mcgraw hill...borrower • mcgraw hill llc (f/k/a mcgraw-hill global education holdings, llc)...

McGraw Hill |

McGraw HillRefinancing Transaction

Summary

December 15, 2020

Summary and Subject to Terms of Definitive Documentation

This presentation contains a summary of the proposed terms of the Transaction (as defined herein) and does not purport to be complete. Lenders should refer to

the proposed definitive documentation posted on SyndTrak in making any decision with respect to the Transaction.

Forward-Looking StatementsThis presentation includes statements that are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can be identified by the

use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will” or “should” or, in each case,

their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a

number of places throughout this presentation and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our

results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur

in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition

and liquidity, and the developments in the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements

contained in this presentation. In addition, even if our results of operations, financial condition and liquidity, and the developments in the industry in which we

operate are consistent with the forward-looking statements contained in this presentation, those results of operations, financial condition and liquidity or

developments may not be indicative of results or developments in subsequent periods.

Any forward-looking statements we make in this presentation speak only as of the date of such statement, and we undertake no obligation to update such

statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless

expressed as such, and should only be viewed as historical data.

Non-GAAP Financial MeasuresCertain financial information included herein, including Billings, EBITDA and Adjusted EBITDA, are not presentations made in accordance with U.S. GAAP, and

use of such terms varies from others in our industry. Billings, EBITDA and Adjusted EBITDA should not be considered as alternatives to revenue, net income from

continuing operations, operating cash flows or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance,

debt covenant compliance or cash flows as measures of liquidity. Billings, EBITDA and Adjusted EBITDA have important limitations as analytical tools, and you

should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. This presentation includes a reconciliation of

certain non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP.

Adjusted EBITDA, which is defined in accordance with our debt agreements, is provided herein on a segment basis and on a consolidated basis. Adjusted EBITDA

by segment, as determined in accordance with Accounting Standards Codification Topic 280, Segment Reporting, is a measure used by Management to assess

the performance of our segments. Adjusted EBITDA on a consolidated basis is presented as a debt covenant compliance measure. Management believes that the

presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that

we do not expect to continue at the same level in the future as well as other items to assess our debt covenant compliance, ability to service our indebtedness and

make capital allocation decisions in accordance with our debt agreements.

2

Important Notice


3McGraw Hill |

Summary

Executive Summary

• After McGraw Hill’s (“McGraw” or the “Company”) strong performance in its critically important fiscal second quarter (~50% of FY

Billings), the Company has negotiated a comprehensive Amend & Extend transaction (the “Transaction”) which includes extending

the maturity of the current Term Loan to November 2024 (the “Extended Term Loan”)

• The Transaction addresses all near-term debt maturities and has broad support from all creditor constituencies who continue

to be supportive of the business and want to remain invested

• The Transaction was negotiated with and has the support of 63% of First Lien Term Loan lenders (the “Term Loan”), 76% of

Unsecured Noteholders and 100% of HoldCo Term Loan lenders

• The Transaction is open to all Term Loan lenders on the same terms

• On a pro forma basis post Transaction, the Company will have Net First Lien Leverage of 2.2x and Net Total Leverage of 4.1x

Transaction Highlights

Credit Agreement

Enhancements

Substantial Paydown and

Enhanced Economics to

Participating Lenders

Extends Maturity Runway

while reducing First Lien

Leverage

• Amended Credit Agreement provides lenders with improved terms and a tighter credit agreement

that reduces the Company’s debt, lien, investment, and restricted payment capacity

• Term Loans that provide consent by the Early Consent Deadline will receive approximately

12.6% paydown (up to $200 million in aggregate) and 25 bps Extension Fee

‒ New junior capital in the form of new 1.5L Secured Notes to help fund paydown

• Term Loan Interest rate increased to L + 475 bps (from L + 400 bps)

• Term Loan and HoldCo Term Loan extended through November 2024

• Revolving Credit Facility extended through November 2023

• Pro forma for the Transaction, Net First Lien leverage will be reduced from 2.6x to 2.2x

1

2

3


4McGraw Hill |

Key Deal Terms

Executive Summary (Cont’d)The Transaction has broad support from all creditor constituencies and

comprehensively addresses McGraw Hill’s upcoming maturities

Securitization

Facility

• Unchanged (extended in August 2020 for three-year period) – provides up to $150 million of seasonal availability to

fund operations

Revolving Credit

Facility(1)

• Maturity extended to November 2023 (from May 2021)

• Interest rate increased to L+ 475 bps (from L + 400 bps)

• Commitment reduction expected given extension of lower cost Securitization facility

• 25 bps extension fee

First Lien Term

Loan

• Maturity extended to November 2024(2) (from May 2022)

• Interest rate increased to L+ 475 bps (from L + 400 bps)

• Paydown / Fees(3):

‒ Approximately 12.6% paydown (up to $200 million) paid pro rata on extending Term Loan

‒ 25 bps extension fee

New 1.5L

Secured Notes

• ~$695 million(4) of new 1.5L Secured Notes comprised of (i) $200 million of new money, (ii) ~$305 million of Unsecured

Notes exchange and (iii) ~$191 million HoldCo Term Loan exchange

• Interest Rate of 8.0%

• Matures in November 2024(2)

Unsecured

Notes

• ~$305 million exchanged into new 1.5L Notes; approximately $95 million stub with May 2024 maturity remains

outstanding

HoldCo Term

Loan

• Maturity addressed through November 2024(2) (from April 2022) and interest rate reduced to 8.0% (from 11.0%)

through (i) exchange into New 1.5L Secured Notes, or at the Company’s discretion and (ii) paydown from balance

sheet cash or proceeds from the issuance of additional 1.5L Secured Notes

(1) Final terms of Revolver extension subject to ongoing negotiation.

(2) Subject to a springing maturity to 90 days prior to the maturity date on the Unsecured Notes if the

aggregate principal amount of Unsecured Notes that remain outstanding on such date exceeds $65 million.

(3) Fee and portion of paydown provided to Term Loan lenders that provide consent by the Early

Consent deadline. See page 13 for detailed timeline.

(4) Amount of new 1.5L Secured Notes issued may be increased or decreased at Company

discretion.


Pro Forma Capital StructureThe Transaction will address upcoming maturities and reduce First Lien leverage

without materially increasing total leverage or cash interest expense

5

(1) November 2024 maturities are subject to a springing maturity to 90 days prior to the maturity date on

the Unsecured Notes if the aggregate principal amount of Unsecured Notes that remain outstanding

on such date exceeds $65 million.

(2) Amount of new 1.5L Secured Notes issued may be increased or decreased at Company discretion.

(3) For modeling purposes, assumes HoldCo TL is exchanged into 1.5L Notes. Company has flexibility to

paydown with balance sheet cash and / or new money in the form of additional 1.5L Secured Notes.

(4) Cash adjustment does not reflect any accrued and unpaid interest that will be paid on the Term Loan,

Unsecured Notes, and HoldCo Term Loan prior to closing; such amount to be calculated prior to closing. McGraw Hill |

Capital Structure as of 11/30/2020 (excl. RCF and Securitization Facilities) Pre-Transaction Adjustments Pro Forma

Interest Adj. Cash Adj. Cash

($ in millions) Maturity⁽¹⁾ Rate Principal EBITDA (x) Interest Principal EBITDA (x) Interest

1L Term Loan May-22 L+400 1,595 80 (1,595) – –

New Extended 1L Term Loan Nov-24 L+475 – – 1,395 1,395 80

Total 1L Debt $1,595 3.8x $80 ($200) $1,395 3.3x $80

Net First Lien Debt 2.6x 2.2x

New 1.5L Secured Notes Nov-24 8.00% – – 695 ⁽²⁾ 695 56

Total Secured Debt $1,595 3.8x $80 $495 $2,090 4.9x $136

Net Secured Debt 2.6x 3.9x

Unsecured Notes May-24 7.875% 400 32 (305) 95 7

Total Operating Company Debt $1,995 4.7x $111 $191 $2,186 5.1x $143

Net Operating Company Debt 3.6x 4.1x

HoldCo Term Loan Apr-22 11.00% / PIK 11.75% 191 21 (191)⁽³⁾ – –

Total Debt $2,186 5.1x $132 – $2,186 5.1x $143

(‒) Cash Balance (as of 11/30/2020) (478) 37 ⁽⁴⁾ (441)

Net Debt $1,708 4.0x $132 37 $1,745 4.1x $143

Memo: September LTM Adjusted EBITDA + Actioned Cost Savings 425 425


Transaction Sources & Uses

6

Note: Excludes any extension fees in connection with the RCF extension.

(1) For modeling purposes, assumes HoldCo TL is exchanged into 1.5L Notes.

McGraw Hill |

($ in millions)

Sources and Uses

Sources Uses

1L Extended Term Loan $1,395 Retirement of 2022 1L Term Loan $1,595

New 1.5L Secured Notes (New Money) 200 Partial Retirement of Unsecured Notes 305

New 1.5L Secured Notes (Unsecureds Exch. Portion) 305 Retirement of HoldCo Term Loan 191

New 1.5L Secured Notes (HoldCo Exch. Portion)⁽¹⁾ 191 1L Extended Term Loan Amendment Fee 3

Balance Sheet Cash 37 New 1.5L Secured Notes Upfront Fee 8

HoldCo Term Loan Consent Fee 10

Estimated Professional Fees 15

Total Sources $2,127 Total Uses $2,127


7

Fees /

Paydown(1)

• 25 bps paid in cash at closing on Extending Term Loans

• Approximately 12.6% pro rata paydown (up to $200 million) on Extending Term Loans

Borrower • McGraw Hill LLC (f/k/a McGraw-Hill Global Education Holdings, LLC)

Maturity

• November 1, 2024 on Extending Term Loans (subject to a springing maturity to 90 days prior to the maturity date on the Unsecured Notes

if the aggregate principal amount of Unsecured Notes that remain outstanding on such date exceeds $65 million)

• RCF extension through November 2023

Rate• L + 475 bps in cash (payable from amendment through extended maturity)(2)

• 1.0% LIBOR Floor

Amortization • 1.0% per annum

Call Protection• Soft Call (e.g., 102 / 101 / Par)

‒ No call premium for M&A related refinancing

Security • First Lien

Collateral• Same as existing Collateral, plus a 100% stock pledge of first tier foreign subsidiaries (rather than a 65% stock pledge of the first tier

foreign subsidiaries as set forth in the existing Credit Agreement)

Ratings

Requirement

• Company to use commercially reasonable efforts to facilitate Extended Term Loan rating(s)

‒ Company has worked proactively with ratings agencies ahead of a launch

Participation

Requirement• Minimum consent threshold of 95% of existing Term Loan

McGraw Hill |

Key Economic Terms – Amended & Extended Term Loan

(1) Fee and paydown provided to Term Loan lenders that provide consent by the Early Consent deadline. See page 13 for detailed timeline.

(2) Applicable rate also applies to the extended Revolving Credit Facility.


8

Borrower • McGraw Hill LLC (f/k/a McGraw-Hill Global Education Holdings, LLC)

New Instrument• ~$695 million(1) of new 1.5L Secured Notes comprised of (i) $200 million of new money, (ii) ~$305 million of Unsecured Notes exchange

and (iii) ~$191 million HoldCo Term Loan exchange

Maturity• November 30, 2024 (subject to a springing maturity to 90 days prior to the maturity date on the Unsecured Notes if the aggregate principal

amount of Unsecured Notes that remain outstanding on such date exceeds $65 million)

Rate • 8.0% in cash, payable semi-annually

Fees on New

Money• 4.0% Upfront Fee

Call Protection • 102 / 101 / Par

Security • 1.5L on all assets of the borrower and its subsidiaries that secure the Extended Term Loan

Use of Proceeds • Used for general corporate purposes, including but not limited to, to provide par paydown to consenting Term Loan lenders

Other • New Money providers will commit to participate 100% of Term Loan holdings in the Term Loan extension

McGraw Hill |

Key Economic Terms – New 1.5L Secured Notes

(1) Amount of new 1.5L Secured Notes issued can be increased or decreased at Company discretion.


9

0 Existing Credit Agreement Modified Credit Agreement

Ge

ne

ral M

od

ific

ati

on

s

Unrestricted

Subsidiaries

• Concept present in existing document • Removed (no Unrestricted Subsidiaries concept)

Reporting

Covenants

• Quarterly and annual financial statements • Quarterly and annual financial statements

• Customary quarterly public-side investor calls with Q&A

ECF Sweep

• 50% with ratio based stepdowns • 50% with no stepdowns

Events of

Default

• Material Indebtedness Threshold: $100 million • Material Indebtedness Threshold: $50 million

De

bt

an

d L

ien

s

Accordion

• Dollar prong: $425 million

• Ratio prong: Net First Lien Leverage Ratio is not greater than

2.75x and in the case of junior debt, the Net Secured Leverage

Ratio is not greater than 3.00x

• 18-months MFN for pari passu term loans (expired 11/4/2017)

• Dollar prong: $350 million less outstanding revolver

commitments at any time

• Ratio prong: Removed

• Pari passu term loans incurred under $350 million basket

subject to MFN (50 bps cushion; no sunset)

• Pari passu debt cannot be used to repurchase or refinance

Unsecured Notes

Non-

Exchanging

Unsecured

Notes

• N / A • Permit refinancing debt in respect of the non-exchanging

unsecured notes, which may be secured by junior liens on the

collateral or unsecured

McGraw Hill |

Credit Agreement ModificationsGeneral Modifications and Debt and Lien Baskets

Lenders in the Extended Term Loan, Revolver and New 1.5L Secured Notes will benefit from the credit agreement modifications below.


10

Existing Credit Agreement Modified Credit Agreement

De

bt

an

d L

ien

s

Ratio Debt /

Liens

• Pari passu debt if Net First Lien Leverage Ratio is not greater

than 2.75x

• Junior lien debt if Net Secured Leverage Ratio not greater than

3.00x

• Other debt if Net Total Leverage Ratio is not greater than 4.50x

• Cap of greater of $250 million and 0.5x EBITDA for debt of non-

Guarantor subs

• Removed pari passu ratio capacity

• Same as existing for junior lien debt

• Same as existing for Unsecured debt

• Removed non-guarantor sublimit; debt may only be incurred by

guarantors

Capital Lease /

Purchase

Money Debt /

Liens

• Greater of $200 million and 0.4x EBITDA plus an additional

amount so long as Total Net Leverage Ratio is not greater than

2.75x

• $50 million

General Debt /

Liens

• Greater of $300 million and 0.6x EBITDA • $75 million, provided it may only be used by Loan Parties

Non-Guarantor

Debt / Liens

• Greater of $150 million and 0.3x EBITDA • $45 million

Acquisition

Debt / Liens

• Same as ratio debt / liens above (or accretive)

• Non-guarantor sublimit: greater of $250M and 0.5x EBITDA

• Same as existing

• Delete non-guarantor sublimit; acquisition debt may only be

incurred by guarantors

JV Debt / Liens • Greater of $150 million and 0.3x EBITDA • Removed

Permitted

Securitizations

• Uncapped • $200 million cap on any permitted securitization

McGraw Hill |

Credit Agreement Modifications (Cont’d)Debt and Lien Baskets



11

` Existing Credit Agreement Modified Credit Agreement

Inve

stm

en

ts

Permitted

Business

Acquisition

Basket – Non-

Guarantor

Subsidiary

Sublimit


General

Investment

Basket

• Greater of $150 million and 0.3x EBITDA, plus may use any

available Cumulative Credit builder basket

• $75 million

Investments in

JVs

• Unlimited if Net Total Leverage Ratio is < 3.00x, but if > 3.00x

then greater of $150 million and 0.3x EBITDA

• Removed

Investments in

Unrestricted

Subsidiaries

• Greater of $150 million and 0.3x EBITDA • Removed; no concept of Unrestricted Subsidiaries

Investments in

Similar

Business

• Greater of $150 million and 0.3x EBITDA • Removed

Intercompany

Investments –

Non-Guarantor

Subsidiary

Limit

• Unlimited if Net Total Leverage Ratio is < 3.00x, but if > 3.00x

then greater of $100 million and 0.2x EBITDA

• $25 million

• Removed 6.04(u) (additional non-guarantor subsidiary

investment basket)

Ratio

Investments

• Net Total Leverage Ratio < 3.00x • Removed

McGraw Hill |

Credit Agreement Modifications (Cont’d)Investment Baskets



12

Existing Credit Agreement Modified Credit Agreement

Re

str

icte

d P

aym

en

ts

General RP

Basket

• Greater of $100 million and 0.2x EBITDA • $10 million, provided cannot be used for dividends to the

Sponsor

“Cumulative

Credit” Builder

Basket for RPs

and

Investments

• Builder based on retained Excess Cash Flow commencing with

fiscal year 2016

• Usage for RPs and restricted debt payments subject to no EoD

• Removed builder basket concept

Ratio RP

Basket

• Net Total Leverage Ratio < 3.0x • Removed

Management

Equity Baskets

• $25 million per FY (increasing to $50 million after a Qualified

IPO), with unlimited carry forward

• Removed

General

Subordinated

Debt

Prepayment

Baskets

• Greater of $50 million and 0.1x EBITDA

• Net Total Leverage Ratio < 3.0x

• May use any available Cumulative Credit, subject to no EoD

• $25 million

• Removed ratio carveout

• Removed builder basket

As

set

Sa

les

De Minimis

Basket

• Single transaction carve-out of $15 million and annual carve-out

of $40 million (plus additional amounts if ratio satisfied)

• $10 million per single transaction

• $30 million per FY

Designated

Non-cash

Consideration


McGraw Hill |

Credit Agreement Modifications (Cont’d)Restricted Payment Basket and Asset Sales



13

Date Final Terms

Launch Transaction December 15th

Solicit Consent December 15th through December 30th

Early Consent Deadline December 22nd

Consent Deadline December 30th

Deadline to Close

TransactionJanuary 15th

McGraw Hill |

Term Loan Extension Transaction Timeline

Dec-20 Jan-21

S M T W T F S S M T W T F S

1 2 3 4 5 1 2

6 7 8 9 10 11 12 3 4 5 6 7 8 9

13 14 15 16 17 18 19 10 11 12 13 14 15 16

20 21 22 23 24 25 26 17 18 19 20 21 22 23

27 28 29 30 31 24 25 26 27 28 29 30

31

Launch Transaction Deadline to Close Transaction

Early Consent Deadline Holiday

Consent Deadline


14McGraw Hill |

Key Contact & Other Additional Information

Signature Pages(1)

Transaction

Documentation

Key Contacts

Please direct all Transaction Questions to:

Please direct all questions on the Transaction documentation (or any other legal questions) to:

Please indicate your election online via LendAmend or by submitting an executed signature page

no later than 5:00 P.M. New York City time on December 22, 2020 (the Early Consent Deadline)(2)

to:

Josh Abramson

PJT Partners

(917) 328-0877

[email protected]

Vinit Kothary

PJT Partners

(732) 983-8304

[email protected]

Catherine Goodall

Paul, Weiss

(212) 373-3919

[email protected]

LendAmend

[email protected]

+1 (646) 453-2812 or +1 (646) 453-2834

Paul Sheaffer

PJT Partners

(646) 402-4943

[email protected]

Danielle Penhall

Paul, Weiss

(212) 373-3265

[email protected]

(1) Signature page (Consent to Incremental Assumption and Amendment Agreement) can be found in the Posting Memorandum on SyndTrak.

(2) Consent must be provided by 5:00 P.M. New York City time on December 22, 2020 in order to receive the extension fee and paydown contemplated herein.

mcgraw hill...borrower • mcgraw hill llc (f/k/a mcgraw-hill global education holdings, llc)...

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