Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.8.0.1
Debt
9 Months Ended
Oct. 28, 2017
Debt  
Debt

5.  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 as a reduction of the outstanding balance on the Term Loan on the balance sheet and will be 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, The Men’s Wearhouse amended the 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. Since entering into these financing arrangements, our total leverage ratio and secured leverage ratio have been above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. 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 October 28, 2017, 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 during the remainder of fiscal 2017 and beyond, which will result in the elimination of these additional restrictions. In addition, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $4.6 million to the Term Loan lenders prior to April 28, 2017.  On May 2, 2017, the entire $4.6 million prepayment was made together with normal principal and interest payments on the Term Loan.

 

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 June 2021.  The interest rate on the Term Loan is based on 1-month LIBOR, which was 1.24% at October 28, 2017, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.74%.  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 October 28, 2017, the total notional amount under our interest rate swaps is $490.0 million.  See Note 14 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. 

 

As a result of our 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 October 28, 2017, the Term Loan had a weighted average interest rate of 5.13%.  

 

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 October 28, 2017, there were no borrowings outstanding under the ABL Facility.  During the nine months ended October 28, 2017, the maximum borrowing outstanding under the ABL Facility was $34.7 million.

 

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases.  At October 28, 2017, letters of credit totaling approximately $38.7 million were issued and outstanding. Borrowings available under the ABL Facility as of October 28, 2017 were $511.3 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 in July 2022.  Interest on the Senior Notes is payable in January and July of each year.

 

Long-Term Debt

 

During the third quarter of 2017, we repurchased and retired $65.0 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 $2.5 million, which is included as a separate line in the condensed consolidated statement of earnings.  The net gain on extinguishment reflects a $3.4 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs totaling $0.9 million related to the Senior Notes. 

 

For the nine months ended October 28, 2017, as a result of the repurchase and retirement of a total of $115.0 million in face value of Senior Notes and our excess cash flow prepayment, we recorded a net gain on extinguishment totaling $6.5 million, which reflects a $8.2 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of $1.7 million, which is included as a separate line in the condensed consolidated statement of earnings.

 

The following table provides details on our long-term debt as of October 28, 2017,  October 29, 2016 and January 28, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 28,

 

October 29,

 

January 28,

 

 

    

2017

    

2016

    

2017

 

Term Loan (net of unamortized OID of $3.4 million at October 28, 2017, $4.4 million at October 29, 2016, and $4.1 million at January 28, 2017)

 

$

1,033,514

 

$

1,044,173

 

$

1,042,660

 

Senior Notes

 

 

460,000

 

 

575,000

 

 

575,000

 

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

 

 

(17,029)

 

 

(23,300)

 

 

(22,131)

 

Total long-term debt, net

 

 

1,476,485

 

 

1,595,873

 

 

1,595,529

 

Current portion of long-term debt

 

 

(8,750)

 

 

(7,000)

 

 

(13,379)

 

Total long-term debt, net of current portion

 

$

1,467,735

 

$

1,588,873

 

$

1,582,150