Financing covenants could adversely affect our financial health and prevent us from fulfilling our obligations.
We have a significant amount of indebtedness. As of September 30, 2016, our total outstanding indebtedness was $1.8 billion. As of September 30, 2016, the total liabilities of Spectrum Brands were approximately $5.2 billion, including trade payables. As of September 30, 2016, the total liabilities of FGL were approximately $25.1 billion, including approximately $19.3 billion in annuity contractholder funds, approximately $3.5 billion in future policy benefits, approximately $300.0 million of indebtedness under the FGL Notes and $100.0 million on an unsecured revolving credit facility. As of September 30, 2016, the total liabilities of Salus were approximately $124.1 million. As of September 30, 2016, the total liabilities of HGI Energy were $92.0 million. Our and our subsidiaries’ significant indebtedness and other financing arrangements could have material consequences. For example, they could:
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• | make it difficult for us to satisfy our obligations with respect to our outstanding and other future debt obligations; |
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• | increase our vulnerability to general adverse economic and industry conditions or a downturn in our business; |
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• | impair our ability to obtain additional financing in the future for working capital, investments, acquisitions and other general corporate purposes; |
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• | require us to dedicate a substantial portion of our cash flows to the payment to our financing sources, thereby reducing the availability of our cash flows to fund working capital, investments, acquisitions and other general corporate purposes; and |
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• | place us at a disadvantage compared to our competitors. |
Any of these risks could impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.
Our ability to make payments on our financial obligations may depend upon the future performance of our operating subsidiaries and their ability to generate cash flow in the future, which are subject to general economic, industry, financial, competitive, legislative, regulatory, and other factors that are beyond our control. We cannot assure you that we will generate sufficient cash flow from our operating subsidiaries, or that future borrowings will be available to us, in an amount sufficient to enable us to pay our financial obligations or to fund our other liquidity needs. If the cash flow from our operating subsidiaries is insufficient, we may take actions, such as delaying or reducing investments or acquisitions, attempting to restructure or refinance our financial obligations prior to maturity, selling assets or operations or seeking additional equity capital to supplement cash flow. However, we may be unable to take any of these actions on commercially reasonable terms, or at all.
Future financing activities may adversely affect our leverage and financial condition.
Subject to the limitations set forth in the Indentures, we and our subsidiaries may incur additional indebtedness and issue dividend-bearing redeemable equity interests. We may incur substantial additional financial obligations to enable us to execute on our business objectives. These obligations could result in:
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• | default and foreclosure on our assets if our operating revenues after an investment or acquisition are insufficient to repay our financial obligations; |
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• | acceleration of our obligations to repay the financial obligations even if we make all required payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; |
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• | our immediate payment of all amounts owed, if any, if such financial obligations are payable on demand; |
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• | our inability to obtain necessary additional financing if such financial obligations contain covenants restricting our ability to obtain such financing while the financial obligations remain outstanding; |
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• | our inability to pay dividends on our capital stock; |
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• | using a substantial portion of our cash flow to pay principal and interest or dividends on our financial obligations, which will reduce the funds available for dividends on our Common Stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; |
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• | limitations on our flexibility in planning for and reacting to changes in our business and in the industries in which we operate; |
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• | an event of default that triggers a cross default with respect to other financial obligations, including our notes; |
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• | increased vulnerability to adverse changes in general economic, industry, financial, competitive legislative, regulatory and other conditions and adverse changes in government regulation; and |
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• | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors. |
