Business Context and Reporting Period
This Form 8-K, filed on August 22, 2017, by Michael Kors Holdings Limited (now Capri Holdings Ltd), reports the entry into a material definitive agreement. The filing details the establishment of a new credit facility to support the company's cash offer for the acquisition of Jimmy Choo PLC.
Key Financial Metrics and Debt Structure
The company entered into a Second Amended and Restated Senior Unsecured Credit Facility (the "2017 Credit Facility") with JPMorgan Chase Bank, N.A., as administrative agent. The facility consists of:
- Revolving Credit Facility: $1.0 billion, available in multiple currencies (USD, EUR, CAD, GBP, JPY, CHF). Includes sub-facilities for up to $75 million in letters of credit and $50 million in swing line loans. Expires August 22, 2022.
- Term Loan Facility: $1.0 billion, specifically designated to finance the Jimmy Choo acquisition. Divided into a $600 million tranche (3-year maturity) and a $400 million tranche (5-year maturity).
- Expansion Option: Borrowing availability may be increased by up to an additional $500 million subject to lender agreement.
- Interest Rates: Variable rates based on Alternate Base Rate, Adjusted LIBOR, or CDOR plus an applicable margin tied to the company's public debt ratings.
- Fees: Annual administration fee; commitment fees of 0.10% to 0.25% per annum on unused revolving commitments and undrawn term loan commitments.
Material Changes and Covenants
The 2017 Credit Facility replaced the existing 2015 senior unsecured revolving credit facility. Upon effectiveness of the Term Loan Facility, commitments under a prior Bridge Credit Agreement were reduced to approximately £344.19 million. Key covenants include:
- Leverage Ratio: The company must maintain a leverage ratio of no greater than 3.5 to 1.0, calculated as (Total Indebtedness + 6x Consolidated Rent Expense) / Consolidated EBITDAR.
- Rating Trigger: If the company loses its investment-grade public debt rating from at least two major rating agencies (S&P, Moody's, Fitch), it must provide customary liens on assets to secure the facility.
- Restrictions: Covenants limit additional indebtedness, guarantees, liens, acquisitions, and cash dividends.
Outlook, Risks, and Contingencies
The filing contains standard forward-looking statements regarding the acquisition of Jimmy Choo PLC and the company's financial expectations. Risks include the potential for actual results to differ materially from expectations due to various uncertainties. The credit agreement includes customary events of default, such as payment defaults, covenant breaches, cross-defaults, bankruptcy, and changes of control. In the event of default, lenders may terminate commitments and accelerate amounts outstanding, subject to certain funds limitations related to the Jimmy Choo transaction.
Investor Verification Checklist
- Verify the final closing status and funding of the Jimmy Choo PLC acquisition.
- Monitor the company's public debt ratings to ensure compliance with the investment-grade covenant and avoid the requirement to post asset liens.
- Review subsequent quarterly filings to confirm compliance with the 3.5 to 1.0 leverage ratio covenant.
- Assess the impact of the new debt service obligations (quarterly principal repayments on the Term Loan) on future cash flow.
- Confirm the reduction of the Bridge Credit Agreement commitments as stated in the filing.