Annual report pursuant to Section 13 and 15(d)

DEBT

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DEBT
12 Months Ended
Jan. 28, 2017
DEBT  
Debt

6.    DEBT

On June 18, 2014, The Men’s Wearhouse, Inc. entered into a term loan credit agreement that provides for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Term Loan”) and a $500.0 million asset-based revolving credit agreement (the “ABL Facility”, and together with the Term Loan, the “Credit Facilities”) with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers.  Proceeds from the Term Loan were reduced by an $11.0 million original issue discount (“OID”), which is presented as a reduction of the outstanding balance on the Term Loan on the balance sheet and is amortized to interest expense over the contractual life of the Term Loan.  In addition, on June 18, 2014, The Men’s Wearhouse, Inc. issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”).

The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios, as well as a restriction on our ability to pay dividends on our common stock in excess of $10.0 million per quarter.  Since entering into these financing arrangements and as of January 28, 2017, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements.  As a result, we are currently subject to certain additional restrictions, including limitations on our ability to make acquisitions and incur additional indebtedness.

We used the net proceeds from the Term Loan, the offering of the Senior Notes and the net proceeds from $340.0 million drawn on the ABL Facility to pay the approximately $1.8 billion purchase price for the acquisition of Jos. A. Bank and to repay all of our obligations under our Third Amended and Restated Credit Agreement, dated as of April 12, 2013 (as amended, the “Previous Credit Agreement”), including $95.0 million outstanding under the Previous Credit Agreement as well as settlement of the then existing interest rate swap. The loans under the ABL Facility were subsequently repaid in full promptly following the closing of the Jos. A. Bank acquisition using the cash acquired from Jos. A. Bank.

In addition, as a result of the termination of the Previous Credit Agreement, we recorded a loss on extinguishment of debt totaling $2.2 million in fiscal 2014 consisting of the elimination of unamortized deferred financing costs.

Credit Facilities

The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature on June 18, 2021.  The interest rate on the Term Loan is currently based on the 1-month LIBOR rate, which was approximately 0.78% at January 28, 2017.  However, the Term Loan interest rate is subject to a LIBOR floor of 1% per annum, plus the applicable margin which is 3.50%, resulting in a total interest rate of 4.50%. In January 2015, we entered into an interest rate swap agreement, in which the variable rate payments due under a portion of the Term Loan were exchanged for a fixed rate.  See Note 16 for additional information. 

In April 2015, The Men’s Wearhouse, Inc. entered into Incremental Facility Agreement No. 1 (the “Incremental Agreement”) resulting in a refinancing of $400.0 million aggregate principal amount of the Term Loan from a variable rate to a fixed rate of 5.0% per annum.  The Incremental Agreement did not impact the total amount borrowed under the Term Loan, the maturity date of the Term Loan of June 18, 2021, or collateral and guarantees under the Term Loan.  In connection with the Incremental Agreement, we incurred deferred financing costs of $3.6 million, which will be amortized over the life of the remaining term using the interest method.  In addition, as a result of entering into the Incremental Agreement, we recorded a loss on extinguishment of debt totaling $12.7 million consisting of the elimination of unamortized deferred financing costs and OID related to the Term Loan, which is included as a separate line in the consolidated statements of earnings (loss).

As a result of the interest rate swap and the Incremental Agreement, we have converted a majority of the variable interest rate under the Term Loan to a fixed rate and, as of January 28, 2017, the Term Loan had a weighted average interest rate of 4.90%.  

The ABL Facility provides for a senior secured revolving credit facility of $500.0 million, with possible future increases to $650.0 million under an expansion feature that matures on June 18, 2019, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices:  (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate (“CDOR”) rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the federal funds effective rate plus 0.5% or adjusted LIBOR for a one-month period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 2.00%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50% to 2.00%, and a fee on unused commitments which ranges from 0.25% to 0.375%. As of January 28, 2017, there were no borrowings outstanding under the ABL Facility.  During fiscal 2016, the maximum borrowing outstanding under the ABL Facility was $68.5 million.

The obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, certain of its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors. 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  At January 28, 2017, letters of credit totaling approximately $29.4 million were issued and outstanding.  Borrowings available under the ABL Facility as of January 28, 2017 were $414.8 million.

Senior Notes

The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and certain of our U.S. subsidiaries.  The Senior Notes and the related guarantees are senior unsecured obligations of the Company and the guarantors, respectively, and will rank equally with all of the Company’s and each guarantor’s present and future senior indebtedness.  The Senior Notes will mature on July 1, 2022.  Interest on the Senior Notes is payable on January 1 and July 1 of each year.

We may redeem some or all of the Senior Notes at any time on or after July 1, 2017 at the redemption prices set forth in the indenture governing the Senior Notes.  At any time prior to July 1, 2017, we will have the option to redeem some or all of the Senior Notes at a redemption price of 100% of the principal amount of the Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to the date of redemption.  We may also redeem up to a maximum of 35% of the original aggregate principal amount of the Senior Notes with the proceeds of certain equity offerings prior to July 1, 2017 at a redemption price of 107% of the principal amount of the Senior Notes plus accrued and unpaid interest, if any.  Upon the occurrence of certain specific changes of control, we may be required to offer to purchase the Senior Notes at 101% of their aggregate principal amount plus accrued and unpaid interest thereon to the date of purchase.

We had entered into a registration rights agreement regarding the Senior Notes pursuant to which we agreed, among other things, to use our commercially reasonable efforts to consummate an exchange offer of the Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended, on or before July 13, 2015.  On June 24, 2015, the exchange offer was completed.

Long-Term Debt

In accordance with the terms of the Credit Facilities, we have an obligation to make a mandatory excess cash flow prepayment offer of $4.6 million to the Term Loan lenders during fiscal 2017.  Our lenders have the option to decline their respective portions of the prepayment.  We have classified the entire amount of the expected prepayment within current portion of long-term debt on our consolidated balance sheet.

 

In May 2016, we made a mandatory excess cash flow prepayment of $35.5 million on the Term Loan.  As a result of this prepayment, we recorded a loss on extinguishment of debt totaling $0.9 million consisting of the elimination of unamortized deferred financing costs and OID related to the Term Loan. 

 

In addition, during fiscal 2016, we repurchased and retired $25.0 million of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility.  As a result, we recorded a net gain on extinguishment totaling $2.6 million, which reflects a $3.1 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs totaling $0.5 million related to the Senior Notes. 

 

As a result of our excess cash flow prepayment and the repurchase and retirement of $25.0 million of Senior Notes, we recorded a net gain on extinguishment totaling $1.7 million, which reflects a $3.1 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of $1.4 million, which is included as a separate line in the consolidated statements of earnings (loss).

 

The following table provides details on our long-term debt as of January 28, 2017 and January 30, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

January 28,

 

January 30,

 

 

 

2017

    

2016

 

Term Loan (net of unamortized OID of $4.1 million at January 28, 2017 and $5.4 million at January 30, 2016)

 

$

1,042,660

 

$

1,083,891

 

Senior Notes

 

 

575,000

 

 

600,000

 

Less: Deferred financing costs related to the Term Loan and Senior Notes

 

 

(22,131)

 

 

(27,967)

 

Total long-term debt, net

 

 

1,595,529

 

 

1,655,924

 

Current portion of long-term debt

 

 

(13,379)

 

 

(42,451)

 

Total long-term debt, net of current portion

 

$

1,582,150

 

$

1,613,473

 

 

The following table provides principal payments due on long-term debt in the next five fiscal years and the remaining years thereafter (in thousands):

 

 

 

 

 

Fiscal Year

    

 

 

 

2017

    

$

13,379

 

2018

 

 

7,000

 

2019

 

 

5,250

 

2020

 

 

7,000

 

2021

 

 

1,014,170

 

Thereafter

 

 

575,000

 

Total long-term debt

 

 

1,621,799

 

Deferred financing costs and unamortized OID

 

 

(26,270)

 

Total long-term debt, net

 

$

1,595,529