Item 1.01 Entry into a Material Definitive Agreement
Term Loan Credit Facility
On June 23, 2023 (the "Effective Date"), Designer Brands Inc. (the "Company")
entered into a credit agreement (the "Term Loan Credit Agreement") among the
Company, as U.S. borrower, Designer Brands Canada Inc., as Canadian borrower
(the "DBI Canada" and, together with the Company, the "Term Loan Borrowers"),
certain of the Company's domestic subsidiaries as guarantors, the lenders party
thereto, and PLC Agent LLC, as Administrative Agent and Lead Arranger. All
capitalized terms used in this subsection and not otherwise defined in this
subsection shall have the meanings given in the Term Loan Credit Agreement.
The Term Loan Credit Agreement provides for a senior secured term loan in the
maximum aggregate principal amount of $135,000,000 (the "Term Loan"), consisting
of (i) a $45,000,000 borrowing by the Company and a $5,000,000 borrowing by DBI
Canada at closing, and (ii) a delayed draw facility consisting of up to
$76,500,000 able to be borrowed by the Company and up to $8,500,000 able to be
borrowed by DBI Canada, in each case, within 90 days of closing. The Term Loan
Credit Agreement also provides for an uncommitted accordion in the maximum
amount of $50,000,000. Proceeds of the Term Loan may be used (a) to repurchase,
redeem, retire or otherwise acquire certain equity interests of the Company,
(b) to pay fees and expense incurred in connection with the incurrence of the
Term Loan and the Second Amendment (as defined below), (c) to provide working
capital to the Term Loan Borrowers, and (d) for general corporate purposes of
the Term Loan Borrowers.
The Term Loan is secured (subject to permitted liens and certain other customary
exceptions) by a first priority lien on certain personal and real property of
the Term Loan Borrowers and the guarantors, including intellectual property and
owned real estate (the "Term Loan Priority Collateral"), and by a second
priority lien on certain other personal property of the Term Loan Borrowers and
the guarantors, including credit card receivables, accounts receivable, and
inventory (the "ABL Priority Collateral").
Borrowings under the Term Loan Credit Agreement bear interest at the Company's
option at a per annum rate equal to: (A) a base rate equal to the greatest of
(i) 2.0%, (ii) the prime rate, (iii) the overnight bank funding rate plus 0.5%,
and (iv) the adjusted 3-month term SOFR rate plus 1.0%, plus, in each instance,
6.0%; or (B) adjusted 3-month term SOFR, subject to a floor of 2.0%, plus 7.0%.
The Term Loan Credit Agreement matures on June 23, 2028, and requires compliance
with conditions precedent that must be satisfied prior to any borrowing. The
Term Loan Credit Agreement also contains various representations, warranties,
and covenants that the Company considers customary.
The Term Loan Credit Agreement requires the Company to, beginning at any time
liquidity is less than $100,000,000, maintain a maximum consolidated net
leverage ratio as of the last day of each fiscal month, calculated on a trailing
twelve month basis, of (1) 2.00 to 1.00 for any trailing twelve month period
from the Closing Date and through and including July 29, 2023, (2) 2.25 to 1.00
for any trailing twelve month period from July 30, 2023 through and including
February 3, 2024, and (3) 2.50 to 1.00 thereafter. Testing of the consolidated
net leverage ratio ends after liquidity has been greater than or equal to
$100,000,000 for a period of 45 consecutive days. The Term Loan Credit Agreement
also contains various information and reporting requirements, and provides for
various customary fees to be paid by the Company.
The Term Loan Credit Agreement contains customary events of default, including
without limitation events of default based on payment obligations, material
inaccuracies of representations and warranties, covenant defaults, final
judgments, and orders, unenforceability of the Term Loan Credit Agreement,
material ERISA events, change in control, insolvency proceedings, and defaults
under certain other obligations. An event of default may cause the applicable
interest rate and fees to increase by 2.0% until such event of default has been
cured, waived, or amended.
The foregoing is intended only to be a summary of the Term Loan Credit Agreement
and is qualified in its entirety by the Term Loan Credit Agreement, which is
attached hereto as Exhibit 10.1 and is incorporated herein by reference.
Amendment to ABL Credit Facility
Also on the Effective Date, the Company entered into a second amendment (the
"Second Amendment") by and among the Company and certain subsidiaries of the
Company from time to time, as U.S. Borrowers, DBI Canada and other subsidiaries
from time to time, as Canadian Borrowers (which are referred to, together with
the U.S. Borrowers, as the "ABL Borrowers"), other loan parties, including
certain subsidiaries of the Company as U.S. Guarantors (together with the ABL
Borrowers, the "Loan Parties"), the lenders party thereto (the "Lenders"), and
The Huntington National Bank, as Administrative Agent (the "ABL Administrative
Agent"). The Second Amendment amended that certain Credit Agreement dated as of
March 30, 2022 (as amended on February 28, 2023) by and among the ABL Borrowers,
the other Loan Parties, the Lenders, and the ABL Administrative Agent (as
amended, the "ABL Credit Agreement"). All capitalized terms used herein and not
otherwise defined shall have the meanings given in the Second Amendment.
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As previously disclosed by the Company on previous Current Reports on Forms 8-K
dated April 5, 2022 and March 3, 2023 , the ABL Credit Agreement provides
for an asset-based revolving facility and a first-in last-out term loan facility
(collectively, the "ABL Facility"). The Second Amendment amends the ABL Credit
Agreement to permit the incurrence of the Term Loan, and also increases the
applicable margin on loans under the ABL Facility by 0.25%. The Second Amendment
and the documents executed in connection therewith also provide the Lenders with
a second priority lien on the Term Loan Priority Collateral. The Second
Amendment also provides for various customary fees to be paid by the Company in
connection therewith.
The foregoing is intended only to be a summary of the Second Amendment and is
qualified in its entirety by reference to the full text of the Second Amendment,
which will be filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ending July 29, 2023.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
The information set forth under Item 1.01 is hereby incorporated by reference
into this Item 2.03.
Item 8.01 Other Events
On the Effective Date, the Company issued a press release announcing an increase
in the price range of its previously announced modified "Dutch auction" tender
offer (the "Tender Offer") to purchase for cash up to $100 million of its
Class A common shares, without par value (the "Shares"), as well as announcing
the satisfaction of the financing condition to the Tender Offer. The Tender
Offer was originally set at a purchase price not greater than $8.00 nor less
than $7.00 per share to the seller in cash, less any applicable withholding
taxes and without interest. Additionally, the Tender Offer originally was
contingent on the Company entering into a term loan agreement for $135 million
to be used principally to fund the Tender Offer (the "Financing Contingency").
As amended, the Tender Offer is now set at a purchase price not greater than
$10.00 nor less than $8.75 per share to the seller in cash, less any applicable
withholding taxes and without interest. Furthermore, as amended, the Tender
Offer is no longer subject to the Financing Contingency as the Company obtained
such financing pursuant to the Term Loan, as further described above under Item
1.01 of this Current Report on Form 8-K. The Tender Offer will expire at 11:59
p.m., New York City time, on July 7, 2023, unless extended or terminated.
Attached as Exhibit 99.1, and incorporated by reference herein, is a copy of the
Company's press release dated June 23, 2023 related to the increase in the price
range of the Tender Offer and satisfaction of the Financing Contingency.
The information in this report and the exhibit hereto describing the Tender
Offer is for informational purposes only and does not constitute an offer to buy
or the solicitation of an offer to sell Shares in the Tender Offer. The Tender
Offer is being made only pursuant to the offer to purchase that the Company has
filed, and the related materials that the Company has filed or will file, with
the U.S. Securities and Exchange Commission (the "SEC"), in each case as amended
or supplemented. Shareholders should read such offer to purchase and related
materials carefully and in their entirety because they contain important
information, including the various terms and conditions of the Tender Offer.
Shareholders of the Company may obtain a free copy of the Tender Offer statement
on Schedule TO, the offer to purchase, the supplement to offer to purchase and
other documents that the Company has filed and will file with the SEC from the
SEC's website at www.sec.gov. Shareholders also will be able to obtain a copy of
these documents, without charge, from Georgeson LLC, the information agent for
the Tender Offer, toll free at (888) 206-5896, BofA Securities, Inc. at (888)
803-9655 or BMO Capital Markets Corp. at (212) 702-1101. Shareholders are urged
to carefully read all of these materials prior to making any decision with
respect to the Tender Offer. Shareholders and investors who have questions or
need assistance may call Georgeson LLC.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number Description
10.1 Term Credit Agreement, dated as of June 23, 2023 among
Designer Brands Inc., Designer Brands Canada Inc., certain of
domestic subsidiaries as guarantors, the lenders party thereto,
and PLC Agent LLC, as Administrative Agent and Lead Arranger.
99.1 Press Release of Designer Brands Inc., dated June 23, 2023
104 Cover Page Interactive Data File (embedded within the Inline
XBRL document).
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