Business Context and Reporting Period
This Form 8-K filing by RH (Restoration Hardware, Inc.) reports on events occurring on April 10, 2019. The filing details the entry into a material definitive agreement involving a new second lien term loan facility by Restoration Hardware, Inc., a wholly-owned subsidiary of RH.
Key Financial Metrics and Debt Structure
- Debt Instrument: Second Lien Term Loan with an aggregate principal amount of $200,000,000.
- Maturity Date: April 9, 2024.
- Interest Rate: Floating rate based on one-month LIBOR plus 6.50%.
- Security: Secured by a second lien security interest in assets including inventory, receivables, and certain intellectual property.
- Priority: Subordinated to the existing ABL First Lien Credit Agreement (Bank of America, N.A. as agent).
- Lenders: Funds managed by Benefit Street Partners L.L.C. and Apollo Capital Management, L.P.
Material Changes and Covenants
The filing introduces new financial covenants and prepayment terms not present in the prior ABL First Lien Credit Agreement:
- Net Senior Secured Leverage Ratio: The ratio of consolidated secured debt to consolidated EBITDA may not exceed 3.50 to 1.00 as of the last day of any fiscal quarter.
- Fixed Charge Coverage Ratio (FCCR): Borrowers may not make restricted payments if the ratio of consolidated EBITDA to debt service costs falls below 1.00 to 1.00 and unused availability under the ABL facility drops below certain levels.
- Prepayment Premiums:
- 2.0% of principal prepaid during the first year.
- 1.0% of principal prepaid during the second year.
- No premium after the second anniversary.
- Intercreditor Agreement: Established priority of liens and customary terms between the First Lien and Second Lien administrative agents.
Guidance, Risks, and Contingencies
The filing contains forward-looking statements regarding the cost of capital, interest rates, and the company's ability to maintain compliance with the new covenants. Management highlights risks related to:
- General business performance affecting the ability to meet leverage and coverage ratios.
- Potential curtailment of availability under the revolving line of credit due to loan term restrictions or collateral amounts.
- Restrictions on dividends, distributions, and affiliate transactions imposed by the new agreement.
Note: This filing does not provide specific revenue, profit, or cash flow figures for the period, as it focuses solely on the debt agreement.
Investor Verification Checklist
- Verify the current consolidated EBITDA and total secured debt to assess compliance with the new 3.50x Net Senior Secured Leverage Ratio.
- Review the unused availability under the existing ABL First Lien Credit Agreement to understand restrictions on restricted payments.
- Confirm the current one-month LIBOR rate to calculate the precise effective interest cost of the new $200 million facility.
- Examine the full text of the Second Lien Credit Agreement (Exhibit 10.1) for specific definitions of "consolidated secured debt" and "unrestricted cash."
- Monitor future filings for any covenant waivers or amendments related to the leverage or coverage ratios.