Business Context and Reporting Period
Company: Designer Brands Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: March 30, 2022
Event: Entry into a new material credit agreement and termination of the prior credit facility.
Key Financial Metrics and Debt Structure
This filing details a refinancing transaction rather than operational financial results. Key debt metrics include:
- New Credit Facility: Asset-based revolving credit facility with an aggregate principal amount of up to $550,000,000.
- Incremental Capacity: Subject to conditions, the facility may be increased by up to $100,000,000.
- Sublimits:
- Canadian Sublimit: Up to $55,000,000.
- Swingline Loans: Up to $55,000,000 (U.S.) and $5,500,000 (Canada).
- Letters of Credit: Up to $75,000,000.
- Interest Rates (at closing):
- ABR Borrowings: Alternate Base Rate + 0.50%.
- Term SOFR Borrowings: Adjusted Term SOFR + 1.50%.
- Maturity Date: March 30, 2027.
- Collateral: First priority lien on personal property, including inventory.
Material Changes Versus Prior Period
The Company terminated its existing credit agreement dated August 7, 2020, and replaced it with the new facility. Material changes include:
- Capacity Increase: The new facility increases the maximum principal amount from $400,000,000 (Former Credit Agreement) to $550,000,000.
- Maturity Extension: The maturity date was extended from August 7, 2025, to March 30, 2027.
- Lender Composition: The Administrative Agent changed to The Huntington National Bank, with Bank of Montreal and Bank of America, N.A. serving as Joint Bookrunners.
- Security Release: All security interests and pledges under the former agreement were terminated and released upon execution of the new agreement.
Outlook, Covenants, and Risks
Use of Proceeds: Refinancing existing indebtedness, paying related fees/expenses, providing working capital, and general corporate purposes.
Covenants: The agreement requires the maintenance of a Consolidated Fixed Charge Coverage Ratio when Availability falls below the greater of $41,250,000 or 10% of the Maximum Credit Amount for 30 consecutive days.
Risks and Contingencies:
- Events of Default: Include payment defaults, covenant breaches, material inaccuracies in representations, change in control, and insolvency proceedings.
- Penalty Rates: An event of default may trigger an increase in interest rates and fees by 2.0% until cured.
- Variable Rates: Interest rates fluctuate based on the Alternate Base Rate or Adjusted Term SOFR, exposing the Company to interest rate risk.
Note: This filing does not provide revenue, profit, cash flow, or margin data.
Investor Verification Checklist
- Verify the current "Availability" under the new borrowing base to assess immediate liquidity.
- Review the specific calculation methodology for the Consolidated Fixed Charge Coverage Ratio covenant.
- Confirm the status of any outstanding indebtedness refinanced by this new facility.
- Monitor the Adjusted Term SOFR and Prime Rate trends to estimate future interest expense.
- Check for any subsequent amendments to the Credit Agreement regarding the $100,000,000 incremental increase.