Business Context and Reporting Period
Tapestry, Inc. filed this Form 8-K on May 11, 2022, to disclose the entry into a material definitive agreement regarding its debt structure. The filing details a refinancing of the company's existing credit facilities and the issuance of a conditional notice to redeem outstanding senior notes.
Key Financial Metrics and Debt Structure
The filing outlines the establishment of new credit facilities totaling $1.75 billion in committed capacity, replacing the prior unsecured revolving facility.
- New Revolving Credit Facility: $1.25 billion unsecured revolving credit facility with a maturity date of May 11, 2027. This includes sub-facilities for letters of credit (up to $1.025 billion aggregate) and swing line loans (up to $50 million).
- New Term Loan Facility: $500 million unsecured delayed draw term loan facility with a maturity date of May 11, 2027. This facility is available to be drawn on or prior to July 8, 2022.
- Senior Notes Redemption: The company issued a conditional notice to redeem $400 million aggregate principal amount of 3.000% senior notes due July 15, 2022. The expected redemption date is June 15, 2022, at 100.00% of the principal amount plus accrued interest.
- Financial Covenants: The new facilities require compliance with a maximum ratio of 4.0 to 1.0 of consolidated debt (minus unrestricted cash in excess of $300 million) to consolidated EBITDAR.
Material Changes Versus Prior Period
The primary material change is the replacement of the October 24, 2019, unsecured revolving facility with the new credit facilities dated May 11, 2022. Key changes include:
- Extension of the maturity date to May 11, 2027.
- Introduction of a $500 million delayed draw term loan facility, which was not present in the prior structure.
- Ability to increase revolving commitments by up to $500 million subject to conditions.
- Implementation of a pricing grid based on the Gross Leverage Ratio (consolidated debt to consolidated EBITDAR) to determine interest margins and facility fees.
Outlook, Risks, and Contingencies
The redemption of the $400 million senior notes is contingent upon the company's ability to borrow the necessary funds under the new credit facilities. The new agreements include standard restrictive covenants limiting the company's ability to incur additional debt, engage in new lines of business, incur liens, or make restricted payments without meeting specific conditions. Events of default include nonpayment, violation of covenants, cross-defaults, and bankruptcy.
Investor Verification Checklist
- Verify the successful closing of the New Credit Facilities to ensure the redemption of the $400 million senior notes proceeds as planned.
- Monitor the company's Gross Leverage Ratio to ensure compliance with the 4.0 to 1.0 covenant threshold.
- Confirm the actual drawdown amount of the $500 million delayed draw term loan facility by the July 8, 2022 deadline.
- Review the impact of the new interest rate margins and facility fees on future interest expense compared to the 3.000% senior notes.