AZZ Inc. Announces Successful Completion of Term Loan B Refinancing in Leverage-Neutral Transaction

Rhea-AI Summary

AZZ Inc. successfully reprices its existing $980 million Term Loan B, reducing the interest rate margin by 50 basis points to SOFR + 325 basis points, resulting in annual interest savings of approximately $5 million. This marks the second repricing, leading to total interest rate margin savings of 100 basis points since May 2022. The company aims to lower its net debt to EBITDA leverage ratio to 3.0 times or lower by the end of 2024.

Financial Analyst

The repricing of AZZ Inc.'s Term Loan B is a strategic financial maneuver that indicates the company's proactive approach to debt management. By securing a 50 basis point reduction in the interest rate margin, the firm not only decreases its interest expenses by an estimated $5 million annually but also signals to the market its improved creditworthiness and operational efficiency. This move could be perceived positively by investors, as it suggests that the company has sufficient cash flow to negotiate better terms with lenders and it is focused on optimizing its capital structure.

Furthermore, the fact that this repricing does not affect the loan's covenants or maturity implies that AZZ Inc. maintains its financial flexibility while reducing costs. The cumulative 100 basis point reduction since the initial issuance of the loan reflects a substantial cost-saving initiative. However, it's important for stakeholders to consider the company's ability to continue generating sufficient earnings before interest, taxes, depreciation and amortization (EBITDA) to support its target leverage ratio, especially in an environment where interest rates are generally rising.

Debt Market Analyst

AZZ Inc.'s successful repricing of its Term Loan B is a testament to the current conditions of the debt markets and the company's negotiation capabilities. The reduction in the interest rate margin by 50 basis points above the Secured Overnight Financing Rate (SOFR) is a significant achievement, particularly in a market that has experienced volatility in interest rates. This adjustment could potentially make AZZ's debt more attractive to debt investors looking for stable returns in a risk-adjusted manner.

It's also worth noting that the company's disciplined approach to reducing its net debt to EBITDA leverage ratio is a prudent step that may enhance its long-term financial stability. Investors should monitor the company's leverage ratio closely, as it is a critical indicator of the company's ability to service its debt. A target leverage ratio of 3.0 times or lower is quite ambitious and achieving it could further solidify investor confidence in the company's fiscal prudence.

Market Research Analyst

The strategic financial decision by AZZ Inc. to reprice its Term Loan B can have broader implications for its competitive position in the hot-dip galvanizing and coil coating industry. The annual interest savings of $5 million could potentially be redirected towards capital investments, research and development, or other areas that could enhance the company's market share and operational capabilities. Additionally, this financial maneuver may place AZZ in a more favorable position compared to competitors who may be grappling with higher interest expenses or less favorable loan terms.

Understanding the industry dynamics, such as the demand for galvanizing and coating solutions and the capital intensity of the industry, is important for evaluating the long-term impact of such financial decisions. If AZZ manages to leverage these savings effectively, they could accelerate growth and innovation, leading to further business expansion and potentially positive performance in the stock market.

FORT WORTH, Texas, March 20, 2024 /PRNewswire/ -- AZZ Inc. (NYSE: AZZ), the leading independent provider of hot-dip galvanizing and coil coating solutions in North America, today announced the successful repricing of AZZ's currently existing $980 million Term Loan B due May 13, 2029.  The repricing reduces the interest rate margin on the Term Loan B by 50 basis points to SOFR + 325 basis points resulting in annual interest savings of approximately $5 million per year.

Philip Schlom, Chief Financial Officer commented, "We are pleased to announce the successful completion of our Term Loan B refinancing once again. We achieved a 50-basis point reduction in our Term Loan B borrowing rate with no change to our leverage, covenants, or maturity date.  This is the second such repricing AZZ has completed, resulting in interest rate margin savings of 100 basis points in total since issuing the Term Loan B in May 2022.  Since acquiring Precoat Metals in May 2022, we have reduced both the principal and interest rate on our Term Loan B as we continue to take a disciplined approach to lowering our net debt to EBITDA leverage ratio to 3.0 times or lower in calendar year 2024."

About AZZ Inc.

AZZ Inc. is the leading independent provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets.  Collectively, our business segments provide sustainable, unmatched metal coating solutions that enhance the longevity and appearance of buildings, products and infrastructure that are essential to everyday life. 

Safe Harbor Statement

Certain statements herein about our expectations of future events or results constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by terminology such as "may," "could," "should," "expects," "plans," "will," "might," "would," "projects," "currently," "intends," "outlook," "forecasts," "targets," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Such forward-looking statements are based on currently available competitive, financial, and economic data and management's views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Forward-looking statements speak only as of the date they are made and are subject to risks that could cause them to differ materially from actual results. Certain factors could affect the outcome of the matters described herein. This press release may contain forward-looking statements that involve risks and uncertainties including, but not limited to, changes in customer demand for our products and services, including demand by the construction markets, the industrial markets, and the metal coatings markets. We could also experience additional increases in labor costs, components and raw materials including zinc and natural gas, which are used in our hot-dip galvanizing process; supply-chain vendor delays; customer requested delays of our products or services; delays in additional acquisition opportunities; an increase in our debt leverage and/or interest rates on our debt, of which a significant portion is tied to variable interest rates; availability of experienced management and employees to implement AZZ's growth strategy; a downturn in market conditions in any industry relating to the products we inventory or sell or the services that we provide; economic volatility, including a prolonged economic downturn or macroeconomic conditions such as inflation or changes in the political stability in the United States and other foreign markets in which we operate; acts of war or terrorism inside the United States or abroad; and other changes in economic and financial conditions. AZZ has provided additional information regarding risks associated with the business, including in Part I, Item 1A. Risk Factors, in AZZ's Annual Report on Form 10-K for the fiscal year ended February 28, 2023, and other filings with the SEC, available for viewing on AZZ's website at www.azz.com and on the SEC's website at www.sec.gov.  You are urged to consider these factors carefully when evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Investor Relations and Company Contact:         
David Nark, Senior Vice President of Marketing, Communications and Investor Relations
AZZ Inc.
(817) 810-0095
www.azz.com

Investor Contact:
Sandy Martin / Phillip Kupper
Three Part Advisors
(214) 616-2207
www.threepa.com

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SOURCE AZZ, Inc.

What is the purpose of AZZ Inc.'s recent announcement regarding Term Loan B?

AZZ Inc. announced the successful repricing of its existing $980 million Term Loan B to reduce the interest rate margin by 50 basis points, resulting in annual interest savings of approximately $5 million.

How much interest rate margin reduction did AZZ Inc. achieve through the repricing?

AZZ Inc. achieved a 50-basis point reduction in the interest rate margin on its Term Loan B, leading to savings of 100 basis points in total since issuing the loan in May 2022.

What is the target net debt to EBITDA leverage ratio for AZZ Inc. by the end of 2024?

AZZ Inc. aims to lower its net debt to EBITDA leverage ratio to 3.0 times or lower by the end of 2024.