Business Context and Reporting Period
This Form 8-K, filed on May 30, 2017, by Coach, Inc. (now Tapestry, Inc.), reports the entry into a definitive credit agreement to facilitate the acquisition of Kate Spade & Company. The filing details the termination of the company's previous credit facility and the establishment of new financing structures effective May 30, 2017.
Key Financial Metrics and Facility Structure
The new credit facility consists of the following components:
- Six-Month Term Loan Facility: $800 million commitment.
- Three-Year Term Loan Facility: $300 million commitment.
- Revolving Credit Facility: $900 million commitment maturing May 30, 2022, including sub-facilities for letters of credit.
- Expansion Option: The revolving commitments may be increased by up to $300 million subject to conditions.
- Letters of Credit: Standby letters of credit limited to $125 million; commercial letters of credit available up to the full revolving amount.
- Swing Line Loans: Available up to $20 million.
Interest rates are based on an alternate base rate or Adjusted LIBO Rate plus an applicable margin determined by a pricing grid tied to the Leverage Ratio (consolidated debt plus 600% of consolidated lease expense to consolidated EBITDAR).
Material Changes Versus Prior Period
The primary material change is the replacement of the previous revolving credit facility (dated March 18, 2015) with the new $900 million Revolving Credit Facility. Additionally, the company has secured new term loan facilities totaling $1.1 billion specifically to fund, in part, the purchase price for the acquisition of Kate Spade & Company.
Guidance, Outlook, Risks, and Covenants
Use of Proceeds: Term loan borrowings are intended to fund the Kate Spade acquisition. The Revolving Credit Facility will support working capital, capital expenditures, permitted investments, share purchases, dividends, and general corporate purposes.
Covenants: The agreement includes negative covenants limiting additional debt, new lines of business, liens, mergers, asset dispositions, and restricted payments. The company must maintain a maximum Leverage Ratio of 4.0 to 1.0 on a quarterly basis.
Risks and Contingencies: The filing highlights risks associated with the consummation of the Kate Spade acquisition, including regulatory approvals and the possibility that the transaction may not be completed in a timely manner or at all. Forward-looking statements regarding the merger are subject to uncertainties.
Financial Statements: The filing incorporates audited and unaudited financial statements for Kate Spade & Company and pro forma financial information for Coach, Inc. reflecting the acquisition and financing transactions.
Investor Verification Checklist
- Verify the final closing date and conditions for the Kate Spade & Company acquisition.
- Review the pro forma financial statements (Exhibit 99.3) to assess the combined entity's leverage and liquidity post-acquisition.
- Monitor the company's ability to maintain the 4.0 to 1.0 maximum Leverage Ratio covenant.
- Confirm the status of regulatory approvals required for the merger.
- Examine the specific terms of the Credit Agreement (Exhibit 10.1) for detailed fee structures and default provisions.