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Debt | 12 Months Ended
--- | ---
Jul. 28, 2012
Debt | 14. Debt
Debt consists of the following: |  | July 28, 2012 |  |  | July 30, 2011 |
|  | (millions) |
Term loan (a) |  | $ | 297.2 |  |  | $ | — |
Revolving credit agreement |  |  | 20.0 |  |  |  | — |
Charming Shoppes convertible notes |  |  | 1.2 |  |  |  | — |
Mortgage notes |  |  | 8.2 |  |  |  | — |
|  |  | 326.6 |  |  |  | — |
Less: current portion |  |  | (4.2 | ) |  |  | — |
Total long-term debt |  | $ | 322.4 |  |  | $ | — |
(a) The Term Loan is presented net of a $2.8 million original issue discount as of July 28, 2012. The Charming Shoppes Acquisition was partially funded with $325 million from new borrowings, including (a) $300 million of borrowings under a six-year term loan (the “Term Loan”), as described more fully below, and (b) $25 million of borrowings under our existing revolving credit agreement, which was amended in connection with the transaction. In addition, the Company assumed approximately $149 million principal amount of indebtedness of Charming Shoppes, consisting of approximately $141 million of convertible notes and approximately $8 million of mortgages on certain owned real estate. As described further below, substantially all of the assumed obligations for the convertible notes were redeemed in July 2012. Term Loan The $300 million Term Loan matures on June 14, 2018, and has mandatory quarterly repayments of 0.25%, or approximately $0.75 million, with a remaining balloon payment required at maturity. The Term Loan has been recorded net of an original issue discount of $3 million, which is being amortized to interest expense over the contractual life of the Term Loan. The Company has the right to prepay the Term Loan in any amount and at any time. Interest rates under the Term Loan are variable and are calculated using a base rate equal to the greater of (i) prime rate, (ii) federal funds rate, or (iii) LIBO rate (subject to a 1% floor); plus an applicable margin ranging from 225 basis points to 375 basis points based on a combination of the type of borrowing (prime or LIBOR) and the Company’s total leverage ratio existing at the end of the previous fiscal quarter. Revolving Credit Agreement In June 2012, in connection with the Charming Shoppes Acquisition, the Company amended its existing revolving credit facility (the (“Revolving Credit Agreement”) with the lenders thereunder and JPMorgan Chase Bank, N.A., as administrative agent. The principal changes in terms related to expanding borrowing availability from $200 million to $250 million and an extension of the maturity date of the borrowing arrangement from January 2016 to June 2017. The Revolving Credit Agreement now provides a senior secured revolving credit facility for up to $250 million of availability, with an optional additional increase of up to $50 million. The Revolving Credit Agreement expires in June 2017. There are no mandatory reductions in borrowing availability throughout the term of the Revolving Credit Agreement. The Revolving Credit Agreement may be used for the issuance of letters of credit, to finance the acquisition of working capital assets in the ordinary course of business and capital expenditures, and for general corporate purposes. The Revolving Credit Agreement includes a $175 million letter of credit sublimit, of which $40 million can be used for standby letters of credit, and a $25 million swing loan sublimit. Borrowings under the Revolving Credit Agreement bear interest at a variable rate determined using a base rate equal to the greater of (i) prime rate, (ii) federal funds rate, or (iii) LIBO rate; plus an applicable margin ranging from 50 basis points to 200 basis points based a combination of the type of borrowing (prime or LIBOR) and the Company’s average borrowing availability during the previous fiscal quarter. In addition to paying interest on any outstanding borrowings under the Revolving Credit Agreement, the Company is required to pay a commitment fee to the lenders under the Revolving Credit Agreement in respect of the unutilized commitments in the amount of 37.5 basis points per annum. As of July 28, 2012, after taking in account the $22.2 million in outstanding letters of credit and the use of $20.0 million in availability from the Revolving Credit Agreement, the Company had $207.8 million available under the Revolving Credit Agreement. In connection with the Term Loan and the amendment of the Revolving Credit Agreement, the Company paid $7.4 million of financing fees. The Company has deferred these fees and is amortizing them to interest expense over the contractual life of the borrowing arrangements. Restrictions under the Term Loan and Revolving Credit Agreement The Term Loan and Revolving Credit Agreement are subject to similar restrictions, as summarized below. The Term Loan has financial covenants with respect to a senior secured leverage ratio, which is defined as a ratio of senior secured indebtedness to consolidated EBITDA. For such purposes, consolidated EBITDA is defined generally as net income plus (i) income tax expense, (ii) interest expense, (iii) depreciation and amortization expense, (iv) non-recurring, acquisition-related expenses, and (v) restructuring charges not exceeding predetermined limits. Consolidated fixed charges are defined generally as the sum of (a) cash interest expense, (b) rent expense, (c) cash tax expense, (d) mandatory principal repayment, (e) capital lease payments, (f) mandatory cash contributions to any employee benefit plan and (g) any restricted payments paid in cash. The Company is required to maintain a maximum senior secured leverage ratio for any period of four consecutive quarters of no greater than 1.75 to 1.00. As of July 28, 2012, the actual senior secured leverage ratio was 0.61 to 1.00. The Company was in compliance with all financial covenants contained in the Term Loan as of July 28, 2012. The Revolving Credit Agreement has financial covenants with respect to a fixed charge coverage ratio, which is defined as a ratio of consolidated EBITDAR, less capital expenditures to consolidated fixed charges. For such purposes, consolidated EBITDAR is defined generally as net income plus (i) income tax expense, (ii) interest expense, (iii) depreciation and amortization expense, (iv) rent expense, (v) non-recurring acquisition-related expenses, and (vi) restructuring charges not exceeding predetermined limits. Consolidated fixed charges are defined generally as the sum of (a) cash interest expense, (b) rent expense, (c) cash tax expense, (d) mandatory principal repayment, (e) capital lease payments, (f) mandatory cash contributions to any employee benefit plan and (g) any restricted payments paid in cash. The Company is required to maintain a minimum fixed charge coverage ratio for any period of four consecutive fiscal quarters of at least 1.00 to 1.00. As of July 28, 2012, the actual fixed charge coverage ratio was 1.43 to 1.00. The Company was in compliance with all financial covenants contained in the Revolving Credit Agreement as of July 28, 2012. In addition to the above, the borrowing agreements contain customary negative covenants, subject to negotiated exceptions, on (i) liens and guarantees, (ii) investments, (iii) indebtedness, (iv) significant corporate changes including mergers and acquisitions, (v) dispositions, (vi) restricted payments, cash dividends and certain other restrictive agreements. The borrowing agreements also contain customary events of default, such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control, or the failure to observe the negative covenants and other covenants related to the operation of the Company’s business. The Company’s obligations under the borrowing agreements are guaranteed by certain of its domestic subsidiaries (the “Subsidiary Guarantors”). As collateral security under the borrowing agreements and the guarantees thereof, the Company and the Subsidiary Guarantors have granted to the administrative agent for the benefit of the lenders, a first priority lien on substantially all of their tangible and intangible assets, including, without limitation, certain domestic inventory and certain material real estate. Charming Shoppes Convertible Notes In connection with the Charming Shoppes Acquisition, the Company assumed $140.5 million aggregate principal amount of Charming Shoppes’s 1.125% Senior Convertible Notes Due 2014 (the “Charming Convertible Notes”). In conjunction with the change-in-control of Charming Shoppes, pursuant to the terms of the indenture governing the Charming Convertible Notes, each security holder had the right to require Charming Shoppes to repurchase all of its outstanding notes for the principal amount of the notes, plus accrued and unpaid interest to the repurchase date of July 27, 2012 (the “Convertible Notes Redemption”). 99.2% of the Charming Convertible Notes were redeemed and total disbursements were $140.4 million, consisting of $139.2 million of principal and $1.2 million of interest thereon. The Convertible Notes Redemption was funded through available cash on hand. $1.2 million aggregate principal amount of Charming Convertible Notes remain outstanding after the Convertible Notes Redemption, and such notes are no longer convertible into Charming Shoppes’s common stock. No gain or loss was recognized in connection with the Convertible Notes Redemption. In connection with the Charming Shoppes Acquisition, the Company also settled related common stock warrants, which were historically entered into by Charming Shoppes as a hedge against the potential dilution related to the Charming Convertible Notes, for an aggregate cost of $5.3 million. The settlement of the warrants was funded through available cash on hand. No gain or loss was recognized in connection with the settlement of the common stock warrants. Mortgage Notes Greencastle Mortgage In connection with the Charming Shoppes Acquisition, the Company assumed a $7.8 million mortgage obligation (the “Greencastle Mortgage”) on Charming Shoppes’s owned distribution center in Greencastle, Indiana. The Greencastle Mortgage bears interest at a fixed rate of 6.07%. The Greencastle Mortgage has mandatory monthly payments of $110,000 with a remaining balloon payment of $1.4 million required at maturity in October 2019. The Greencastle Mortgage may be prepaid generally upon the payment of a make-whole premium to holders of the mortgage note. Suffern Mortgage In connection with the 2003 purchase of the Company’s Suffern, New York facility, a subsidiary of the company borrowed $34.0 million under a 5.33% rate mortgage loan. This mortgage loan (the “Suffern Mortgage”) was collateralized by a mortgage lien on such facility, of which the major portion is the Company’s corporate offices and the dressbarn brand’s offices. In July 2011, the Company prepaid the outstanding principal balance of the Suffern Mortgage in full. The payment of approximately $28 million resulted in a $4.0 million pretax loss on the extinguishment of debt in Fiscal 2011, which has been disclosed separately on the face of the accompanying consolidated statements of operations. Fiscal 2010 Redemption of Convertible Senior Notes During the second quarter of Fiscal 2010, the Company conducted a tender offer (the “Offer”) for all of its outstanding Convertible Senior Notes due December 2024 (the “Convertible Notes”). All of the then outstanding Convertible Notes, with an aggregate balance of $112.5 million, were validly tendered for exchange and not withdrawn as of January 23, 2010, the expiration date of the Offer. The fair value of the Convertible Notes tendered equaled $101.9 million upon the Offer. Total consideration for the Offer was $273.4 million and consisted of: $112.5 million of cash for the face amount of the Convertible Notes; cash of $4.5 million as inducement to exchange ($40 per $1,000 principal amount of the Convertible Notes); and the issuance of approximately 12.5 million shares of our common stock valued at $156.4 million. Each $1,000 Convertible Note holder was entitled to receive: $1,000 principal amount of the Convertible Note; a $40 inducement payment for conversion of the Convertible Note; accrued and unpaid interest of $2.92; and 55.3341 shares of the Company’s common stock with an aggregate fair value of $1,387.99 per Convertible Note. As a result of the extinguishment of debt, the Company reduced deferred tax liabilities by $14.6 million and reduced taxes payable by $0.2 million, with a corresponding increase to additional paid-in capital of $14.8 million. The Company also recognized a pretax loss of $5.8 million consisting of $4.5 million related to the inducement amount and $1.3 million which is equal to the difference between the net book value and the fair value of the Convertible Notes upon redemption. Additionally, in December 2009, in a private transaction, the Company accepted for exchange $2.5 million of the Convertible Notes for an aggregate cash amount of approximately $5.4 million. The loss associated with the December 2009 exchange was de minimus to our consolidated financial statements. As of July 30, 2011 and July 31, 2010, there were no Convertible Notes outstanding. Other Letters of Credit As of July 28, 2012, the Company had also issued $54.5 million of private label letters of credit relating to the importation of merchandise.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 + Details
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