Under Armour, Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated May 12, 2020, details a material definitive agreement entered into by Under Armour, Inc. The filing concerns Amendment No. 1 to the Company's Amended and Restated Credit Agreement, originally dated March 8, 2019. The amendment was executed to adjust credit terms in response to prevailing market conditions.
Key Financial Metrics and Debt Structure
The filing does not provide specific revenue, profit, or cash flow figures for the period. However, it outlines significant changes to the Company's debt facility and liquidity covenants:
- Revolving Credit Facility: Aggregate commitments reduced from $1,250.0 million to $1,100.0 million.
- Commitment Increase: The ability to increase commitments by up to $300.0 million is suspended during the Covenant Suspension Period.
- Security Status: Obligations previously unsecured are now guaranteed by certain domestic significant subsidiaries and secured by a first-priority security interest in substantially all assets (excluding real property and certain subsidiary capital stock).
- Interest Margins: During the Covenant Suspension Period, the applicable margin is fixed at 2.00% for Adjusted LIBO Rate loans and 1.00% for alternate base rate loans.
- Commitment Fee: Fixed at 0.40% per annum during the Covenant Suspension Period.
Material Changes Versus Prior Period
The primary material change is the restructuring of financial covenants and the security status of the debt:
- Covenant Suspensions: The Interest Coverage Covenant (previously 3.50 to 1.0) and Leverage Covenant (previously 3.25 to 1.0) are suspended or adjusted for periods ranging from the quarter ended June 30, 2020, through June 30, 2022.
- Liquidity Covenant: A new Liquidity Covenant is introduced, requiring minimum liquidity of $450.0 million (increasing to $550.0 million under specific conditions) from September 30, 2020, through December 31, 2021.
- Adjusted Leverage Ratios: During specific quarters within the suspension period, the Leverage Covenant threshold is adjusted to 4.5 to 1.0, 4.0 to 1.0, and 3.5 to 1.0, depending on the fiscal quarter.
- Debt Incurrence: Additional capacity is granted for $50.0 million of secured debt and up to $500.0 million of convertible or specified debt securities.
Outlook, Risks, and Management Commentary
The amendment reflects a strategic adjustment to manage liquidity and covenant compliance during a period of uncertainty. Key risks and contingencies include:
- Covenant Compliance: The Company must adhere to the new Liquidity Covenant and adjusted leverage ratios during the suspension period to avoid default.
- Restricted Payments: The ability to make certain voluntary restricted payments is temporarily suspended during the Covenant Suspension Period.
- Asset Sales and Investments: Future investments in non-guarantor subsidiaries and asset sales outside the ordinary course of business are subject to additional limitations.
- Interest Rate Exposure: While margins are fixed during the suspension period, post-suspension rates will vary based on a pricing grid tied to the leverage ratio.
Key Facts for Investor Verification
- Verify the Company's current liquidity position against the new $450.0 million minimum requirement effective September 30, 2020.
- Monitor the Company's ability to meet the adjusted Leverage Covenant thresholds (up to 4.5 to 1.0) during the suspension period.
- Review the impact of the reduced credit facility ($1,100.0 million) on working capital and operational flexibility.
- Assess the implications of the new security interest on substantially all assets for future financing options.
- Track the timeline for the reinstatement of original covenants, which is scheduled to begin in earnest for the quarter ending March 31, 2022.