| 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.
