McGraw Hill
McGraw HillRefinancing TransactionSummaryDecember 15, 2020McGraw Hill
Summary and Subject to Terms of Definitive DocumentationImportant NoticeThis presentation contains a summary of the proposed terms of the Transaction (as defined herein) and does not purport to be complete. Lenders should refer tothe 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 theuse 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 anumber of places throughout this presentation and include statements regarding our intentions, beliefs or current expectations concerning, among other things, ourresults 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 occurin the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial conditionand liquidity, and the developments in the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statementscontained in this presentation. In addition, even if our results of operations, financial condition and liquidity, and the developments in the industry in which weoperate are consistent with the forward-looking statements contained in this presentation, those results of operations, financial condition and liquidity ordevelopments 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 suchstatements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unlessexpressed 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, anduse of such terms varies from others in our industry. Billings, EBITDA and Adjusted EBITDA should not be considered as alternatives to revenue, net income fromcontinuing 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 youshould not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. This presentation includes a reconciliation ofcertain 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 EBITDAby segment, as determined in accordance with Accounting Standards Codification Topic 280, Segment Reporting, is a measure used by Management to assessthe performance of our segments. Adjusted EBITDA on a consolidated basis is presented as a debt covenant compliance measure. Management believes that thepresentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items thatwe 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 andmake capital allocation decisions in accordance with our debt agreements.2
Summary and Subject to Terms of Definitive DocumentationExecutive SummarySummary After McGraw Hill’s (“McGraw” or the “Company”) strong performance in its critically important fiscal second quarter ( 50% of FYBillings), the Company has negotiated a comprehensive Amend & Extend transaction (the “Transaction”) which includes extendingthe 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 continueto 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% ofUnsecured 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 4.1xTransaction Highlights1Extends Maturity Runwaywhile reducing First LienLeverage 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 2.2x2Substantial Paydown andEnhanced Economics toParticipating Lenders Term Loans that provide consent by the Early Consent Deadline will receive approximately12.6% 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)3Credit AgreementEnhancementsMcGraw Hill Amended Credit Agreement provides lenders with improved terms and a tighter credit agreementthat reduces the Company’s debt, lien, investment, and restricted payment capacity3
Summary and Subject to Terms of Definitive DocumentationExecutive Summary (Cont’d)The Transaction has broad support from all creditor constituencies andcomprehensively addresses McGraw Hill’s upcoming maturitiesKey Deal Terms Unchanged (extended in August 2020 for three-year period) – provides up to 150 million of seasonal availability tofund operationsSecuritizationFacility Maturity extended to November 2023 (from May 2021)Revolving CreditFacility(1) 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 Maturity extended to November 2024(2) (from May 2022) Interest rate increased to L 475 bps (from L 400 bps)First Lien TermLoanNew 1.5LSecured Notes Paydown / Fees(3):‒Approximately 12.6% paydown (up to 200 million) paid pro rata on extending Term Loan‒25 bps extension fee 695 million(4) of new 1.5L Secured Notes comprised of (i) 200 million of new money, (ii) 305 million of UnsecuredNotes exchange and (iii) 191 million HoldCo Term Loan exchange Interest Rate of 8.0% Matures in November 2024(2) 305 million exchanged into new 1.5L Notes; approximately 95 million stub with May 2024 maturity remainsoutstandingUnsecuredNotes 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 balancesheet cash or proceeds from the issuance of additional 1.5L Secured NotesHoldCo TermLoanMcGraw Hill (1)(2)(3)Final terms of Revolver extension subject to ongoing negotiation.Subject to a springing maturity to 90 days prior to the maturity date on the Unsecured Notes if theaggregate principal amount of Unsecured Notes that remain outstanding on such date exceeds 65 million. (4)Fee and portion of paydown provided to Term Loan lenders that provide consent by the EarlyConsent deadline. See page 13 for detailed timeline.Amount of new 1.5L Secured Notes issued may be increased or decreased at Companydiscretion.4
Summary and Subject to Terms of Definitive DocumentationPro Forma Capital StructureThe Transaction will address upcoming maturities and reduce First Lien leveragewithout materially increasing total leverage or cash interest expenseCapital Structure as of 11/30/2020 (excl. RCF and Securitization Facilities)Maturity⁽¹⁾InterestRate1L Term LoanNew Extended 1L Term LoanTotal 1L DebtNet First Lien DebtMay-22Nov-24L 400L 475New 1.5L Secured NotesTotal Secured DebtNet Secured DebtNov-24Unsecured NotesTotal Operating Company DebtNet Operating Company DebtMay-24HoldCo Term LoanTotal DebtApr-22( in millions)8.00%7.875%11.00% / PIK 11.75%(‒) Cash Balance (as of 11/30/2020)Net DebtMemo: September LTM Adjusted EBITDA Actioned Cost Savings(1)McGraw Hill (2)Pre-TransactionAdjustmentsAdj.CashPrincipal EBITDA (x) Interest1,595– 1,5953.8x2.6x– 1,5953.8x2.6x400 1,9954.7x3.6xAdj.CashPrincipal EBITDA (x) Interest80– 80(1,595)1,395( 200)–1,395 1,395– 80695 ⁽²⁾ 495695 2,09032 111(305) 19195 2,186– 2,1865.1x– 143(441) 1,7454.1x 143191 2,1865.1x21 132(191)⁽³⁾–(478) 1,7084.0x 13237 ⁽⁴⁾37425November 2024 maturities are subject to a springing maturity to 90 days prior to the maturity date onthe Unsecured Notes if the aggregate principal amount of Unsecured Notes that remain outstandingon such date exceeds 65 million.Amount of new 1.5L Secured Notes issued may be increased or decreased at Company discretion.Pro Forma3.3x2.2x4.9x3.9x5.1x4.1x–80 8056 1367 143425(3)(4)For modeling purposes, assumes HoldCo TL is exchanged into 1.5L Notes. Company has flexibility topaydown with balance sheet cash and / or new money in the form of additional 1.5L Secured Notes.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.5
Summary and Subject to Terms of Definitive DocumentationTransaction Sources & Uses( in millions)Sources and UsesSources1L Extended Term LoanNew 1.5L Secured Notes (New Money)New 1.5L Secured Notes (Unsecureds Exch. Portion)New 1.5L Secured Notes (HoldCo Exch. Portion)⁽¹⁾Balance Sheet CashTotal Sources 1,39520030519137 2,127UsesRetirement of 2022 1L Term LoanPartial Retirement of Unsecured NotesRetirement of HoldCo Term Loan1L Extended Term Loan Amendment FeeNew 1.5L Secured Notes Upfront FeeHoldCo Term Loan Consent FeeEstimated Professional FeesTotal Uses 1,595305191381015 2,127Note: 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 6
Summary and Subject to Terms of Definitive DocumentationKey Economic Terms – Amended & Extended Term Loan 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 McGraw Hill LLC (f/k/a McGraw-Hill Global Education Holdings, LLC) November 1, 2024 on Extending Term Loans (subject to a springing maturity to 90 days prior to the maturity date on the Unsecured Notesif the aggregate principal amount of Unsecured Notes that remain outstanding on such date exceeds 65 million) RCF extension through November 2023Rate L 475 bps in cash (payable from amendment through extended maturity)(2)1.0% LIBOR FloorAmortization 1.0% per annum Soft Call (e.g., 102 / 101 / Par)Fees /Paydown(1)BorrowerMaturityCall Protection‒No call premium for M&A related refinancing First Lien Same as existing Collateral, plus a 100% stock pledge of first tier foreign subsidiaries (rather than a 65% stock pledge of the first tierforeign subsidiaries as set forth in the existing Credit Agreement)RatingsRequirement Company to use commercially reasonable efforts to facilitate Extended Term Loan rating(s)ParticipationRequirement SecurityCollateralMcGraw Hill ‒(1)(2)Company has worked proactively with ratings agencies ahead of a launchMinimum consent threshold of 95% of existing Term LoanFee and paydown provided to Term Loan lenders that provide consent by the Early Consent deadline. See page 13 for detailed timeline.Applicable rate also applies to the extended Revolving Credit Facility.7
Summary and Subject to Terms of Definitive DocumentationKey Economic Terms – New 1.5L Secured Notes McGraw Hill LLC (f/k/a McGraw-Hill Global Education Holdings, LLC) 695 million(1) of new 1.5L Secured Notes comprised of (i) 200 million of new money, (ii) 305 million of Unsecured Notes exchangeand (iii) 191 million HoldCo Term Loan exchange November 30, 2024 (subject to a springing maturity to 90 days prior to the maturity date on the Unsecured Notes if the aggregate principalamount of Unsecured Notes that remain outstanding on such date exceeds 65 million)Rate 8.0% in cash, payable semi-annuallyFees on NewMoney 4.0% Upfront FeeCall Protection 102 / 101 / ParSecurity 1.5L on all assets of the borrower and its subsidiaries that secure the Extended Term LoanUse of Proceeds Used for general corporate purposes, including but not limited to, to provide par paydown to consenting Term Loan lendersOther New Money providers will commit to participate 100% of Term Loan holdings in the Term Loan extensionBorrowerNew InstrumentMaturity(1)McGraw Hill Amount of new 1.5L Secured Notes issued can be increased or decreased at Company discretion.8
Summary and Subject to Terms of Definitive DocumentationCredit Agreement ModificationsGeneral Modifications and Debt and Lien BasketsLenders in the Extended Term Loan, Revolver and New 1.5L Secured Notes will benefit from the credit agreement modifications below.0Existing Credit AgreementGeneral ModificationsUnrestrictedSubsidiaries Concept present in existing document Removed (no Unrestricted Subsidiaries concept) Quarterly and annual financial statements Quarterly and annual financial statements Customary quarterly public-side investor calls with Q&AReportingCovenants 50% with ratio based stepdowns 50% with no stepdowns Material Indebtedness Threshold: 100 million Material Indebtedness Threshold: 50 million Dollar prong: 425 million Dollar prong: 350 million less outstanding revolvercommitments at any time Ratio prong: Net First Lien Leverage Ratio is not greater than2.75x and in the case of junior debt, the Net Secured LeverageRatio is not greater than 3.00x Ratio prong: Removed Pari passu term loans incurred under 350 million basketsubject to MFN (50 bps cushion; no sunset) Pari passu debt cannot be used to repurchase or refinanceUnsecured Notes Permit refinancing debt in respect of the non-exchangingunsecured notes, which may be secured by junior liens on thecollateral or unsecuredECF SweepEvents ofDefaultDebt and LiensModified Credit w Hill 18-months MFN for pari passu term loans (expired 11/4/2017) N/A9
Summary and Subject to Terms of Definitive DocumentationCredit Agreement Modifications (Cont’d)Debt and Lien BasketsLenders in the Extended Term Loan, Revolver and New 1.5L Secured Notes will benefit from the credit agreement modifications below.Existing Credit Agreement Pari passu debt if Net First Lien Leverage Ratio is not greaterthan 2.75x Removed pari passu ratio capacity Junior lien debt if Net Secured Leverage Ratio not greater than3.00x Same as existing for junior lien debt Other debt if Net Total Leverage Ratio is not greater than 4.50x Same as existing for Unsecured debt Cap of greater of 250 million and 0.5x EBITDA for debt of nonGuarantor subs Removed non-guarantor sublimit; debt may only be incurred byguarantorsCapital Lease /PurchaseMoney Debt /Liens Greater of 200 million and 0.4x EBITDA plus an additionalamount so long as Total Net Leverage Ratio is not greater than2.75x 50 millionGeneral Debt /Liens Greater of 300 million and 0.6x EBITDA 75 million, provided it may only be used by Loan PartiesNon-GuarantorDebt / Liens Greater of 150 million and 0.3x EBITDA 45 millionRatio Debt /LiensDebt and LiensModified Credit Agreement Same as ratio debt / liens above (or accretive) Same as existingAcquisitionDebt / Liens Non-guarantor sublimit: greater of 250M and 0.5x EBITDA Delete non-guarantor sublimit; acquisition debt may only beincurred by guarantorsJV Debt / Liens Greater of 150 million and 0.3x EBITDA RemovedPermittedSecuritizations Uncapped 200 million cap on any permitted securitizationMcGraw Hill 10
Summary and Subject to Terms of Definitive DocumentationCredit Agreement Modifications (Cont’d)Investment BasketsLenders in the Extended Term Loan, Revolver and New 1.5L Secured Notes will benefit from the credit agreement modifications below. Existing Credit Agreement Greater of 400 million and 0.8x EBITDA 75 millionGeneralInvestmentBasket Greater of 150 million and 0.3x EBITDA, plus may use anyavailable Cumulative Credit builder basket 75 millionInvestments inJVs Unlimited if Net Total Leverage Ratio is 3.00x, but if 3.00xthen greater of 150 million and 0.3x EBITDA Removed Greater of 150 million and 0.3x EBITDA Removed; no concept of Unrestricted Subsidiaries Greater of 150 million and 0.3x EBITDA Removed Unlimited if Net Total Leverage Ratio is 3.00x, but if 3.00xthen greater of 100 million and 0.2x EBITDA 25 million Removed 6.04(u) (additional non-guarantor subsidiaryinvestment basket)Net Total Leverage Ratio 3.00x RemovedPermittedBusinessAcquisitionBasket – NonGuarantorSubsidiarySublimitInvestmentsModified Credit AgreementInvestments inUnrestrictedSubsidiariesInvestments inSimilarBusinessIntercompanyInvestments raw Hill 11
Summary and Subject to Terms of Definitive DocumentationCredit Agreement Modifications (Cont’d)Restricted Payment Basket and Asset SalesLenders in the Extended Term Loan, Revolver and New 1.5L Secured Notes will benefit from the credit agreement modifications below.Existing Credit AgreementRestricted PaymentsGeneral RPBasket“CumulativeCredit” BuilderBasket for RPsandInvestmentsRatio RPBasketManagementEquity BasketsAsset SalesGeneralSubordinatedDebtPrepaymentBaskets Greater of 100 million and 0.2x EBITDA 10 million, provided cannot be used for dividends to theSponsor Builder based on retained Excess Cash Flow commencing withfiscal year 2016 Removed builder basket concept Usage for RPs and restricted debt payments subject to no EoD Net Total Leverage Ratio 3.0x Removed 25 million per FY (increasing to 50 million after a QualifiedIPO), with unlimited carry forward Removed Greater of 50 million and 0.1x EBITDA 25 million Net Total Leverage Ratio 3.0x Removed ratio carveout May use any available Cumulative Credit, subject to no EoD Removed builder basket Single transaction carve-out of 15 million and annual carve-outof 40 million (plus additional amounts if ratio satisfied) 10 million per single transaction 30 million per FYGreater of 150 million and 0.3x EBITDA 75 millionDe MinimisBasketDesignatedNon-cashConsiderationMcGraw Hill Modified Credit Agreement 12
Summary and Subject to Terms of Definitive DocumentationTerm Loan Extension Transaction 5512192661320277142128F18152229S29162330Launch TransactionDeadline to Close TransactionEarly Consent DeadlineHolidayConsent DeadlineDateLaunch TransactionSolicit ConsentFinal TermsDecember 15thDecember 15th through December 30thEarly Consent DeadlineDecember 22ndConsent DeadlineDecember 30thDeadline to CloseTransactionJanuary 15thMcGraw Hill 13
Summary and Subject to Terms of Definitive DocumentationKey Contact & Other Additional InformationPlease direct all Transaction Questions to:Key ContactsJosh AbramsonPJT Partners(917) 328-0877abra
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)
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McGraw-Hill Education is a leading global educational publisher which contributes 50% of the company’s revenue (Exhibit 3). Higher education is the largest business unit within McGraw-Hill Education. Figure 1 below shows the company’s organization, and a break down of McGraw-Hill
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