Company’s option, either a floating rate of interest in effect from time to time, a benchmark rate which is adjusted Term SOFR fixed for one, three or six months plus the applicable margin, or a competitive bid rate of interest. Borrowings denominated in a currency other than U.S. Dollars will carry a risk-free floating rate (if available for the applicable currency), a benchmark fixed rate (if available for the applicable currency) or a competitive bid rate of interest. The floating rate of interest is the highest of (i) the Prime Rate, as described in the Credit Facility, (ii) the federal funds rate plus 0.50%, and (iii) adjusted Term SOFR for one month plus 1.00% (if one-month Term SOFR is less than zero, such rate shall be deemed to be zero). The applicable margin varies between 0.625% and 1.00%, depending on the Company’s credit rating.
The Credit Facility includes a provision under which the Company may request an increase of the total facility up to $5.0 billion, with the grant of such request at the lenders’ discretion. The Credit Facility contains customary representations, warranties, and covenants, including but not limited to covenants restricting the Company’s ability to incur liens and merge or consolidate with another entity where the Company is not the surviving entity. Further, the Credit Facility contains a covenant requiring the Company to maintain its Interest Coverage Ratio as of the end of each quarter at not less than 3.5 to 1. This is calculated as the ratio of Consolidated EBITDA (as defined in the Credit Agreement) for the four-quarter period then ended to Total Interest Expense for the same period.
Some of the lenders named under the Credit Agreement and their affiliates have various relationships with the Company and its subsidiaries involving the provision of financial services, including cash management, investment banking, foreign exchange and trust services.
The foregoing description of the Credit Facility is not intended to be complete and is qualified in its entirety by reference to the Credit Facility, a copy of which is attached hereto as Exhibit 10(a) and is incorporated herein by reference.
Item 1.02 Termination of a Material Definitive Agreement
Under the terms of the Credit Facility, all obligations of the Company under that certain five-year credit agreement dated as of September 27, 2019 among the Company, the lenders named therein and JPMorgan Chase Bank, N.A., as agent, were effectively terminated.