MKS uses ‘strong cash flow’ to repay term loan ‘pretty aggressively’

By Devika Patel

Knoxville, Tenn., Jan. 18 – MKS Instruments Inc. has been deleveraging its balance sheet “pretty aggressively,” paying down $380 million of a $780 million loan since April 2016 when it acquired Newport Corp.

The company says it has made “very strong efforts” to deleverage and has had “strong cash flow” to help it do so.

“We acquired Newport Corp.,” senior vice president and chief financial officer Seth H. Bagshaw said at the 20th annual Needham Growth Conference in New York on Thursday.

“We closed that transaction [in] April of 2016.

“We were very transparent at that time to de-lever the balance sheet.

“We’ve done that pretty aggressively.

“We actually have repriced that debt a number of times as well.

“Very strong efforts here on deleveraging the balance sheet,” Bagshaw said.

The company paid down $50 million of the loan, in late November reducing the balance to around $400 million.

“We had borrowed $780 million of term loan to fund that transaction,” Bagshaw said.

“The term loan [was] $448 million at the end of Q3.

“We did pay off $50 million additionally in the fourth quarter, so it’s now $400 million on a gross basis,” he said.

The company has good cash flow to help in its deleveraging efforts.

“[We have] very strong cash flow coming off the business,” Bagshaw said.

“We are not a very capital-intensive business.

“Free cash flow last quarter [was] north of $90 million, in Q2 [free cash flow was a] little north of $100 million,” he said.

On April 29, 2016, the company announced the completion of its acquisition of Newport for $23 per share, or approximately $905 million, and repayment of approximately $93 million of Newport’s U.S. debt.

MKS funded the transaction with a combination of cash on hand and proceeds from a seven-year $780 million secured term loan, which was priced at 99.

The interest rate on the term loan originally was a floating-rate based upon Libor plus 400 bps with a 75 bps floor. The term loan was rated BB by S&P and Ba2 by Moody’s when it priced.

On Nov. 30, 2017 the company made a $50 million voluntary prepayment on the term loan.

The prepayment was in addition to voluntary principal prepayments of $175 million made in the first three quarters and reduces the outstanding principal amount to $398 million.

“In a year and a half since loan origination, we have now made seven voluntary prepayments totaling $375 million and coupled with the scheduled payments and three repricings, we have reduced our annualized non-GAAP interest expense by 65%, demonstrating our continued focus on deleveraging our balance sheet and reducing our cost of capital,” Bagshaw said in a press release at the time of the November prepayment.

MKS is an Andover, Mass.-based provider of instruments, subsystems and process control solutions that measure, control, power, monitor and analyze critical parameters of advanced manufacturing processes.

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