Business Context and Reporting Period
DSW Inc. (now Designer Brands Inc.) filed this Form 8-K on August 25, 2017, to report the entry into a new material definitive agreement. The filing details the execution of a new Credit Agreement with PNC Bank, National Association, as administrative agent, replacing a prior facility.
Key Financial Metrics and Facility Terms
- Facility Size: A senior unsecured $300 million revolving credit facility.
- Expansion Option: Capacity to increase the facility by up to $100 million without lender consent, subject to no default.
- Additional Features: Swing loans up to $15 million; standby or commercial letters of credit up to $50 million; optional currency loans/letters of credit up to $75 million.
- Maturity Date: August 25, 2022.
- Interest Rates: Variable based on Base Rate or Euro-Rate (LIBOR) plus an applicable margin tied to the Leverage Ratio.
- Financial Covenants:
- Minimum Fixed Charge Coverage Ratio: 1.75 to 1.0 (through Feb 2, 2020), stepping up to 2.00 to 1.0 thereafter.
- Maximum Leverage Ratio: 3.25 to 1.0 (temporary increase to 3.50 to 1.0 permitted following acquisitions).
Material Changes Versus Prior Period
The new agreement refinanced and terminated the Former Credit Agreement dated August 2, 2013, and a related Letter of Credit Agreement with Wells Fargo Bank. Key changes include:
- Capacity Increase: Revolving facility increased from $100 million to $300 million.
- Security Status: The new facility is senior unsecured, whereas the former facility was secured by a lien on substantially all personal property and assets.
- Extension: Maturity extended from July 31, 2018, to August 25, 2022.
Guidance, Risks, and Unusual Items
Use of Proceeds: Funds may be used for refinancing, working capital, general corporate purposes, capital expenditures, permitted acquisitions, and stock repurchases or dividends.
Risks and Contingencies: The agreement contains customary events of default, including payment failures, covenant breaches, change in control, and insolvency. An event of default may trigger an immediate interest rate and fee increase of 2.0% until cured.
Management Commentary: The filing states the agreement contains representations, warranties, and covenants considered customary for such facilities. No specific forward-looking financial guidance regarding revenue or earnings was provided in this filing.
Investor Verification Checklist
- Verify the current Leverage Ratio and Fixed Charge Coverage Ratio to ensure compliance with the new covenants (3.25:1 and 1.75:1 respectively).
- Confirm the status of the terminated secured liens on company assets to ensure the transition to an unsecured facility is complete.
- Review the specific "applicable margin" tiers in the full Credit Agreement (Exhibit 10.1) to understand interest cost sensitivity to leverage changes.
- Monitor for any immediate drawdowns on the facility for the stated purposes of acquisitions or stock repurchases.