In this article , what is the meaning of the term \"credit facility\"? WD 40 ART
ID: 2704126 • Letter: I
Question
In this article, what is the meaning of the term "credit facility"?
WD 40 ARTICLE ON APPLICATION OF LEVERAGE
DEAR SHAREHOLDERS
On March 26,2001 ,WD-40 Company (NASDAQ: WDFC) announced the acquisition of Global Household Brands, maker of such well-known products as X-14,,, 2000 Flushes, and Carpet Fresh., The acquisition represents another milestone in our creation of a new business model on which to build our fortress of brands. It furthers our successful transitioning to a global consumer products company with brands that deliver superior performance and value to end users who buy in a variety of trade channels.
How we will finance the acquisition? We have stated in the past that we would lower our dividend payout when the right opportunity came along to enhance shareholder value. Such an opportunity is here right now. A five cent (per share) quarterly dividend reduction will allow us to qualify for a more favorable credit facility for financing the Global Household Brands acquisition: a syndicated senior secured credit facility totaling $85 million and led by Union Bank of California. This is an excellent move for us
Explanation / Answer
A loan in corporate finance is termed as credit facility.
In this context, WD-40 wanted the acquisition of Global Household Brands. But the company did not have enough funds to pay for the acquistion directly. So, a senior applied for credit facilty(0r a loan) of $85 million from the Union Bank of California. WD-40 plans to pay back the credit facilty( or the loan) by reducing the yearly dividend of share-holders. The cut in the dividends is however, mostly to prove its credibilty the bank in paying back the credit facilty and consequently have a favourable transaction credit facilty involving lesser interests.