Penguin Solutions boosts liquidity with new 2030 $400M credit line
Rhea-AI Filing Summary
Penguin Solutions (Nasdaq:SGH) entered into a new $400 million senior-secured revolving credit facility with JPMorgan on June 24, 2025, maturing June 24, 2030.
The company immediately drew $100 million and, together with $200 million of cash, fully repaid and terminated its prior 2022 credit agreement that carried a $300 million term loan A and a $250 million revolver due 2027.
Borrowings price at either Term SOFR or base rate plus a 0.25 %–3.00 % margin tied to leverage; unused commitments carry a 0.25 % fee (up to 0.35 %).
Quarter-end covenants include Total Leverage ≤4.5× (5.0× post-acquisition), First-Lien Leverage ≤3.25× and Interest Coverage ≥3.0×, alongside customary restrictions on debt, dividends, M&A and liens. The facility is guaranteed by key U.S. and Cayman subsidiaries and secured by substantially all assets.
The refinancing extends maturities by three years, reduces net debt by $200 million and increases liquidity flexibility.
Positive
- Extended debt maturity to 2030, eliminating $300 million 2027 term loan
- Net debt reduction of $200 million through repayment using cash
- $400 million revolving capacity provides enhanced liquidity and strategic flexibility
Negative
- Stringent leverage and interest coverage covenants may restrict dividends, additional borrowing or large acquisitions
Insights
$400M revolver pushes maturities to 2030, cuts net debt $200M, boosts liquidity, but adds covenant discipline and floating-rate exposure.
The new $400 million facility replaces costlier 2027 debt with a five-year revolving line, immediately shrinking outstanding principal from $300 million to $100 million and freeing $300 million of undrawn capacity. By funding $200 million of the payoff with cash, management signals balance-sheet strength while removing the amortization schedule tied to the former term loan. The blended rate (Term SOFR + 1.75 % initially) is in line with the prior 7.17 % effective cost, yet interest now floats, exposing earnings to rate shifts. Covenants are typical but tighter than before, requiring leverage to trend below 4.5× and interest coverage above 3.0×, limiting aggressive shareholder returns. Overall, the transaction materially improves liquidity and extends the maturity profile, a net credit-positive development.
Liquidity enhanced, but leverage tests and collateral pledges narrow future flexibility.
Moving from a term loan to a secured revolver materially reduces near-term refinancing risk and introduces a cash-flow friendly structure—interest-only with no mandatory amortization. However, the facility is first-lien on virtually all assets and includes step-down pricing tied to leverage, incentivising deleveraging but also exposing the borrower to margin increases should ratios deteriorate. The spring-up covenant to 5.0× for acquisitions provides headroom, yet only twice over the term, signalling lender caution. With $100 million drawn, the company retains ample headroom, but every incremental borrowing tightens covenant cushions. Investors should monitor total leverage progression and SOFR trends to gauge future interest burden.
8-K Event Classification
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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| Item 1.01. | Entry into a Material Definitive Agreement. |
On June 24, 2025 (the “Closing Date”), Penguin Solutions, Inc., a Cayman Islands exempted company (the “Company” or the “Parent Borrower”), and SMART Modular Technologies, Inc., a California corporation (the “Co-Borrower” and together with the Parent Borrower, the “Borrowers”), entered into that certain Credit Agreement (the “Credit Agreement”), by and among the Borrowers, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, collateral agent and an issuing bank.
The Credit Agreement provides for a revolving credit facility in an aggregate principal amount of $400 million (the “Facility” and the revolving loans thereunder, the “Loans”), maturing on June 24, 2030 (subject to certain earlier “springing maturity” dates upon certain conditions specified in the Credit Agreement). The Credit Agreement provides that up to $35 million of the Facility is available for issuances of letters of credit.
On the Closing Date, the Company borrowed $100 million under the Facility, and applied such proceeds, together with $200 million of cash on hand, to repay in full all borrowings and terminate all commitments under that certain Credit Agreement, dated as of February 7, 2022 and as amended prior to the date hereof, by and among the Borrowers, the subsidiary loan parties party thereto, the lenders party thereto and Citizens Bank, N.A., as administrative agent, collateral agent and an issuing bank (the “Existing Credit Agreement”).
Under the Credit Agreement, Loans bear interest at a rate per annum equal to either, at the Borrowers’ option, a Term Secured Overnight Financing Rate (“Term SOFR”) rate or a base rate, in each case plus an applicable margin based on the Total Leverage Ratio (as defined in the Credit Agreement) of the Borrower as follows:
| Level |
Total Leverage Ratio |
Base Rate Applicable Margin |
Term SOFR Applicable Margin | |||
| 1 |
≥ 4.50 to 1.00 | 2.00% | 3.00% | |||
| 2 |
< 4.50 to 1.00 but ≥ 3.75 to 1.00 | 1.75% | 2.75% | |||
| 3 |
< 3.75 to 1.00 but ≥ 3.25 to 1.00 | 1.50% | 2.50% | |||
| 4 |
< 3.25 to 1.00 but ≥ 2.50 to 1.00 | 1.25% | 2.25% | |||
| 5 |
< 2.50 to 1.00 but ≥ 1.75 to 1.00 | 1.00% | 2.00% | |||
| 6 |
< 1.75 to 1.00 but ≥ 1.25 to 1.00 | 0.75% | 1.75% | |||
| 7 |
< 1.25 to 1.00 | 0.25% | 1.25% |
The initial Loans under the Facility will accrue interest at the rates set forth in Level 6 above.
The Borrowers are also required to pay the lenders a quarterly commitment fee on the unused portions of the Facility at an initial rate of 0.25%, which may be increased in increments of 0.025% based on certain Total Leverage Ratio levels specified in the Credit Agreement up to a maximum rate of 0.35%. All applicable margins and commitment fees described above are expressed on a per annum basis.
The Credit Agreement contains representations and warranties and affirmative and negative covenants customary for secured financings of this type, as described in the Credit Agreement. The Credit Agreement contains a number of negative covenants that, among other things, restrict, subject to certain exceptions, the Borrowers’ ability and the ability of the Borrowers’ subsidiaries to: incur additional indebtedness; create liens on assets; engage in mergers or consolidations; sell assets; pay dividends; make distributions or repurchase capital stock; make investments, loans or advances; repay or repurchase certain subordinated debt (except as scheduled or at maturity); create restrictions on the payment of dividends or other amounts to the Borrowers from the Borrowers’ restricted subsidiaries; make certain acquisitions; engage in certain transactions with affiliates; amend material agreements governing the Borrowers’ subordinated debt and fundamentally change the Borrowers’ business.
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The Credit Agreement also includes the following financial maintenance covenants tested on the final day of each fiscal quarter:
(i) a First Lien Leverage Ratio (as defined in the Credit Agreement) of 3.25 to 1.00;
(ii) a Total Leverage Ratio of 4.50 to 1.00; provided, that in connection with any Material Acquisition (as defined in the Credit Agreement), at the election of the Borrowers, the maximum Total Leverage Ratio for the next four quarterly testing periods after such Material Acquisition has been consummated will be automatically increased to 5.00 to 1.00; provided further, that (x) no more than two such elections may be made during the term of the Credit Agreement and (y) following the first such election, no subsequent election may be made unless the Total Leverage Ratio has been less than or equal to 4.50 to 1.00 as of the last day of at least two consecutive quarterly testing periods following the expiration of the first increase; and
(iii) an Interest Coverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00.
For purposes of calculating the First Lien Leverage Ratio and the Total Leverage Ratio, the consolidated debt of the Parent Borrower and its Restricted Subsidiaries (as defined in the Credit Agreement) is reduced by up to $175 million of the aggregate amount of unrestricted cash and Permitted Investments (as defined in the Credit Agreement) of the Parent Borrower and its Restricted Subsidiaries.
The Credit Agreement also contains various events of default (subject to grace periods, as applicable) including among others: nonpayment of principal, interest or fees; breach of covenant; payment default on, or acceleration under, certain other material indebtedness; inaccuracy of the representations or warranties in any material respect; bankruptcy or insolvency; certain unsatisfied judgments; certain ERISA violations; the occurrence of a change of control; and the invalidity or unenforceability of the Credit Agreement or certain other documents executed in connection therewith.
The Credit Agreement is jointly and severally guaranteed on a senior basis by certain subsidiaries of the Parent Borrower organized in the United States and Cayman Islands. In addition, the Credit Agreement is secured by a pledge of the capital stock of, or equity interests in, certain subsidiaries of the Parent Borrower and by substantially all of the assets of certain subsidiaries of the Parent Borrower organized in the United States and the Cayman Islands.
The foregoing description of the material terms of the Credit Agreement is qualified in its entirety by the terms and conditions of the Credit Agreement, a copy of which is filed as Exhibit 10.1 hereto and is incorporated by reference herein.
| Item 1.02. | Termination of Material Definitive Agreement. |
In connection with its entry into the Credit Agreement as described under Item 1.01, and the concurrent repayment in full of all borrowings, and termination of all outstanding commitments under, the Existing Credit Agreement, on the Closing Date, the Existing Credit Agreement was terminated. Voluntary prepayments of the loans and voluntary reductions of the unutilized portion of the revolving commitments under the Existing Credit Agreement are permissible without penalty subject to certain conditions pertaining to minimum notice and minimum reduction amounts as described in the Existing Credit Agreement.
The Existing Credit Agreement provided for a $300 million term loan “A” facility due 2027 (the “2027 Term Loan”) and a $250 million revolving credit facility due 2027 (the “2027 Revolver”). Immediately prior to the repayment and termination of the Existing Credit Agreement, the Company had $300 million of principal outstanding under the 2027 Term Loan, with unamortized issuance costs of $1.8 million and an effective interest
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rate of 7.17%, and no amounts outstanding under the 2027 Revolver, with unamortized issuance costs of $1.5 million. Absent termination, such revolving credit facility and term loan facility would have matured on February 7, 2027.
The Existing Credit Agreement contained certain customary restrictive loan covenants, including, among others, a financial covenant requiring maximum leverage ratios, and covenants that limited or restricted the Company’s ability to grant liens, make acquisitions, be acquired, dispose of assets, pay dividends, repurchase stock, make investments and enter into certain transactions with affiliates.
| Item 2.03. | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
The information set forth under Item 1.01 with respect to the Credit Agreement is incorporated herein by reference.
| Item 7.01. | Regulation FD Disclosure. |
On June 26, 2025, the Company issued a press release announcing the entry into the Credit Agreement and the repayment of borrowings under and termination of the Existing Credit Agreement. A copy of the press release is attached hereto as Exhibit 99.1.
The information furnished pursuant to Item 7.01 of this Current Report on Form 8-K, including the information contained in Exhibit 99.1 of this Current Report on Form 8-K, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
| Exhibit No. |
Description | |
| 10.1* | Credit Agreement, dated as of June 24, 2025, by and among Penguin Solutions, Inc., SMART Modular Technologies, Inc., the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, Collateral Agent and an Issuing Bank | |
| 99.1 | Penguin Solutions, Inc. press release, dated June 26, 2025 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | |
| * | Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any omitted attachment to the SEC on a confidential basis upon request. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: June 26, 2025 | Penguin Solutions, Inc. | |||||
| By: | /s/ Anne Kuykendall | |||||
| Anne Kuykendall Senior Vice President and Chief Legal Officer | ||||||
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