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DEBT | 9 Months Ended
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Jun. 29, 2024
Debt Disclosure [Abstract] |
DEBT | DEBT The components of debt are as follows:
| June 29, 2024 |  | July 1, 2023 |  | September 30, 2023
Credit Facilities: |  |  |  |  |
Revolving loans | $ | — |  |  | $ | 145.1 |  |  | $ | 88.3 |
Term loans | 887.5 |  |  | 937.5 |  |  | 925.0 |
Senior Notes due 2031 – 4.000% | 500.0 |  |  | 500.0 |  |  | 500.0 |
Senior Notes due 2032 – 4.375% | 400.0 |  |  | 400.0 |  |  | 400.0 |
Senior Notes due 2029 – 4.500% | 450.0 |  |  | 450.0 |  |  | 450.0 |
Senior Notes due 2026 – 5.250% | 250.0 |  |  | 250.0 |  |  | 250.0 |
Receivables facility | — |  |  | 398.0 |  |  | — |
Finance lease obligations | 19.7 |  |  | 17.4 |  |  | 16.9 |
Other | — |  |  | 0.8 |  |  | 0.4 |
Total debt | 2,507.2 |  |  | 3,098.8 |  |  | 2,630.6 |
Less current portions | 52.9 |  |  | 450.7 |  |  | 52.3 |
Less unamortized debt issuance costs | 17.9 |  |  | 19.3 |  |  | 20.9 |
Long-term debt | $ | 2,436.4 |  |  | $ | 2,628.8 |  |  | $ | 2,557.4 |
Credit Facilities On April 8, 2022, the Company entered into a sixth amended and restated credit agreement (the “Sixth A&R Credit Agreement”), providing the Company and certain of its subsidiaries with five-year senior secured loan facilities in the aggregate principal amount of $2,500.0, comprised of a revolving credit facility of $1,500.0 and a term loan in the original principal amount of $1,000.0 (the “Sixth A&R Credit Facilities”). The Sixth A&R Credit Agreement will terminate on April 8, 2027. The Sixth A&R Credit Facilities are available for the issuance of letters of credit up to $100.0. The terms of the Sixth A&R Credit Agreement include customary representations and warranties, affirmative and negative covenants, financial covenants, and events of default. Under the terms of the Sixth A&R Credit Agreement, loans bear interest, at the Company’s election, at a rate per annum equal to either (i) the Alternate Base Rate plus the Applicable Spread (each, as defined in the Sixth A&R Credit Agreement) or (ii) the Adjusted Term SOFR Rate for the Interest Period in effect for such borrowing plus the Applicable Spread (all as defined in the Sixth A&R Credit Agreement). Swingline Loans bear interest at the applicable Swingline Rate set forth in the Sixth A&R Credit Agreement. Interest rates for other select non-U.S. dollar borrowings, including borrowings denominated in euro, Pounds Sterling and Canadian dollars, are based on separate interest rate indices, as set forth in the Sixth A&R Credit Agreement. On June 8, 2022, the Company entered into Amendment No. 1 to the Sixth A&R Credit Agreement (“Amendment No. 1”). Amendment No. 1 increased the maximum permitted leverage ratio for the quarterly leverage covenant until April 1, 2024. Amendment No. 1 also increased the interest rate applicable to borrowings under the revolving credit facility by 35 bps and the term loan facility by 50 bps, and increased the annual facility fee rate on the revolving credit facility by 15 bps, in each case, when the Company’s quarterly-tested leverage ratio exceeded 4.75. On July 31, 2023, the Company entered into Amendment No. 2 to the Sixth A&R Credit Agreement (“Amendment No. 2”). Amendment No. 2 (i) reduces the revolving loan commitments by $250.0; (ii) increases the maximum permitted leverage ratio for the quarterly leverage covenant until the earlier of (a) October 1, 2025 and (b) subject to certain conditions specified in Amendment No. 2, the termination by the Company of such adjustment (such period, the “Leverage Adjustment Period”); (iii) replaces the interest coverage covenant with a fixed charge coverage covenant; (iv) increases the interest rate applicable to borrowings under the revolving credit facility and the term loan facility by 25 bps for each existing pricing tier and adds a pricing tier applicable to periods when the leverage ratio exceeds 6.00; (v) limits the amount of certain incremental investments, loans and advances to $25.0 during the Leverage Adjustment Period; and (vi) adds the Company’s intellectual property (subject to certain exceptions) as collateral to secure its obligations under the Sixth A&R Credit Agreement. Additionally, Amendment No. 2 limits the Company’s ability to declare or pay any discretionary dividends, distributions or other restricted payments during the Leverage Adjustment Period to only the payment of (i) regularly scheduled cash dividends to holders of its Common Shares in an aggregate amount not to exceed $225.0 per fiscal year and (ii) other dividends, distributions or other restricted payments in an aggregate amount not to exceed $25.0. Amendment No. 2 also subjects the Company’s ability to make certain investments to pro forma compliance with certain leverage levels specified in Amendment No. 2. Pursuant to Amendment No. 2, the Sixth A&R Credit Agreement is secured by (i) a perfected first priority security interest in all of the accounts receivable, inventory, equipment and intellectual property (subject to certain exceptions) of Scotts Miracle-Gro and certain of its domestic subsidiaries and (ii) the pledge of all of the capital stock of certain of Scotts Miracle-Gro’s domestic subsidiaries and a portion of the capital stock of certain of its foreign subsidiaries. At June 29, 2024, the Company had letters of credit outstanding in the aggregate principal amount of $78.0, and had $1,172.0 of borrowing availability under the Sixth A&R Credit Agreement. The weighted average interest rates on average borrowings under the credit facilities, excluding the impact of interest rate swaps, were 9.0% and 7.3% for the nine months ended June 29, 2024 and July 1, 2023, respectively. On August 6, 2024, the Company used available cash on hand to make a repayment on the term loan of the Sixth A&R Credit Agreement in the amount of $200.0, which was applied to the outstanding principal amount. The Sixth A&R Credit Agreement contains, among other obligations, an affirmative covenant regarding the Company’s leverage ratio determined as of the end of each of its fiscal quarters, calculated as average total indebtedness, divided by the Company’s earnings before interest, taxes, depreciation and amortization, as adjusted pursuant to the terms of Amendment No. 2 (“Adjusted EBITDA”). Pursuant to Amendment No. 2, the maximum permitted leverage ratio is (i) 6.50 for the third quarter of fiscal 2024, (ii) 6.00 for the fourth quarter of fiscal 2024, (iii) 5.50 for the first quarter of fiscal 2025, (iv) 5.25 for the second quarter of fiscal 2025, (v) 5.00 for the third quarter of fiscal 2025, (vi) 4.75 for the fourth quarter of fiscal 2025 and (vii) 4.50 for the first quarter of fiscal 2026 and thereafter. The Company’s leverage ratio was 5.46 at June 29, 2024. Pursuant to Amendment No. 2, the Sixth A&R Credit Agreement also contains an affirmative covenant regarding the Company’s fixed charge coverage ratio determined as of the end of each of its fiscal quarters, calculated as Adjusted EBITDA minus capital expenditures and expense for taxes paid in cash, divided by the sum of interest expense plus restricted payments, as described in Amendment No. 2. The minimum required fixed charge coverage ratio is (i) 0.75 for the third quarter of fiscal 2024 and (ii) 1.00 for the fourth quarter of fiscal 2024 and thereafter. The Company’s fixed charge coverage ratio was 1.15 for the twelve months ended June 29, 2024. As of June 29, 2024, the Company was in compliance with all applicable covenants in the agreements governing its debt. Based on the Company’s projections of its financial performance for the twelve-month period subsequent to the date of the filing of this Form 10-Q, the Company expects to remain in compliance with the financial covenants under the Sixth A&R Credit Agreement. However, the Company’s assessment of its ability to meet its future obligations is inherently subjective, judgment-based, and susceptible to change based on future events. A covenant violation may result in an event of default. Such a default would allow the lenders under the Sixth A&R Credit Agreement to accelerate the maturity of the indebtedness thereunder and would also implicate cross-default provisions under the Senior Notes, as defined below, and cause the Senior Notes to become due and payable at that time. As of June 29, 2024, the Company’s indebtedness under the Sixth A&R Credit Agreement and Senior Notes was $2,487.5. The Company does not have sufficient cash on hand or available liquidity that can be utilized to repay these outstanding amounts in the event of default. As part of its contingency planning to address potential future circumstances that could result in noncompliance, the Company has contemplated alternative plans including additional restructuring activities to reduce operating expenses and certain cash management strategies that are within the Company’s control. Additionally, the Company has contemplated alternative plans that are subject to market conditions and not in the Company’s control, including, among others, discussions with its lenders to amend the terms of its financial covenants under the Sixth A&R Credit Agreement and generating cash by completing other financing transactions, which may include issuing equity. There is no assurance that the Company will be successful in implementing these alternative plans. Senior Notes On December 15, 2016, Scotts Miracle-Gro issued $250.0 aggregate principal amount of 5.250% Senior Notes due 2026 (the “5.250% Senior Notes”). The 5.250% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 5.250% Senior Notes have interest payment dates of June 15 and December 15 of each year. On October 22, 2019, Scotts Miracle-Gro issued $450.0 aggregate principal amount of 4.500% Senior Notes due 2029 (the “4.500% Senior Notes”). The 4.500% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 4.500% Senior Notes have interest payment dates of April 15 and October 15 of each year. On March 17, 2021, Scotts Miracle-Gro issued $500.0 aggregate principal amount of 4.000% Senior Notes due 2031 (the “4.000% Senior Notes”). The 4.000% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 4.000% Senior Notes have interest payment dates of April 1 and October 1 of each year. On August 13, 2021, Scotts Miracle-Gro issued $400.0 aggregate principal amount of 4.375% Senior Notes due 2032 (the “4.375% Senior Notes”). The 4.375% Senior Notes represent general unsecured senior obligations and rank equal in right of payment with the Company’s existing and future unsecured senior debt. The 4.375% Senior Notes have interest payment dates of February 1 and August 1 of each year. Substantially all of Scotts Miracle-Gro’s directly and indirectly owned domestic subsidiaries serve as guarantors of the 5.250% Senior Notes, the 4.500% Senior Notes, the 4.000% Senior Notes and the 4.375% Senior Notes. The Senior Notes contain an affirmative covenant regarding the Company’s interest coverage ratio determined as of the end of each of its fiscal quarters, calculated as Adjusted EBITDA divided by interest expense excluding costs related to refinancings. The minimum required interest coverage ratio is 2.00. The Company’s interest coverage ratio was 3.15 for the twelve months ended June 29, 2024. Receivables Facility On April 7, 2017, the Company entered into a Master Repurchase Agreement (including the annexes thereto, the “Repurchase Agreement”) and a Master Framework Agreement, as amended (the “Framework Agreement” and, together with the Repurchase Agreement, the “Receivables Facility”), under which the Company could sell a portfolio of available and eligible outstanding customer accounts receivable to the purchasers subject to agreeing to repurchase the receivables on a weekly basis. The eligible accounts receivable consisted of accounts receivable generated by sales to three specified customers. The eligible amount of customer accounts receivables which could be sold under the Receivables Facility was $400.0 and the commitment amount during the seasonal commitment period that began on February 24, 2023 and ended on June 16, 2023 was $160.0. The Receivables Facility expired on August 18, 2023. The sale of receivables under the Receivables Facility was accounted for as short-term debt and the Company continued to carry the receivables on its Condensed Consolidated Balance Sheets, primarily as a result of its requirement to repurchase receivables sold. As of July 1, 2023, there were $398.0 in borrowings on receivables pledged as collateral under the Receivables Facility, and the carrying value of the receivables pledged as collateral was $442.2. Interest Rate Swap Agreements The Company enters into interest rate swap agreements with major financial institutions that effectively convert a portion of the Company’s variable-rate debt to a fixed rate. Interest payments made between the effective date and expiration date are hedged by the swap agreements. Swap agreements that were hedging interest payments as of June 29, 2024, July 1, 2023 and September 30, 2023 had a maximum total U.S. dollar equivalent notional amount of $500.0, $600.0 and $600.0, respectively. The notional amount, effective date, expiration date and rate of each of the swap agreements outstanding at June 29, 2024 are shown in the table below:
Notional Amount ($) |  | Effective Date (a) |  | Expiration Date |  | Fixed Rate
200 |  |  | 6/7/2023 |  | 6/8/2026 |  | 0.80 | %
150 |  |  | 6/7/2023 |  | 4/7/2027 |  | 3.37 | %
50 |  |  | 6/7/2023 |  | 4/7/2027 |  | 3.34 | %
100 |  | (b) | 11/20/2023 |  | 3/22/2027 |  | 4.74 | %
150 |  | (b) | 9/20/2024 |  | 9/20/2029 |  | 4.25 | %
(a)The effective date refers to the date on which interest payments are first hedged by the applicable swap agreement. (b)Notional amount adjusts in accordance with a specified seasonal schedule. This represents the maximum notional amount at any point in time. Weighted Average Interest Rate The weighted average interest rates on the Company’s debt, including the impact of interest rate swaps, were 5.9% and 5.3% for the nine months ended June 29, 2024 and July 1, 2023, respectively.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 470 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147481544/470-10-50-6 Reference 2: 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