Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.20.2
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3 Months Ended
May 02, 2020
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6. Debt

In 2014, our subsidiary The Men's Wearhouse, Inc. (“Men’s Wearhouse”) entered into a term loan credit agreement that provided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Original Term Loan”) and a $500.0 million asset-based revolving credit facility (the “Original ABL Facility”) with certain of our other U.S. subsidiaries and Moores the Suit People Corp. (“Moores the Suit People” or “Moores”), one of our Canadian subsidiaries, as co-borrowers. In addition, in 2014, Men's Wearhouse issued $600.0 million in aggregate principal amount of Senior Notes.

In October 2017, Men’s Wearhouse amended the Original ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. In April 2018, Men’s Wearhouse refinanced the Original Term Loan, and in October 2018, amended its term loan (the term loan, as so refinanced and amended, the “Term Loan” and, together with the ABL Facility, the “Credit Facilities”) to reduce the interest rate margin. 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.  Should our total leverage ratio and secured leverage ratio

exceed certain thresholds specified in the agreements, we would be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of May 2, 2020, our total leverage and secured leverage ratios are above the maximum thresholds specified therefor in the agreement governing the Term Loan.  As a result, we are subject to additional restrictions, primarily related to the size of any incremental term loan facilities being limited to a maximum of $250.0 million.  

In addition, our ABL Facility contains certain covenants and restrictions, including instances where lenders could assume control of our cash (commonly referred to as cash dominion) and the imposition of a financial maintenance covenant, which would become effective if availability falls below various thresholds.  The requirement for cash dominion is triggered when Availability (as defined in the ABL Facility) is less than the greater of (1) 12.5% of the Line Cap (as defined in the ABL Facility), which as of May 2, 2020 was $62.1 million, or (2) $60.5 million.  The requirement to comply with the financial maintenance covenant (a fixed charge coverage ratio) is triggered when Availability is less than the greater of (1) 10% of the Line Cap, which as of May 2, 2020 was $49.7 million, or (2) $44.0 million.  

On March 16, 2020, in an abundance of caution and as a proactive measure, due to uncertainty regarding the potential impact of COVID-19 and our liquidity projections, we borrowed $260.0 million under our ABL Facility. Furthermore, after assessing the remaining Availability under the ABL Facility and determining that additional borrowings were prudent to maximize cash on hand, on each of March 19, 2020 and March 31, 2020, respectively, we borrowed an additional $25.0 million under the ABL Facility.

As of May 2, 2020, $385.0 million in borrowings were outstanding under the ABL Facility (which was also the maximum borrowing outstanding during the first quarter of 2020) with a weighted average interest rate of approximately 1.9%. In addition, at May 2, 2020, letters of credit totaling approximately $22.9 million were issued and outstanding primarily as collateral for workers’ compensation claims. Availability under the ABL Facility as of May 2, 2020 was $88.8 million, which exceeds the cash dominion and fixed charge coverage ratio minimum thresholds (such that cash dominion and fixed charge coverage testing did not apply).  Availability under the ABL Facility may decrease in the event the agent under our ABL Facility imposes reserves against borrowing base.  See Note 19 for additional information about the imposition of a reserve after May 2, 2020.

Credit Facilities

In April 2018, we refinanced the Original Term Loan, resulting in our Term Loan facility totaling $900.0 million.  Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0.  As noted above, we are currently limited to a maximum of $250.0 million for such incremental borrowings.

The Term Loan amortizes in an annual amount equal to 1.0% of the principal amount of the Term Loan, payable quarterly (which commenced on May 1, 2018).  The Term Loan matures on April 9, 2025, subject to a maturity provision that would accelerate the maturity of the Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.

The Term Loan bears interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%).  In October 2018, we amended the Term Loan resulting in a reduction in the interest rate margin of 25 basis points.  As a result of the amendment, the margins for borrowings under the Term Loan are 3.25% for LIBOR and 2.25% for the base rate.  In connection with the October 2018 amendment of the Term Loan, we incurred deferred financing costs of $1.1 million, which will be amortized over the life of the Term Loan using the interest method.  The maturity date for the Term Loan remains April 9, 2025, and all other material provisions of the Term Loan remain unchanged.

The interest rate on the Term Loan is based on 1-month LIBOR, which was 0.30% at May 2, 2020. However, the Term Loan interest rate is subject to a LIBOR floor of 1%, plus the applicable margin of 3.25%, results in a total interest rate of

4.25%.  We have two interest rate swap agreements where the variable rates due under the Term Loan have been exchanged for a fixed rate. At May 2, 2020, the total notional amount under these interest rate swaps is $705.0 million.  Please see Note 17 for additional information on our interest rate swaps.

As a result of our interest rate swaps, 80% of the variable interest rate under the Term Loan has been converted to a fixed rate and, as of May 2, 2020, the Term Loan had a weighted average interest rate of 5.62%.

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, which 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%.  

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, Men’s Wearhouse and its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People. 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.  

Senior Notes

The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and each of our U.S. subsidiaries (collectively, the “Guarantors”). The Senior Notes and the related guarantees are senior unsecured obligations of Men’s Wearhouse, as issuer, and the Guarantors, respectively, and will rank equally with all of 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.  See Note 19 for additional information related to the payment of interest on the Senior Notes.

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 (the “Indenture”).  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

As discussed in Note 1, there is substantial doubt about our ability to continue as a going concern within one year after these condensed consolidated financial statements are issued.   As we have determined it is not probable that we will make the interest payment on our Senior Notes described in Note 1, all debt has been reclassified to current on the condensed consolidated balance sheets as of May 2, 2020.  The following table provides details on our long-term debt as of May 2, 2020, May 4, 2019 and February 1, 2020 (in thousands):

May 2,

May 4,

February 1,

    

2020

    

2019

    

2020

 

Term Loan

$

877,130

$

886,130

$

881,630

Senior Notes

 

173,816

 

228,607

 

173,816

ABL Facility

 

385,000

 

48,500

 

50,000

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

 

(1,882)

 

(3,041)

 

(2,048)

Total long-term debt, net

 

1,434,064

 

1,160,196

 

1,103,398

Current portion of long-term debt

 

(1,434,064)

 

(9,000)

 

(9,000)

Total long-term debt, net of current portion

$

$

1,151,196

$

1,094,398