Business Context and Reporting Period
Genesco Inc. filed this Form 8-K on February 5, 2014, reporting a material event that occurred on January 31, 2014. The filing details the entry into a new Third Amended and Restated Credit Agreement, replacing the company's previous $405.0 million revolving credit facility.
Key Financial Metrics and Facility Terms
This filing describes the terms of a new credit facility rather than reporting operational financial results such as revenue or profit. Key metrics regarding the new facility include:
- Total Availability: $400.0 million aggregate principal amount.
- Term: Five years.
- Expansion Options: The company may increase availability by up to $150.0 million. Genesco (UK) Limited has a one-time option to increase its subfacility by up to $50.0 million.
- Borrowing Base: Loans are capped at the lesser of the facility amount or a "Borrowing Base" calculated as 90% of eligible inventory, 85% of eligible wholesale receivables (50% for Lids Team Sports), and 90% of eligible credit/debit card receivables, less reserves.
- Interest Rates: Variable rates based on LIBOR or Base Rate plus an applicable margin. Initial margins are 0.50% for Base Rate loans and 1.50% for LIBOR loans.
- Fees: A commitment fee of 0.25% per annum on unused portions.
- Collateral: Secured by a first priority lien on tangible and intangible assets (excluding real estate) and a pledge of 65% of the interest in Genesco (UK) Limited.
Material Changes Versus Prior Period
The primary material change is the replacement of the previous $405.0 million revolving credit facility with the new $400.0 million facility. While the aggregate principal amount is slightly lower, the new agreement introduces specific subfacilities for GCO Canada Inc. (up to $25.0 million) and Genesco (UK) Limited (up to $50.0 million), along with swingline subfacilities. The new agreement also modifies the calculation of the Borrowing Base and introduces specific "Excess Availability" thresholds that trigger financial covenants.
Guidance, Outlook, Risks, and Covenants
The filing outlines specific financial covenants and risks associated with the new credit facility:
- 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.
- Cash Dominion: Provisions apply if Excess Availability drops below the greater of $30.0 million or 12.5% of the Loan Cap, or in the event of a default.
- Debt Capacity: The facility permits the company to incur up to $500.0 million of additional senior debt subject to certain conditions.
- Restrictions: The agreement restricts additional indebtedness, liens, acquisitions, dividends, and asset dispositions.
- Events of Default: Includes payment defaults, covenant breaches, cross-defaults, bankruptcy, and change in control.
The filing text does not provide specific revenue guidance, profit outlook, or management commentary on future operational performance.
Important Facts for Investor Verification
- Verify the current "Excess Availability" to determine if the company is currently subject to the 1.0:1.0 fixed charge coverage ratio covenant.
- Confirm the utilization rate of the new $400.0 million facility and the status of the $150.0 million expansion option.
- Review the specific composition of the "Borrowing Base" (inventory and receivables) to assess the company's borrowing capacity relative to its asset base.
- Monitor the company's ability to meet the "Cash Dominion" thresholds to avoid lender control over cash flows.
- Check for any subsequent filings regarding the exercise of the UK or Canadian subfacility expansion options.