Business Context and Reporting Period
Company: Michael Kors Holdings Limited (Capri Holdings Ltd)
Filing Type: Form 8-K (Current Report)
Date of Report: November 15, 2018
Event: Entry into a Material Definitive Agreement (Third Amended and Restated Senior Unsecured Credit Facility).
Key Financial Metrics and Debt Structure
The filing details the establishment of a new credit facility to finance the acquisition of Gianni Versace S.p.A. and GIVI Holding S.p.A. Key terms include:
- Revolving Credit Facility: $1.0 billion total, available in multiple currencies (USD, EUR, CAD, GBP, JPY, CHF). Includes sub-facilities for up to $75 million in letters of credit and $75 million in swing line loans. Expires November 15, 2023.
- Term Loan Facility: $1.6 billion total, divided into two tranches:
- $800 million maturing on the second anniversary of initial borrowing.
- $800 million maturing on the fifth anniversary of initial borrowing.
- Expansion Option: Ability to increase borrowing availability by up to an additional $500 million subject to lender agreement.
- Repayment Terms: Term loans require quarterly repayments of 2.50% of the aggregate original principal amount.
- Interest Rates: Variable rates based on Alternate Base Rate or Adjusted LIBOR/CDOR plus an applicable margin tied to public debt ratings.
- Fees: Annual administration fee; commitment fees of 0.10% to 0.25% per annum on unused amounts.
Material Changes and Covenants
This facility replaces the existing 2017 senior unsecured revolving credit facility. The filing introduces specific financial covenants and restrictions:
- Leverage Ratio Covenant: The Company must maintain a leverage ratio of no greater than 3.75 to 1.0. This is calculated as (Total Indebtedness + 6x Consolidated Rent Expense) divided by Consolidated EBITDAR for the last four consecutive fiscal quarters.
- Restrictive Covenants: Limits on additional indebtedness, guarantees, liens, acquisitions, investments, and cash dividends.
- Events of Default: Includes payment defaults, covenant breaches, cross-defaults, bankruptcy, and changes of control.
Guidance, Risks, and Contingencies
The filing contains forward-looking statements regarding the pending acquisition of Versace. Key risks and contingencies identified include:
- Transaction Risks: Satisfaction of closing conditions, integration challenges, and potential disruptions to business operations.
- Market Risks: Negative impact on share price, fluctuations in demand, and changes in consumer traffic.
- Financial Risks: Future levels of indebtedness, availability of credit, and fluctuations in interest and exchange rates.
- Operational Risks: Unknown liabilities, litigation, regulatory actions, and general economic instability.
- Share Buybacks: Future buybacks may be suspended due to market conditions or cash usage for the Versace acquisition.
Investor Verification Checklist
- Verify the final closing date and conditions for the Versace acquisition.
- Monitor the Company's public debt ratings to determine applicable interest rate margins and commitment fees.
- Review subsequent quarterly reports to ensure compliance with the 3.75 to 1.0 leverage ratio covenant.
- Assess the impact of the $1.6 billion term loan on future cash flow and interest expense.
- Track any announcements regarding the suspension or execution of share buyback programs.