Business Context and Reporting Period
This Form 8-K was filed by Coach, Inc. (now Tapestry, Inc.) on June 6, 2017. The filing reports the entry into a material definitive agreement for a public debt offering. The proceeds are intended to fund the previously announced acquisition of Kate Spade & Company, alongside existing cash and term loans.
Key Financial Metrics and Transaction Details
The company entered into an underwriting agreement for a total of $1.0 billion in senior unsecured notes. The specific terms are as follows:
- 2022 Notes: $400,000,000 aggregate principal amount with an interest rate of 3.000% per year.
- 2027 Notes: $600,000,000 aggregate principal amount with an interest rate of 4.125% per year.
- Interest Payments: Payable semi-annually on January 15 and July 15, commencing January 15, 2018.
- Underwriters: Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC.
- Expected Closing Date: On or about June 20, 2017.
The filing does not provide specific values for revenue, profit, cash flow, margins, or existing debt levels as this is a current report regarding a specific transaction rather than a periodic financial statement.
Material Changes and Covenants
The issuance of these notes represents a material increase in the company's debt obligations. The Indenture governing the notes includes covenants that limit the Company's ability to:
- Create certain liens.
- Enter into certain sale and leaseback transactions.
- Consolidate, merge, or transfer, sell, or lease all or substantially all of the Company's assets.
Interest rates are subject to adjustment if Moody's or S&P downgrades the credit rating of the notes.
Outlook, Risks, and Management Commentary
Management intends to use the proceeds from this offering, combined with cash on hand (including funds at Kate Spade) and term loans, to fund the purchase price for the acquisition of Kate Spade & Company and pay related fees and expenses. The notes rank equal in right of payment to existing senior unsecured indebtedness but are effectively subordinated to secured obligations and subsidiary obligations.
Investor Verification Checklist
- Verify the final closing date of the offering (expected June 20, 2017) and the actual net proceeds received.
- Review the full text of the Underwriting Agreement (Exhibit 1.1) and Supplemental Indentures for specific covenant limitations and exceptions.
- Monitor credit rating actions by Moody's and S&P that could trigger interest rate adjustments on the notes.
- Confirm the final funding structure for the Kate Spade acquisition, specifically the proportion of debt versus cash and term loans utilized.