|3 Months Ended|
May 02, 2020
19. Subsequent Events
As discussed in Note 6, Availability under our ABL Facility as of May 2, 2020 was $88.8 million, which exceeded the minimum Availability thresholds that would have resulted in the application of cash dominion and fixed charge coverage ratio testing. On June 19, 2020, JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent under the ABL Facility, notified us of its intention to impose a total discretionary reserve of $44.6 million, with such reserve to be implemented evenly over the next two months. Effective as of May 30, 2020, $22.3 million of the total reserve was imposed against our borrowing base. On July 20, 2020, the Company and JPM agreed to reduce the total discretionary reserve from $44.6 million to $41.5 million and, as such, effective as of July 4, 2020, the remaining reserve of $19.2 million was imposed against our borrowing base. On July 24, 2020, the Company repaid $10.0 million of the borrowings outstanding under the ABL Facility, reducing outstanding borrowings under the ABL Facility to $375.0 million.
As of the date of this filing, even after the imposition of this reserve, our Availability under the ABL Facility exceeded both the cash dominion and fixed charge coverage ratio minimum thresholds (such that cash dominion and fixed charge coverage testing did not apply). However, the implementation of this reserve and reduction in our borrowing base has materially impacted our liquidity. We will continue to actively manage our liquidity and engage with our lenders and other stakeholders with respect to the same.
On July 1, 2020, Men’s Wearhouse elected not to make the interest payment due and payable on July 1, 2020 of approximately $6.1 million (the “Interest Payment”) with respect to its Senior Notes. Men’s Wearhouse has a grace period to make the Interest Payment before such non-payment constitutes an “event of default” under the Indenture. If an event of default under the Indenture occurs as a result of such non-payment, it would result in a cross-event of default under our Credit Facilities. Men’s Wearhouse has elected to enter into the grace period with respect to the Interest Payment. During the grace period, Men’s Wearhouse may elect to pay the Interest Payment and thereby remain in compliance with the Indenture. As of the date of this filing, we have determined it is not probable that we will make the approximate $6.1 million interest payment; however, we may decide to make the interest payment prior to expiration of the grace period.
Recent Business Developments
On May 7, 2020, we began to open stores in the U.S. and Canada with enhanced safety protocols and have safely reopened approximately 96% of our store fleet as of July 21, 2020. Given the current uncertain operating environment due to COVID-19, it is difficult to predict the future performance of our business. While we cannot reasonably estimate the impact of COVID-19 on our financial position, results of operations and cash flows, we do expect such impact to be significantly negative for the remainder of fiscal 2020.
On July 21, 2020, we announced that, as a result of the unprecedented and industrywide business disruptions resulting from COVID-19, we are implementing a series of operating and organizational changes. Specifically, we will make organizational changes that will result in the elimination of approximately 20% of our corporate positions by the end of the fiscal second quarter. In connection with these corporate personnel changes, we expect to record a pre-tax charge of approximately $6 million in the second quarter of fiscal 2020 for severance payments and other termination costs, all of which are cash costs. In addition, we have identified up to 500 retail stores for potential closure over time as well as associated opportunities to reduce and realign our store organization and supply chain infrastructure and organization to best serve our go-forward store footprint and e-commerce business. We have not yet quantified the costs related to potential store closures and the corresponding store organization and supply chain infrastructure and organization realignment. We expect such charges to include significant cash and non-cash amounts, primarily related to severance and long-lived asset impairment.
During the three months ended May 2, 2020, in response to COVID-19, we implemented temporary base salary reductions for officers and employees with a salary of $100,000 or more ranging from 10% to 50% and reduced the Board’s cash retainer fees by 50%. As a result of the opening of most of our stores and the return of many employees from furlough and to enable us to retain and continue to motivate our employees during the volatile and uncertain environment created by COVID-19, effective June 21, 2020, we restored base salaries for all employees who were subject to a temporary base salary reduction.
In addition, effective June 26, 2020, we restored the cash retainer fees for our Board to their pre-COVID-19 amounts. Also, on June 26, 2020, the Board decided to delay the grant of its annual equity retainer, consistent with our decision to delay fiscal 2020 long-term incentive award grants to employees as a result of the impact of COVID-19.
As of May 2, 2020, assets held for sale totaled $2.9 million relating to an owned distribution center and an owned store. During the second quarter of 2020, we completed the sale of both properties for total proceeds of $13.4 million, net of transaction costs.
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef