Business Context and Reporting Period
This Form 8-K Current Report was filed by RH on June 28, 2017, regarding the entry into a material definitive agreement. The report details the execution of an Eleventh Amended and Restated Credit Agreement by Restoration Hardware, Inc., a wholly-owned subsidiary of RH, with Bank of America, N.A. as the administrative agent.
Key Financial Metrics and Debt Structure
The filing outlines a new credit facility structure replacing the previous Tenth Amended and Restated Credit Agreement. Key terms include:
- Revolving Line of Credit: Up to $600 million, with $10 million specifically allocated to the Canadian subsidiary.
- Term Loan: An up to $80 million last out, delayed draw term loan facility.
- Accordion Feature: A $200 million expansion option allowing the revolving line to increase from $600 million to $800 million subject to lender agreement.
- Collateral: Obligations are secured by inventory, receivables, and certain intellectual property.
- Borrowing Base: Availability is constrained by a formula based on eligible inventory and accounts receivable values.
Material Changes Versus Prior Period
The primary material change is the amendment and restatement of the existing credit agreement dated November 24, 2014. The new agreement introduces a delayed draw term loan facility and maintains the revolving credit capacity while adding an accordion feature for potential expansion. The filing does not provide specific comparative financial performance metrics (revenue, profit, cash flow) as this is a transactional report rather than a periodic earnings report.
Covenants, Risks, and Management Commentary
The Credit Agreement includes standard restrictive and affirmative covenants regarding liens, investments, additional debt, equity issuance, mergers, asset sales, and dividends. Notably, the agreement does not contain significant financial ratio covenants except for a Consolidated Fixed Charge Coverage Ratio (FCCR) Covenant. This covenant requires a ratio of 1.0 (EBITDA to debt service costs plus dividends) but only applies if unused availability drops below the greater of $40 million or 10% of total borrowing availability.
Risks and Contingencies: The filing highlights that actual borrowing availability may be curtailed by loan term restrictions or the value of eligible collateral. Forward-looking statements regarding the ability to remain in compliance with the Credit Agreement are subject to uncertainties concerning business performance and collateral valuation.
Investor Verification Checklist
- Verify the current value of eligible inventory and accounts receivable to assess actual borrowing availability under the borrowing base formula.
- Review the full text of Exhibit 10.1 (Eleventh Amended and Restated Credit Agreement) for specific definitions of "eligible" assets and debt service costs.
- Monitor the company's unused availability to determine if the FCCR Covenant (1.0 ratio) becomes active.
- Check subsequent filings for any utilization of the $80 million delayed draw term loan or the $200 million accordion expansion.