Debt and Lines of Credit | 9 Months Ended |
Oct. 31, 2014 |
Debt and Lines of Credit | ' |
NOTE 6 – DEBT AND LINES OF CREDIT |
On July 17, 2009, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together with the Company, the “Borrowers”), each a wholly-owned domestic subsidiary of the Company, entered into an Amended and Restated Loan and Security Agreement (the “Original Loan Agreement”) with Bank of America, N.A. and Bank Leumi USA, as lenders (“Lenders”), and Bank of America, N.A., as agent (in such capacity, the “Agent”). The parties have amended the Original Loan Agreement four times: on April 5, 2011, March 12, 2012, August 14, 2014 and September 30, 2014 (the Original Loan Agreement, as so amended, the “Loan Agreement”). The Loan Agreement provides for a $25.0 million asset based senior secured revolving credit facility (the “Facility”), including a $15.0 million letter of credit subfacility, and provides that Borrowers are entitled to request that Lenders increase the Facility up to $50 million subject to any additional terms and conditions the parties may agree upon. The maturity date of the Facility is July 17, 2019. |
Availability under the Facility is determined by reference to a borrowing base which is based on the sum of a percentage of eligible accounts receivable and eligible inventory of the Borrowers. $10.0 million in availability is blocked unless the Borrowers have achieved for the most recently ended four fiscal quarter periods a consolidated fixed charge coverage ratio of at least 1.25 to 1.0 with domestic EBITDA greater than $10.0 million. The availability block, if applicable, will be reduced by the amount by which the borrowing base exceeds $25.0 million, up to a maximum reduction of $5.0 million. Availability under the Facility may be further reduced by certain reserves established by the Agent in its good faith credit judgment. The Borrowers are not currently subject to the availability block. As of October 31, 2014, total availability under the Facility, giving effect to no outstanding borrowings and the $4.1 million of letters of credit outstanding under the subfacility, was $20.9 million. |
The current applicable margin for LIBOR rate loans is 1.25% and for base rate loans is 0.25%. The applicable margins increase by 0.25% per annum from the current applicable margins if the consolidated fixed charge coverage ratio is greater than or equal to 1.50 to 1.00 and less than or equal to 2.00 to 1.00, and by 0.50% if the consolidated fixed charge coverage ratio is less than 1.50 to 1.00. |
After the date (the “Block Release Date”) when availability under the Facility is no longer subject to any blocked amount, if borrowing availability is less than $7.5 million, the Borrowers will be subject to a minimum fixed charge coverage ratio until such time as borrowing availability has been greater than $7.5 million for at least 90 consecutive days. |
After the Block Release Date, cash dominion will be imposed if borrowing availability is less than $10.0 million and will continue until such time as borrowing availability has been greater than $10.0 million for at least 45 consecutive days. As of October 31, 2014, the Borrowers were not subject to cash dominion nor do the Borrowers expect to be subject to such a requirement in the foreseeable future. |
The Loan Agreement contains additional affirmative and negative covenants binding on the Borrowers and their subsidiaries that are customary for asset based facilities, including, but not limited to, restrictions and limitations on the incurrence of debt for borrowed money and liens, dispositions of assets, capital expenditures, dividends and other payments in respect of equity interests, the making of loans and equity investments, prepayments of subordinated and certain other debt, mergers, consolidations, liquidations and dissolutions, and transactions with affiliates. The Loan Agreement permits Borrowers to pay distributions as dividends and make share repurchases up to an aggregate of $150.0 million (less the amount of any charitable donations made by the Company which are permitted up to an aggregate amount of $14.0 million) and make acquisitions up to an aggregate of $50.0 million, as long as, at the time of such transaction, either (A) Borrowers have cash assets of at least $60.0 million with no revolver loans outstanding, or (B) (i) the consolidated fixed charge coverage ratio is at least 1.10 to 1.00, (ii) availability is greater than $7.5 million and (iii) positive EBITDA plus repatriated cash dividends minus restricted payments are greater than $0. As of October 31, 2014, the Company was in compliance with these financial covenants and, therefore, is permitted to pay dividends and to repurchase up to an aggregate of $150.0 million of shares. The Company presently expects that it will be able to pay dividends declared and repurchase shares through the remaining term of the Facility. |
The Loan Agreement contains events of default that are customary for facilities of this type, including, but not limited to, nonpayment of principal, interest, fees and other amounts when due, failure of any representation or warranty to be true in any material respect when made or deemed made, violation of covenants, cross default, material judgments, material ERISA liability, bankruptcy events, material loss of collateral in excess of insured amounts, asserted or actual revocation or invalidity of the loan documents, change of control and events or circumstances having a material adverse effect. The borrowings under the Facility are joint and several obligations of the Borrowers and also cross-guaranteed by each Borrower. In addition, the Borrowers’ obligations under the Facility are secured by first priority liens, subject to permitted liens, on substantially all of the Borrowers’ U.S. assets (other than certain excluded assets). |
A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified length of time with a Swiss bank. As of October 31, 2014, these lines of credit totaled 5.0 million Swiss francs with a dollar equivalent of $5.2 million. As of October 31, 2013, these lines of credit totaled 10.0 million Swiss francs with a dollar equivalent of $11.0 million. As of October 31, 2014 and 2013, there were no borrowings against these lines. As of October 31, 2014, two European banks have guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.3 million in various foreign currencies. |