Debt |
6 Months Ended |
|---|---|
Jul. 30, 2022 | |
| Debt Disclosure [Abstract] | |
| DEBT | DEBT Bank Credit Facility On September 22, 2021, we entered into a $600 million -year unsecured credit facility (“Credit Agreement”) that expires on September 22, 2026. In connection with our entry into the Credit Agreement, we paid bank fees and other expenses in the aggregate amount of $1.2 million, which are being amortized over the term of the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes, working capital, and to repay certain indebtedness. The Credit Agreement includes a $50 million swing loan sublimit, a $75 million letter of credit sublimit, a $75 million sublimit for loans to foreign borrowers, and a $200 million optional currency sublimit. The Credit Agreement also contains an environmental, social and governance (“ESG”) provision, which may provide favorable pricing and fee adjustments if we meet ESG performance criteria to be established by a future amendment to the Credit Agreement. Under the Credit Agreement, we have the option to establish incremental term loans and/or increases in the revolving credit limits in an aggregate amount of up to $300 million, subject to the lenders agreeing to increase their commitments. Additionally, the Credit Agreement includes two options to extend the maturity date of the Credit Agreement by one year each, subject to each lender agreeing to extend the maturity date of its respective loans. The interest rates, pricing and fees under the Credit Agreement fluctuate based on our debt rating or leverage ratio, whichever results in more favorable pricing to us. The Credit Agreement allows us to select our interest rate for each borrowing from multiple interest rate options. The interest rate options are generally derived from the prime rate or LIBOR. The Credit Agreement updated the LIBOR fallback language to implement fallback provisions, pursuant to which the interest rate on the loans will transition to an alternative rate upon the occurrence of certain LIBOR cessation events. Loans made under the Credit Agreement may be prepaid without penalty. The Credit Agreement contains financial and other covenants, including, but not limited to, limitations on indebtedness, liens and investments, as well as, subject to the Credit Agreement Consent Letter described below, the maintenance of two financial ratios – a leverage ratio and a fixed charge coverage ratio. The covenants of the Credit Agreement do not restrict our ability to pay dividends. Additionally, we are subject to cross-default provisions associated with the synthetic lease for our distribution center in Apple Valley, CA (the "Synthetic Lease"), which was amended concurrent with our entry into the Credit Agreement to conform with the covenants of the Credit Agreement. A violation of any of the covenants (including the terms of the Credit Agreement Consent Letter described below and Synthetic Lease Consent Letter described below) could result in a default under the Credit Agreement that would permit the lenders to restrict our ability to further access the Credit Agreement for loans and letters of credit and require the immediate repayment of any outstanding loans under the Credit Agreement. On July 27, 2022, we entered into a consent letter related to the Credit Agreement (the “Credit Agreement Consent Letter”), which suspended the testing of the Fixed Charge Coverage Ratio under the Credit Agreement (as defined therein) for the quarterly period ended July 30, 2022. Pursuant to the Credit Agreement Consent Letter, we also agreed to amend the Credit Agreement or enter into a new credit facility to replace the Credit Agreement, in each case on terms mutually agreeable among us, the administrative agent and the banks, no later than October 28, 2022 (or a later date approved by the administrative agent in its commercially reasonable discretion). In connection with the execution of the Credit Agreement Consent Letter, on July 29, 2022, we entered into an engagement letter with PNC Capital Markets LLC and PNC Bank, National Association (the “Engagement Letter”), pursuant to which PNC Capital Markets has agreed to arrange, on a best efforts basis, a five-year, syndicated asset-based revolving credit facility (“New Credit Facility”) in an amount up to $900 million in total commitments with an additional uncommitted increase option of up to $300 million. The New Credit Facility will refinance and replace the Credit Agreement. The Engagement Letter provides, among other things, that (a) borrowings under the New Credit Facility will be subject to a borrowing base consisting of eligible credit card receivables and eligible inventory (including in-transit inventory), subject to customary exceptions and reserves, (b) obligations under the New Credit Facility will be guaranteed by certain of our domestic subsidiaries and will be secured by our working capital assets, subject to customary exceptions, (c) interest payable under the New Credit Facility will fluctuate based on our availability and outstanding borrowings under the facility, and the New Credit Facility will allow us to select our index rate for each borrowing from multiple interest rate options, including one, three or six month adjusted Term SOFR and (d) the New Credit Facility will contain customary affirmative and negative covenants and events of default, and the only financial covenant under the New Credit Facility will be a springing fixed charge coverage ratio. As of September 7, 2022, we expect to enter into the New Credit Facility during the fiscal quarter ending October 28, 2022, subject to the satisfaction of customary closing conditions. On July 27, 2022, we also entered into a consent letter related to the Synthetic Lease (the “Synthetic Lease Consent Letter”), which suspended testing of the Fixed Charge Coverage Ratio under the Synthetic Lease (as defined therein) for the quarterly period ended July 30, 2022. Pursuant to the Synthetic Lease Consent Letter, we also agreed to amend the Synthetic Lease on terms mutually agreeable among us, the lessor, the administrative agent, and the lease participants, no later than October 28, 2022 (or a later date approved by the majority secured parties in their commercially reasonable discretion). As of September 7, 2022, we expect to enter into such an amendment during the fiscal quarter ending October 28, 2022. We expect that the finalization of the New Credit Facility and amendment of the Synthetic Lease, combined with the availability of alternative measures to manage cash flow, if necessary, will provide sufficient liquidity to fund operations in the foreseeable future. At July 30, 2022, we had $252.6 million in borrowings outstanding under the Credit Agreement and $5.8 million committed to outstanding letters of credit, leaving $341.6 million available under the Credit Agreement. The fair value of our long-term debt is estimated based on the quoted market prices for same or similar issues and the current interest rates offered for similar instruments. These fair value measurements are classified as Level 2 within the fair value hierarchy. Given the variable rate features and relatively short maturity of the instruments underlying our long-term debt, the carrying value of these instruments approximates their fair value.
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