Annual report pursuant to Section 13 and 15(d)

DEBT

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DEBT
12 Months Ended
Feb. 03, 2018
DEBT  
DEBT

6.    DEBT

In 2014, The Men’s Wearhouse 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 on the balance sheet as a reduction of the outstanding balance on the Term Loan and is amortized to interest expense over the contractual life of the Term Loan.  In addition, in 2014, The Men’s Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”).

In October 2017, we amended our then existing $500.0 million ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. See Credit Facilities section below for additional information.

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. In addition, we are currently restricted on our ability to pay dividends on our common stock in excess of $10.0 million per quarter.  Historically, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements. As a result, we were subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of February 3, 2018, our total leverage ratio and secured leverage ratio were below the maximums specified in the agreements and we believe these ratios will remain below the maximums specified in the agreements, which will result in the elimination of these additional restrictions.

Credit Facilities

The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature in 2021.  The interest rate on the Term Loan is based on 1-month LIBOR, which was 1.58% at February 3, 2018, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 5.08%. 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. In April 2017, we entered into an additional interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate. At February 3, 2018, the total notional amount under our interest rate swaps is $410.0 million. See Note 16 for additional information on our interest rate swaps. 

In 2015, The Men’s Wearhouse 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, 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 swaps and the Incremental Agreement, we have converted a significant portion of the variable interest rate under the Term Loan to a fixed rate and, as of February 3, 2018, the Term Loan had a weighted average interest rate of 5.22%.  

In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in October 2022, 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 New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest 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 1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%. As of February 3, 2018, there were no borrowings outstanding under the ABL Facility.  During fiscal 2017, the maximum borrowing outstanding under the ABL Facility was $34.7 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 as collateral for workers compensation claims and to secure inventory purchases.  At February 3, 2018, letters of credit totaling approximately $37.3 million were issued and outstanding.  Borrowings available under the ABL Facility as of February 3, 2018 were $505.5 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 Men’s Wearhouse and the guarantors, respectively, and will rank equally with all of The Men’s Wearhouse’s and each guarantor’s present and future senior indebtedness.  The Senior Notes will mature in July 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.  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.

Long-Term Debt

In May 2017, we made a mandatory excess cash flow prepayment of $4.6 million on the Term Loan.  In January 2018, we also made an optional prepayment of $40.0 million on the Term Loan. As a result of these prepayments, 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 2017, we repurchased and retired $153.8 million in face value 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 $6.3 million, which reflects an $8.4 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of $2.1 million.

As a result of the repurchase and retirement of $153.8 million in face value of Senior Notes and our Term Loan prepayments, we recorded a net gain on extinguishment totaling $5.4 million which reflects a $8.4 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of $3.0 million, which is included as a separate line in the consolidated statement of earnings (loss).

The following table provides details on our long-term debt as of February 3, 2018 and January 28, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

February 3,

 

January 28,

 

 

 

2018

    

2017

 

Term Loan (net of unamortized OID of $3.0 million at February 3, 2018 and $4.1 million at January 28, 2017)

 

$

990,465

 

$

1,042,660

 

Senior Notes

 

 

421,209

 

 

575,000

 

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

 

 

(14,866)

 

 

(22,131)

 

Total long-term debt, net

 

 

1,396,808

 

 

1,595,529

 

Current portion of long-term debt

 

 

(7,000)

 

 

(13,379)

 

Total long-term debt, net of current portion

 

$

1,389,808

 

$

1,582,150

 

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

    

 

 

 

2018

    

$

7,000

 

2019

 

 

5,250

 

2020

 

 

7,000

 

2021

 

 

974,170

 

2022

 

 

421,209

 

Thereafter

 

 

 —

 

Total long-term debt

 

 

1,414,629

 

Deferred financing costs and unamortized OID

 

 

(17,821)

 

Total long-term debt, net

 

$

1,396,808