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Debt
 3 Months Ended
Apr. 28, 2023
Debt Disclosure [Abstract]  
Debt

NOTE 5. DEBT

 

ABL Facility

 

The Company’s $275.0 million committed revolving ABL Facility includes a $70.0 million sublimit for letters of credit and is available for working capital and other general corporate liquidity needs. The amount available to borrow is the lesser of (1) the Aggregate Commitments of $275.0 million (“ABL Facility Limit”) or (2) the Borrowing Base (“Borrowing Base”) which is calculated from Eligible Inventory, Trade Receivables and Credit Card Receivables, all capitalized terms not defined herein are as defined in the ABL Facility.

 

The following table summarizes the Company’s ABL Facility borrowing availability:

 

 

 

April 28, 2023

 

April 29, 2022

 

January 27, 2023

(in thousands)

 

Amount

 

 

Interest Rate

 

Amount

 

 

Interest Rate

 

Amount

 

 

Interest Rate

ABL Facility Limit

 

$

275,000

 

 

 

 

$

275,000

 

 

 

 

$

275,000

 

 

 

Borrowing Base

 

 

245,179

 

 

 

 

 

238,134

 

 

 

 

 

274,354

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding borrowings

 

 

100,000

 

 

6.89%

 

 

125,000

 

 

1.84%

 

 

100,000

 

 

6.27%

Outstanding letters of credit

 

 

9,095

 

 

 

 

 

14,619

 

 

 

 

 

10,557

 

 

 

ABL Facility utilization at end of period

 

 

109,095

 

 

 

 

 

139,619

 

 

 

 

 

110,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABL Facility borrowing availability

 

$

136,084

 

 

 

 

$

98,515

 

 

 

 

$

163,797

 

 

 

 

Long-Term Debt

On September 9, 2020, the Company entered into the Term Loan Facility which provided borrowings of $275.0 million. Origination costs, including an Original Issue Discount (“OID”) of 3% and $5.1 million in debt origination fees, were paid in connection with entering into the Term Loan Facility. The OID and the debt origination fees are presented as a direct deduction from the carrying value of the Term Loan Facility and are amortized over the term of the loan to Interest expense in the Condensed Consolidated Statements of Operations.

 

The Company’s long-term debt consisted of the following:

 

 

 

April 28, 2023

 

April 29, 2022

 

January 27, 2023

(in thousands)

 

Amount

 

 

Interest Rate

 

Amount

 

 

Interest Rate

 

Amount

 

 

Interest Rate

Term Loan Facility

 

$

240,625

 

 

14.77%

 

$

254,375

 

 

10.76%

 

$

244,063

 

 

14.13%

Less: Current portion of long-term debt

 

 

13,750

 

 

 

 

 

13,750

 

 

 

 

 

13,750

 

 

 

Less: Unamortized debt issuance costs

 

 

6,089

 

 

 

 

 

8,922

 

 

 

 

 

6,807

 

 

 

Long-term debt, net

 

$

220,786

 

 

 

 

$

231,703

 

 

 

 

$

223,506

 

 

 

 

Interest; Fees

 

Effective May 12, 2023, the Company executed the Fourth Amendment to the ABL Facility to transition a benchmark reference rate from LIBOR to SOFR plus an adjustment of 0.10% for all loans (“ABL Adjusted SOFR”). This transition resulted in no material interest rate impact and maintains a 0% benchmark rate floor. The ABL Adjusted SOFR rate is now available for all new loans after the effective date of the Fourth Amendment.

 

The new applicable margin interest rates applicable to the referenced rate, selected at the borrower’s election, are either (1) ABL Adjusted SOFR, subject to 0% floor, or (2) a base rate which is the greater of (a) the federal funds rate plus 0.50%, (b) the one-month ABL Adjusted SOFR rate plus 1.00%, or (c) the Wells Fargo “prime rate”. For all loans, the borrowing margin is based upon the average daily total loans outstanding for the previous quarter. The applicable borrowing margin for ABL Adjusted SOFR loans is (i) less than $95.0 million, 1.25%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 1.50%, and (iii) greater than or equal to $180.0 million, 1.75%. For base rate loans, the applicable borrowing margin is (i) less than $95.0 million, 0.50%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 0.75%, and (iii) greater than or equal to $180.0 million, 1.00%.

 

Prior to the Fourth Amendment, the applicable margin interest rates applicable to the referenced rate, selected at the borrower’s election, were either (1) adjusted LIBOR, subject to a 0% floor, or (2) a base rate which is the greater of (a) the federal funds rate plus 0.50%, (b) the one-month LIBOR rate plus 1.00%, or (c) the Wells Fargo “prime rate”. For all loans, the borrowing margin was based upon the average daily total loans outstanding for the previous quarter. The applicable borrowing margin for LIBOR loans was (i) less than $95.0 million, 1.25%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 1.50%, and (iii) greater than or equal to $180.0 million, 1.75%. For base rate loans, the applicable borrowing margin was (i) less than $95.0 million, 0.50%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 0.75%, and (iii) greater than or equal to $180.0 million, 1.00%.

 

The interest rates per annum applicable to the loans under the Term Loan Facility are based on a fluctuating rate of interest measured by reference to, at the borrower’s election, either (1) an adjusted LIBOR rate (with a minimum rate of 1.00%) plus 9.75% or (2) an alternative base rate (which is the greater of (i) the prime rate published in the Wall Street Journal, (ii) the federal funds rate, which shall be no lower than 0.00% plus ½ of 1.00%, or (iii) the one month LIBOR rate plus 1.00% per annum) plus 8.75%. The Company expects to amend the Term Loan Facility to transition from LIBOR to SOFR on or before June 30, 2023.

 

The ABL Facility fees include (i) commitment fees of 0.25% based upon the average daily unused commitment (aggregate commitment less loans and letter of credit outstanding) under the ABL Facility for the preceding fiscal quarter and (ii) customary letter of credit fees. As of April 28, 2023, the Company had borrowings of $100.0 million under the ABL Facility.

 

Customary agency fees are payable in respect of the Debt Facilities.

 

Maturity; Amortization and Prepayments

The ABL Facility maturity date is the earlier of (a) July 29, 2026 and (b) June 9, 2025 if, on or prior to such date, the Term Loan Facility has not been refinanced, extended or repaid in full in accordance with the terms thereof and not replaced with other indebtedness.

 

The Term Loan Facility matures on September 9, 2025 and amortizes at a rate equal to 1.25% per quarter. It is subject to mandatory prepayments in an amount equal to a percentage of the borrower’s excess cash flows in each fiscal year, ranging from 0% to 75% depending on the Company’s total leverage ratio, and with the proceeds of certain asset sales, casualty events and extraordinary receipts. The loan could not be voluntarily prepaid during the first two years of its term without significant penalties. A prepayment premium of 3% applies to voluntary prepayments and certain mandatory prepayments made after September 9, 2022 and on or prior to

September 9, 2023, 1% for such prepayments made after September 9, 2023 and on or prior to September 9, 2024 and no premium on such prepayments thereafter.

 

Guarantees; Security

 

All obligations under the Debt Facilities are unconditionally guaranteed by Lands’ End, Inc. and, subject to certain exceptions, each of its existing and future direct and indirect subsidiaries. The ABL Facility is secured by a first priority security interest in certain working capital of the borrowers and guarantors consisting primarily of accounts receivable and inventory. The Term Loan Facility is secured by a second priority security interest in the same collateral, with certain exceptions.

 

The Term Loan Facility is secured by a first priority security interest in certain property and assets of the borrowers and guarantors, including certain fixed assets such as real estate, stock of the subsidiaries and intellectual property, in each case, subject to certain exceptions. The ABL Facility is secured by a second priority interest in the same collateral, with certain exceptions.

 

Representations and Warranties; Covenants

 

Subject to specified exceptions, the Debt Facilities contain various representations and warranties and restrictive covenants that, among other things, restrict Lands’ End, Inc.’s and its subsidiaries’ ability to incur indebtedness (including guarantees), grant liens, make investments, make dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers or change the nature of their business.

 

The Term Loan Facility contains certain financial covenants, including a quarterly maximum total leverage ratio test, a weekly minimum liquidity test and an annual maximum capital expenditure amount.

 

Under the ABL Facility, if excess availability falls below the greater of 10% of the Loan Cap amount or $15.0 million, the Company will be required to comply with a minimum fixed charge coverage ratio of 1.0 to 1.0.

 

The Debt Facilities contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.

As of April 28, 2023, the Company was in compliance with its financial covenants in the Debt Facilities.

Events of Default

 

The Debt Facilities include customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross defaults related to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control.