Business Context and Reporting Period
This Form 8-K Current Report was filed by Dave & Buster's Entertainment, Inc. on April 14, 2020. The filing addresses material agreements and personnel changes enacted in response to the COVID-19 pandemic, specifically focusing on liquidity preservation and debt covenant management.
Key Financial Metrics and Agreements
- Equity Offering: Entered into an Open Market Sale Agreement with Jefferies LLC to sell up to $75,000,000 of common stock. The company is not obligated to sell any shares.
- Commission: Jefferies will receive a 3% commission on gross proceeds from any sales.
- Legal Expenses: The company agreed to reimburse Jefferies' legal expenses up to $50,000.
- Debt Covenants: Amended its Credit Agreement to suspend testing of the total leverage ratio (3.50:1.00) and fixed charge coverage ratio (1.25:1.00) until the fiscal quarter ending January 31, 2021.
- Liquidity Requirement: Must maintain minimum liquidity of $30 million (unrestricted cash and cash equivalents) during the suspension period.
- Reporting: Required to report 13-week cash flow information on a bi-weekly basis starting April 17, 2020.
- Executive Severance: Senior Vice President and Chief Marketing Officer John P. Gleason is departing effective April 30, 2020. Total severance value is approximately $606,791, consisting of $456,791 in cash benefits and $150,000 in fully vested stock.
Material Changes and Strategic Actions
The filing details significant amendments to the company's credit facilities to provide flexibility during the pandemic. Key changes include:
- Covenant Relief: The impact of the COVID-19 pandemic is disregarded for certain "Material Adverse Effect" definitions.
- Liens and Defaults: Landlord liens for unpaid rent and up to $25.0 million in uncompleted construction/refurbishment expenses are disregarded for default determinations.
- Additional Debt Capacity: Permitted to incur up to $150.0 million in new debt under Main Street facilities or as junior/unsecured debt.
- Restrictions: Exceptions to covenants regarding debt incurrence, liens, and restricted payments are unavailable until the company returns to compliance with leverage and coverage ratios.
- Amendment Fee: The company agreed to pay lenders a fee of 0.25 basis points on the aggregate loan amount.
Outlook, Risks, and Contingencies
Management's actions indicate a focus on immediate liquidity needs driven by the COVID-19 pandemic. The company has committed to using commercially reasonable efforts to consummate the $75 million at-the-market equity offering within 60 days of the agreement date. The suspension of financial covenants is temporary, lasting until the fiscal quarter ending January 31, 2021, after which standard testing resumes. The filing notes that the equity offering is contingent on market conditions and company discretion.
Investor Verification Checklist
- Verify the actual volume and pricing of shares sold under the Open Market Sale Agreement in subsequent filings.
- Monitor the company's ability to maintain the $30 million minimum liquidity requirement.
- Review the bi-weekly 13-week cash flow reports for variance between projected and actual cash flows.
- Track the status of the $150 million additional debt capacity and whether it is utilized.
- Confirm the final payout of the $606,791 severance package to the departing executive.