Tapestry, Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by Tapestry, Inc. on May 19, 2020. The report details the entry into a material definitive agreement regarding the company's revolving credit facility.
Key Financial Metrics and Debt
- Revolving Credit Facility Commitment: $900 million (unchanged).
- Outstanding Borrowings: $700 million as of May 20, 2020.
- Liquidity Requirement: The company must maintain available liquidity of $700 million from the effective date until October 2, 2021. Available liquidity is defined as unrestricted cash and cash equivalents plus available commitments under credit facilities.
- Leverage Ratio: A maximum net leverage ratio of 4.0 to 1.0 applies on a quarterly basis following the delivery of the compliance certificate for the fiscal quarter ending July 3, 2021.
Material Changes and Covenant Relief
The company entered into Amendment No. 1 to its revolving credit facility dated October 24, 2019. Key changes include:
- Covenant Relief Period: Defined as the period from May 19, 2020, until the compliance certificate is delivered for the fiscal quarter ending July 3, 2021.
- Rating Triggers: During the relief period, if two of the company's three credit ratings are non-investment grade, the facility will be guaranteed by material domestic subsidiaries and subject to liens on accounts receivable, inventory, and intellectual property.
- Interest Rate Penalty: An increased interest rate applies during the relief period if the gross leverage ratio exceeds 4.0 to 1.0.
- Restrictions: Negative covenants limit the ability to incur certain debt, incur liens, dispose of assets, make investments, and engage in share buybacks during the relief period.
Outlook and Risks
The filing indicates that the amendment is designed to provide flexibility during a period of financial uncertainty. The primary risks highlighted involve the potential for credit rating downgrades triggering additional collateral requirements and the strict liquidity maintenance covenant of $700 million. The filing does not provide specific revenue, profit, or cash flow figures for the period.
Investor Verification Checklist
- Verify the company's current unrestricted cash and cash equivalents to ensure compliance with the $700 million liquidity requirement.
- Monitor the company's credit ratings to assess the risk of triggering subsidiary guarantees and asset liens.
- Review the gross leverage ratio to determine if the increased interest rate penalty is currently applicable.
- Confirm the status of the $700 million outstanding borrowings and the remaining $200 million availability under the $900 million facility.