Business Context and Reporting Period
This Form 8-K, filed on August 30, 2023, by Tapestry, Inc. (TPR), reports the entry into material definitive agreements to secure financing for the previously announced acquisition of Capri Holdings Limited. The filing details amendments to existing credit facilities and the establishment of new term loans to fund the transaction.
Key Financial Metrics and Debt Structure
The filing outlines significant changes to the Company's debt capacity and liquidity arrangements:
- Revolving Facility: Increased from $1.25 billion to $2.0 billion. Up to $250 million is designated on a "funds certain" basis specifically for the Capri acquisition.
- Term Loan Facilities: New unsecured term loans totaling $1.4 billion were committed:
- $1.05 billion Three-Year Term Loan Facility.
- $350 million Five-Year Term Loan Facility.
- Bridge Facility: The initial $8.0 billion bridge loan commitment was reduced to $6.6 billion following the commitment of the term loans.
- Interest Rates: Term loans bear interest based on an alternate base rate or SOFR plus an applicable margin (initially 0.250%/1.250% for the 3-year loan and 0.375%/1.375% for the 5-year loan). A 0.15% ticking fee applies to unused commitments.
Material Changes Versus Prior Period
The primary material change is the restructuring of the Company's credit facilities to accommodate the Capri acquisition. The aggregate revolving credit commitment increased by $750 million. Additionally, the Company established new long-term debt obligations ($1.4 billion) that did not exist in the prior period, replacing a portion of the short-term bridge financing.
Guidance, Covenants, and Risks
Covenants and Leverage Ratios: Post-acquisition, the Company must comply with a maximum Net Leverage Ratio on a quarterly basis:
- 4.75 to 1.00 from closing until June 28, 2025.
- 4.50 to 1.00 from June 28, 2025, to June 27, 2026.
- 4.00 to 1.00 from June 27, 2026, and thereafter.
Use of Proceeds: Borrowings are designated to fund the purchase price of Capri, repay existing indebtedness of the acquired business, and cover transaction fees.
Risks and Contingencies: The agreements are subject to the satisfaction of conditions set forth in the Term Loan Agreement and the Agreement and Plan of Merger. The filing notes that the description of terms is a summary and is qualified by the full text of the attached exhibits.
Investor Verification Checklist
- Verify the final closing date of the Capri acquisition to determine the start of the leverage ratio compliance period.
- Review the full text of Exhibit 10.1 (Amendment No. 1) and Exhibit 10.2 (Term Loan Credit Agreement) for specific negative covenants and events of default.
- Monitor the utilization of the $250 million "funds certain" portion of the revolving facility.
- Assess the impact of the new debt load on the Company's consolidated EBITDAR and ability to meet the 4.75x leverage covenant immediately post-closing.