Business Context and Reporting Period
Company: GENESCO INC.
Filing Type: Form 8-K (Current Report)
Date of Report: February 2, 2018
Event Date: January 31, 2018
Context: The Company entered into a Fourth Amended and Restated Credit Agreement (the "Credit Facility") with Bank of America, N.A., as agent, and other lenders. This agreement replaces the Company's previous $400.0 million revolving credit facility.
Key Financial Metrics and Facility Terms
This filing details the terms of a new debt facility rather than reporting operational financial results (revenue, profit, cash flow). Key metrics regarding the Credit Facility include:
- Total Facility Amount: $400.0 million revolving credit facility.
- Expansion Option: The Company may increase availability by up to $200.0 million (total potential capacity of $600.0 million) subject to lender commitments.
- Term: Five years.
- Subfacilities:
- U.S. Domestic: $70.0 million letters of credit sublimit; $45.0 million swingline subfacility.
- Canada (GCO Canada Inc.): Up to $70.0 million (includes $5.0 million LC sublimit and $5.0 million swingline).
- U.K. (Genesco (UK) Limited): Up to $100.0 million (includes $10.0 million LC sublimit and $10.0 million swingline).
- Borrowing Base (Loan Cap): Loans cannot exceed the lesser of the facility amount or the Borrowing Base, calculated generally as:
- 90% of eligible inventory (92.5% during fiscal months September–November).
- 85% of eligible wholesale receivables.
- 90% of eligible credit/debit card receivables.
- Interest Rates:
- Base Rate loans: LIBOR or Base Rate plus applicable margin (initially 0.50% for Base Rate, 1.50% for LIBOR).
- Margins adjust based on "Excess Availability."
- Fees: Commitment fee of 0.25% per annum on unused portions.
- Collateral: First priority lien on accounts, inventory, payment intangibles, and deposit accounts. Excludes intellectual property, equity interests, equipment, real estate, and leaseholds.
Material Changes Versus Prior Period
The primary material change is the replacement of the previous $400.0 million revolving credit facility with the new Fourth Amended and Restated Credit Agreement. The new agreement introduces specific subfacilities for Canadian and U.K. operations and establishes a "Borrowing Base" mechanism to limit total loans and letters of credit.
Guidance, Covenants, and Risks
Covenants:
- Financial Covenants: No financial covenants are required unless "Excess Availability" falls below the greater of $25.0 million or 10% of the Loan Cap. If triggered, the Company must maintain a minimum fixed charge coverage ratio of 1.0:1.0.
- Additional Debt: The Company may incur senior debt up to the greater of $500.0 million or an amount ensuring the consolidated total indebtedness to consolidated EBITDA ratio does not exceed 5.0:1.0.
- Restrictions: The agreement restricts additional indebtedness, liens, loans, investments, acquisitions, dividends, affiliate transactions, asset dispositions, and mergers.
Cash dominion provisions apply if Excess Availability is less than the greater of $30.0 million or 12.5% of the Loan Cap for 3 consecutive business days, or if certain events of default occur.
Events of Default:Includes payment defaults, covenant breaches, cross-defaults, bankruptcy, insolvency, ERISA events, judgments in excess of specified amounts, and change in control.
Unusual Items:The filing does not report unusual operational items; it focuses solely on the restructuring of the credit facility.
Investor Verification Checklist
- Verify the current "Excess Availability" to determine if financial covenants (1.0:1.0 fixed charge coverage) are currently active.
- Confirm the utilization of the Canadian and U.K. subfacilities, noting the 50% cap on total loans to these entities relative to the Loan Cap.
- Review the "Borrowing Base" calculation inputs (eligible inventory and receivables) to assess actual borrowing capacity versus the $400.0 million headline figure.
- Monitor the Company's ability to meet the 5.0:1.0 indebtedness-to-EBITDA ratio if seeking to incur additional senior debt.
- Check for any recent changes in inventory levels or receivables quality that could impact the Loan Cap and trigger cash dominion provisions.