Leveraged Lion CapitalThe Pennsylvania State University, University Park LLC

Analyst:

Jack Williamson

jackwilliamson40@gmail.com

Analyst:

Janeen Porter

porterjaneen@gmail.com

Analyst:

Matthew Maiale

mattmaiale18@gmail.com

Case Study ReportDistressed Loan

Mentor:

Colleen Conway

conwayc34@gmail.com

I. Business Overview

Leveraged Lion CapitalThe Pennsylvania State University, University Park LLC

LLC➢ Diebold Nixdorf Inc. provides automatic

teller machines (ATM), financial and point

of sale services.

➢ Diebold is the leading global producer of

ATM machines. They offer electronic card

systems, monitoring software, fraud control,

and shelf labeling services.

➢ Diebold is an international company with

about 33% revenue from Americas Banking,

28% Retail and 39% Eurasia Banking

➢ They own/lease and operate manufacturing

facilities in US, Brazil and Germany and

lease software development centers in

Canada and Mexico.

➢ Recently developed a transformation

program called “DN Now”

➢ Expected to save ~ $400 mm over 3

years

➢ Trimming employee head count,

streamlining product offerings and

implanting other cost-reduction steps

Business OverviewDiebold Nixdorf Incorporated

Business Segment Breakdown

Loan Performance vs LSTA

✓ DN Now

comprehensive plan has

already led to a 21%

increase in EBITA

✓ Shifting focus to retail

sector with more of a

concentration on services,

software and systems

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

LSTA 100 Diebold Nixdorf Inc.

Software,

52%

Products,

11%

Services,

37%

LLCCash is losing traction and share of transactions compared to electronic payment methods

➢ Credit cards, bank transfers, direct deposit, online payments and mobile payment services

➢ According to the Federal Reserve, cash only made up 31% of all transactions in 2016

➢ Decrease use of cash will lead to a decline in demand for banks, bank tellers and ATM

machines

➢ Many countries are racing to become the first cashless country, however cash is not going away

anytime soon in the U.S.

➢ ATMS & Online Banking are the most popular ways to access bank accounts

➢ Consumers will continue to use cash predominantly for smaller value transactions

➢ Diebold’s service revenue is 33% Americas Banking, 28% Retail and 39% Eurasia Banking

Percent of Digital Payments by Digital Use Global ATM Installed Base (mm)

Banking SegmentTrends in the usage of cash

✓As electronic payment

methods become more

widespread, the move

away from cash is

increasing

✓ Even though cash usage

has decreased, cash still

remains the most

frequently used payment

method, representing 30%

of all transactions

67%

57%

32%

93%

36%34%39%

52%

6%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Debit Card Credit Card Mobile Phone

United States Sweden Japan

3.2 3.33.5 3.6 3.7

3.9 4.0

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

LLC• As ATM machines become irrelevant in our cashless society, Diebold has upped their focus on the

retail sector, with a concentration on services, software, and systems in order to approve both

efficiency and convenience.

• Systems

– A comprehensive solutions portfolio of self-service and automation technology including POS Systems, Self-

Checkout, Pay Towers, Interactive Kiosks, Electronic Shelf Labeling, and Reverse vending

• Software

– A group of multiple programs aimed at better serving customers, tracking retail transactions, engaging customers,

and targeting customer demand needs.

• Services

– Ensuring the ideal customer experience through managed mobility services and store lifecycle management in

order to keep digital and physical business components on pace through installation and ongoing maintenance of

products.

Retail as a Portion of Diebold Revenues Current Technologies in Retail Industry

✓As of early 2018, retail

accounted for 27.8% of

Diebold sales, and

continues to expand at a

growing rate

✓ In a 2018 survey of 115

US retail professionals,

mobile technology and

new technology were the

two most frequently cited

realms for budget

increases.

✓ Point-of-sale systems

are among the most

commonly used

technologies in the retail

industry, with inventory

management software and

order fulfillment software

gaining steam.

0

500

1000

1500

2000

2500

3000

3500

4000

2016 2017 2018

Retail Revenues Banking Revenues 0% 10% 20% 30% 40% 50% 60%

Ecommerce

POS System

Analytics

CRM Platform

Fraud Prevention

Content Mgmt.

Retail SegmentTouchless point-of-sale systems

II. Term Loan Analysis

Leveraged Lion CapitalThe Pennsylvania State University, University Park LLC

LLCCapital Structure and Loan Specs

Term Loan A

Coupon: L+925

Issue Date: 8/30/2018

Maturity Date: 8/30/2022

Corporate Ratings: B3/B-

Facility Ratings: B3/B-

Current Price: $97.625

Tranche Size: $650 million

LIBOR Floor: 0.00%

($ in millions) Amt. Outstanding Coupon Maturity Bid Price Leverage Yield

Term Loan A - DD $154 L+350 12/23/2020 - -

Revolver $260 L+350 12/23/2020 - -

Term Loan A $123 L+350 12/23/2020 97.13 8.5%

Term Loan A $630 L+925 8/30/2022 105.88 9.7%

Term Loan B $419 L+275 11/6/2023 93.75 6.9%

Term Loan B $365 E+300 11/6/2023 91.38 6.5%

Senior Unsecured Bond $400 8.50% 4/15/2024 90.73 10.9%

Total Debt $2,351 6.46x

(-) Cash & Cash Equivalents $99

Net Debt $2,252 6.19x

Market Capitalization $850

Enterprise Value $3,102 8.53x

Corporate Family Rating B3/B-

Outlook NEG

Last Report 2/6/2019

LTM Operating Statistics

Revenues $4,578.0

Adjusted EBITDA $363.9

LTM Credit Statistics

Total Debt / EBITDA 6.46x

Net Debt / EBITDA 6.19x

Liquidity

Cash & Cash Equivalents $98.6

(+) Revolver Capacity $260.0

(-) Letters of Credit $0.0

Total Liquidity $358.6

$154

$260

$784

$400

$123

$630

0

100

200

300

400

500

600

700

800

900

2019 2020 2021 2022 2023 2024

Term Loan A - DD Revolver Term Loan B Senior Unsecured Bonds Term Loan A

LLC➢ Diebold bought a 77.1% stake in Wincor

Nixdorf in 2015 for $1.9 bn; a minority of

the German company’s shareholders didn’t

sell

➢ There was a clause in the acquisition that

gave shareholder the right to request

redemption of their shares at $62.82 per

share

➢ Shares mostly traded above there until

August 2018, when they dipped below $60

per share, which sparked redemption

requests of a total value of ~$300 mm that

Diebold was contractually obligated to fill

➢ Diebold did not have enough liquidity to

buyback all of the shares

➢ They already had a TL outstanding and were

not in position to increase their leverage—

they had to draw down on their revolver

($250 mm), got the $650 mm L+925 TLA

from JP Morgan and revised the covenants

on their existing loan to allow more net

leverage

➢ Originally their TL allowed for 4.75x;it was

revised to 7x

➢ Diebold now has a 93% stake in Diebold

Nixdorf AG (New name for Wincor Nixdorf)

➢ The loan will now be used to support their

company program “DN Now”

Purpose of the Loan Purchase of Wincor Nixdorf

Free Cash Flow Q1-Q4 (mm)

Net Leverage Ratio

✓ Maturity date is

8/30/2022, L+925, tranche

size is $650mm with $629

mm currently outstanding

✓Reason for the loan was

to enable mandatory stock

redemptions following the

purchase of Wincor

Nixdorf ($78)

($134)

($65)

$245

($163)($125)

($125)

$250

-$200.00

-$150.00

-$100.00

-$50.00

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

2017 2018

7.14

6.7

6.2

5.6

5.8

6.0

6.2

6.4

6.6

6.8

7.0

7.2

7.4

2018 2019 2020

LLCCovenant SummaryKey Callouts

Borrower Diebold Nixdorf, Inc.

Guarantor Diebold Nixdorf, Inc.

Financial Maintenance Covenants

Limitation on Indebtedness

Limitation on Investments

Limitation on Liens

Limitation on Distributions

Call Protection

The Company shall not permit the Total Net Leverage Ratio to exceed the level set forth below:7.0x : June 30 2018 - March 31 20206.5x : June 2020 - September 30 20206.25x : December 31 2020 - March 31 20216.0x : June 30 2021 - September 30 20215.75x : December 31 2021 and thereafter

The Company shall not permit the Interest Coverage Ratio to be less than the level set forth below:1.375x : June 30 2018 - September 30 20201.500x : December 31 2020 - September 31 20211.625x : December 31 2021 and thereafter

The Company or any Restricted Subsidiary will not incur, create, or suffer any additional indebtedness.

The Company or any Restricted Subsidiary will not make any additional investments outside of short-term investments.

The Company or any Restricted Subsidiary will not create, incur, or suffer any additional liens on the property of the company and its Restricted Subsidiaries.

The Company or any of its Restricted Subsidiaries will not pay dividends.

The Company is permitted to prepay the loan with an additional premium as follows:3.0% premium : August 30 2018 - August 30 20210.0% premium : August 30 2021 and thereafter

If the Company does decide to prepay the loan, they must pay an additional fee to the administrative agent as follows:Make Whole Amount - August 30 2018 - August 30 20211.0% : August 31 2021 - May 30 20220.0% : May 30 2022 and thereafter

Diebold Nixdorf, Inc.

Diebold Nixdorf, Inc.

LLCLevered Free Cash Flow Analysis

For the fiscal year ending December 31,

2017A 2018A 2019E 2020E 2021E 2022E 2023E

Revenue $4,609.3 $4,578.6 $4,487.0 $4,531.9 $4,622.5 $4,715.0 $4,809.3

% inc/(dec) YoY -0.67% -2.00% 1.00% 2.00% 2.00% 2.00%

Cost of goods sold 3,609.5 3,687.7 3,589.6 3,580.2 3,628.7 3,701.3 3,775.3

Gross Profit $999.8 $890.9 $897.4 $951.7 $993.8 $1,013.7 $1,034.0

% inc/(dec) YoY -12.22% 0.72% 5.70% 4.24% 1.96% 1.96%

Gross Margin 21.69% 19.46% 20.00% 21.00% 21.50% 21.50% 21.50%

Selling, general & administrative 933.7 885.6 897.4 906.4 924.5 943.0 961.9

Research & development 155.5 157.4 152.6 154.1 157.2 160.3 163.5

Other operating expenses 4.1 210.8 - - - - -

Operating income (EBIT) ($93.5) ($362.9) ($152.6) ($108.8) ($87.8) ($89.6) ($91.4)

Depreciation & Amortization 252.2 258.7 244.6 236.7 231.9 229.7 229.3

Adjusted EBITDA $158.7 ($104.2) $92.1 $127.9 $144.1 $140.1 $137.9

% inc/(dec) YoY -165.66% -188.37% 38.92% 12.64% -2.76% -1.56%

Adjusted EBITDA Margin 3.44% -2.28% 2.05% 2.82% 3.12% 2.97% 2.87%

Less: Interest expense (net) 97.0 146.2 75.2 58.4 58.4 38.6 14.0

Less: Capital Expenditures 69.4 58.5 57.3 57.9 59.1 60.2 61.4

Less: Payment of cash dividends 30.6 7.7 7.7 7.7 7.7 7.7 7.7

Adjusted Levered Free Cash Flow ($38.3) ($316.6) ($48.2) $3.9 $18.9 $33.5 $54.7

LLCTechnical AnalysisSecondary Trading Activity; Historical Price

Current Price: 106.3125

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

12.00%

DBD

III. Diebold Today

Leveraged Lion CapitalThe Pennsylvania State University, University Park LLC

LLC• Since January of this year alone, Diebold’s equity price has risen from $2.70 per share to over $11.00

per share recently, with a total YTD return of 305.22%

– Revenues have grown steadily throughout 2018

– The first two quarters of 2018 saw net cash outflows, whereas the following two quarters have seen net cash

inflows, helping to boost equity sentiment.

• Although still negative, LPS (loss per share) is expected to steadily decrease in 2019Q1 and 2019Q2

at (1.40) and (0.97) respectively.

– Diebold’s EPS took a large hit in 2018Q3 at (2.79) per share, but rose later in the year to (1.62) per share.

– During 2018Q2, Diebold slashed their previous dividend payment of $0.10 per share per quarter, to nothing,

damaging investor sentiment.

Diebold Nixdorf Equity Price Actual EPS vs Expected EPS

YTD Performance

✓ Diebold increased their

EBITDA margin from

(6.14) in 2018Q2 and

(6.25) in 2018Q3 to 0.90

in 2018Q4

✓As of 2018Q4, the

company maintained a

current ratio of 1.40 and a

quick ratio of 0.78

✓ Diebold’s term loan

with a coupon of L+925

was originally priced a 98

cents on the dollar, and

currently trades above par

at around 106.

✓ Diebold’s senior

unsecured bonds due 2024

have rebounded from a

August price of $61.25, to

a current price of $90.73

-3

-2.5

-2

-1.5

-1

-0.5

0

2018Q1 2018Q2 2018Q3 2018Q4

Expected EPS Actual EPS

0

2

4

6

8

10

12