| Indebtedness and Credit Agreement | 11. Indebtedness and Credit Agreement Following is a summary of indebtedness and lease financing obligations at November 26, 2022 and February 26, 2022: November 26, February 26, 2022 2022 Secured Debt: Senior secured revolving credit facility due August 2026 ($1,350,000 and $709,000 face value less unamortized debt issuance costs of $14,956 and $18,010) 1,335,044 690,990 FILO Term Loan due August 2026 ($350,000 face value less unamortized debt issuance costs of $1,946 and $2,344) 348,054 347,656 1,683,098 1,038,646 Second Lien Secured Debt: 7.5% senior secured notes due July 2025 ($485,058 and $600,000 face value less unamortized debt issuance costs of $4,278 and $6,824) 480,780 593,176 8.0% senior secured notes due November 2026 ($849,918 face value less unamortized debt issuance costs of $12,088 and $14,397) 837,830 835,521 1,318,610 1,428,697 Unguaranteed Unsecured Debt: 7.7% notes due February 2027 ($185,691 and $237,386 face value less unamortized debt issuance costs of $426 and $642) 185,265 236,744 6.875% fixed-rate senior notes due December 2028 ($2,046 and $29,001 face value less unamortized debt issuance costs of $6 and $102) 2,040 28,899 187,305 265,643 Lease financing obligations 19,077 20,374 Total debt 3,208,090 2,753,360 Current maturities of long-term debt and lease financing obligations (6,107) (5,544) Long-term debt and lease financing obligations, less current maturities $ 3,201,983 $ 2,747,816 Credit Facility On December 20, 2018, the Company entered into a senior secured credit agreement (as amended by the First Amendment to Credit Agreement, dated as of January 6, 2020, the “Credit Agreement”; and the Credit Agreement, as further amended by the Second Amendment (as defined below), the “Amended Credit Agreement”), which Credit Agreement provided for facilities consisting of a $2,700,000 senior secured asset-based revolving credit facility (“Initial Senior Secured Revolving Credit Facility”) and a $450,000 “first-in, last-out” senior secured term loan facility (“Initial Senior Secured Term Loan,” and together with the Initial Senior Secured Revolving Credit Facility, collectively, the “Initial Facilities”). In December 2018, the Company used proceeds from the Initial Facilities to refinance its prior $2,700,000 existing credit agreement. On August 20, 2021, the Company entered into the Second Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Credit Agreement to provide for a $2,800,000 senior secured asset-based revolving credit facility (“Senior Secured Revolving Credit Facility” or “revolver”) and a $350,000 “first-in, last-out” senior secured term loan facility (“Senior Secured Term Loan” or “Term Loan” and together with the Senior Secured Revolving Credit Facility, collectively, the “Amended Facilities”) and incorporate customary “hardwired” LIBOR transition provisions. The Amended Facilities extended the Company’s debt maturity profile and provided additional liquidity. Borrowings under the Senior Secured Revolving Credit Facility bore interest at a rate per annum equal to, at the Company’s option, a base rate (determined in a customary manner) plus a margin of between 0.25% to 0.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of between 1.25% and 1.75%, in each case based upon the Average ABL Availability (as defined in the Amended Credit Agreement). Borrowings under the Senior Secured Term Loan bore interest at a rate per annum equal to, at the Company’s option, (x) a base rate (determined in a customary manner) plus a margin of 1.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of 2.75%. The Company is required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the commitments under the Senior Secured Revolving Credit Facility, depending on Average ABL Availability (as defined in the Amended Credit Agreement). The Amended Facilities were scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of the Company’s existing secured notes are not refinanced or repaid prior to the date that is 91 days prior to the stated maturity thereof). The Company’s borrowing capacity under the Senior Secured Revolving Credit Facility was based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. At November 26, 2022, the Company had $1,700,000 of borrowings outstanding under the Amended Facilities and had letters of credit outstanding under the Senior Secured Revolving Credit Facility in a face amount of $175,911, which resulted in remaining borrowing capacity under the Senior Secured Revolving Credit Facility of $1,274,089. If at any time the total credit exposure outstanding under the Senior Secured Revolving Credit Facility exceeded the borrowing base, the Company would be required to repay amounts outstanding to eliminate such shortfall. The Amended Credit Agreement restricted the Company and all of its subsidiaries that guaranteed its obligations under the Amended Facilities, the secured guaranteed notes and unsecured guaranteed notes (collectively, the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200,000 at any time when revolving loans were outstanding (not including cash located in store and lockbox deposit accounts and cash necessary to cover current liabilities). The Amended Credit Agreement also stated that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a representative of the senior obligations or the second priority debt) either (i) an event of default existed under the Amended Facilities or (ii) the sum of the Company’s borrowing capacity under the Senior Secured Revolving Credit Facility and certain amounts held on deposit with the senior collateral agent in a concentration account was less than or equal to $275,000 for three consecutive business days or less than or equal to $200,000 on any day (a “cash sweep period”), the funds in the Company’s deposit accounts would be swept to a concentration account with the senior collateral agent and would be applied first to repay outstanding revolving loans under the Amended Facilities, and then held as collateral for the senior obligations until such cash sweep period was rescinded pursuant to the terms of the Amended Facilities. With the exception of EI, substantially all of the Company’s 100% owned subsidiaries guaranteed the obligations under the Amended Facilities, the secured guaranteed notes and unsecured guaranteed notes. The Company’s obligations under the Amended Facilities and the Subsidiary Guarantors’ obligations under the related guarantees were secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivable, inventory, prescription files (including eligible script lists), intellectual property (prior to the repayment of the Senior Secured Term Loan) and certain other assets arising therefrom or related thereto (including substantially all of their deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Senior Secured Term Loan) and all other assets that did not constitute ABL priority collateral, in each case, subject to customary exceptions and limitations. The subsidiary guarantees related to the Company’s Amended Facilities, the secured guaranteed notes and, on an unsecured basis, the unsecured guaranteed notes, were full and unconditional and joint and several. The Company had no independent assets or operations. Other than EI, the subsidiaries, including joint ventures, that did not guarantee the Amended Facilities and applicable notes, were minor. The Amended Credit Agreement allowed the Company to have outstanding, at any time, up to an aggregate principal amount of $1,500,000 in secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Amended Facilities and existing indebtedness, provided that not in excess of $750,000 of such secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock matured or required scheduled payments of principal prior to 90 days after the latest maturity date of any Term Loan or Other Revolving Commitment (each as defined in the Amended Credit Agreement) (excluding bridge facilities allowing extensions on customary terms to at least the date that was 90 days after such date). Subject to the limitations described in the immediately preceding sentence, the Amended Credit Agreement additionally allowed the Company to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Amended Credit Agreement) was not in effect; provided, however, that certain of the Company’s other outstanding indebtedness limited the amount of unsecured debt that could be incurred if certain interest coverage levels were not met at the time of incurrence or other exemptions are not available. The Amended Credit Agreement also contained certain restrictions on the amount of secured first priority debt the Company was able to incur. The Amended Credit Agreement also allowed for the voluntary repurchase of any debt or other convertible debt, so long as the Amended Facilities were not in default and the Company maintained availability under its revolver of more than $365,000. The Amended Credit Agreement had a financial covenant that required the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (i) on any date on which availability under the Senior Secured Revolving Credit Facility was less than $200,000 or (ii) on the third consecutive business day on which availability under the Senior Secured Revolving Credit Facility was less than $250,000 and, in each case, ending on and excluding the first day thereafter, if any, which was the 30th consecutive calendar day on which availability under the revolver was equal to or greater than $250,000. As of November 26, 2022, the availability under the Senior Secured Revolving Credit Facility was at a level that did not trigger the Amended Credit Agreement’s financial covenant. The Amended Credit Agreement also contained covenants which placed restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens. The Amended Credit Agreement provided for customary events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. It would also be an event of default if the Company failed to make any required payment on debt having a principal amount in excess of $50,000 or any event occurred that enabled, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment, repurchase, redemption or defeasance of such debt. On December 1, 2022, the Company entered into the Third Amendment to Credit Agreement (the “Third Amendment”), which, among other things, amended the Amended Credit Agreement (the Amended Credit Agreement, as modified by the Third Amendment, the “Currently Effective Credit Agreement”) to provide for a $2,850,000 senior secured asset-based revolving credit facility (the “Currently Effective Senior Secured Revolving Credit Facility”) and a $400,000 “first-in, last-out” senior secured term loan facility (the “Currently Effective Senior Secured Term Loan” and, together with the Currently Effective Senior Secured Revolving Credit Facility, collectively, the “Currently Effective Facilities”), replaced the LIBOR rate with a Term SOFR-based rate as the applicable benchmark for the Currently Effective Facilities, include COVID-19 vaccines in the borrowing base under the Currently Effective Senior Secured Revolving Credit Facility, subject to limitations and conditions as specified in the Currently Effective Credit Agreement, and increased the interest rate applicable to loans under the Currently Effective Senior Secured Term Loan to (x) a base rate (determined in a customary manner) plus a margin of 2.00% or (y) an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 3.00%. The Company is required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the commitments under the Currently Effective Senior Secured Revolving Credit Facility, depending on Average ABL Availability (as defined in the Currently Effective Credit Agreement). The Currently Effective Facilities are scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of the Company’s existing secured notes are not refinanced or repaid prior to the date that is 91 days prior to the stated maturity thereof). The Company’s borrowing capacity under the Currently Effective Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. If at any time the total credit exposure outstanding under the Currently Effective Senior Secured Revolving Credit Facility exceeds the borrowing base, the Company will be required to repay amounts outstanding to eliminate such shortfall. The Currently Effective Credit Agreement restricts the Company and all of its subsidiaries that guarantee its obligations under the Currently Effective Facilities, the secured guaranteed notes and unsecured guaranteed notes (collectively, the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200,000 at any time when revolving loans are outstanding (not including cash located in store and lockbox deposit accounts and cash necessary to cover current liabilities). The Currently Effective Credit Agreement also states that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a representative of the senior obligations or the second priority debt) either (i) an event of default exists under the Currently Effective Facilities or (ii) the sum of the Company’s borrowing capacity under the Currently Effective Senior Secured Revolving Credit Facility and certain amounts held on deposit with the senior collateral agent in a concentration account is less than or equal to $283,250 for three consecutive business days or less than or equal to $206,000 on any day (a “cash sweep period”), the funds in the Company’s deposit accounts will be swept to a concentration account with the senior collateral agent and will be applied first to repay outstanding revolving loans under the Currently Effective Facilities, and then held as collateral for the senior obligations until such cash sweep period is rescinded pursuant to the terms of the Currently Effective Facilities. With the exception of EI, substantially all of the Company’s 100% owned subsidiaries guarantee the obligations under the Currently Effective Facilities, the secured guaranteed notes and unsecured guaranteed notes. The Company’s obligations under the Currently Effective Facilities and the Subsidiary Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivable, inventory, prescription files (including eligible script lists), intellectual property (prior to the repayment of the Currently Effective Senior Secured Term Loan) and certain other assets arising therefrom or related thereto (including substantially all of their deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Currently Effective Senior Secured Term Loan) and all other assets that do not constitute ABL priority collateral, in each case, subject to customary exceptions and limitations. The subsidiary guarantees related to the Company’s Currently Effective Facilities, the secured guaranteed notes and, on an unsecured basis, the unsecured guaranteed notes, are full and unconditional and joint and several. The Company has no independent assets or operations. Other than EI, the subsidiaries, including joint ventures, that do not guarantee the Currently Effective Facilities and applicable notes, are minor. The Currently Effective Credit Agreement allows the Company to have outstanding, at any time, up to an aggregate principal amount of $1,500,000 in secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Currently Effective Facilities and existing indebtedness, provided that not in excess of $750,000 of such secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days The Currently Effective Credit Agreement has a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (i) on any date on which availability under the Currently Effective Senior Secured Revolving Credit Facility is less than $206,000 or (ii) on the third consecutive business day on which availability under the Currently Effective Senior Secured Revolving Credit Facility is less than $257,500 and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $257,500. The Currently Effective Credit Agreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens. The Currently Effective Credit Agreement provides for customary events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if the Company fails to make any required payment on debt having a principal amount in excess of $50,000 or any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment, repurchase, redemption or defeasance of such debt. Fiscal 2022 and 2023 Transactions On April 28, 2021, the Company issued a notice of redemption for all of the 6.125% Notes that were outstanding on May 28, 2021, pursuant to the terms of the indenture of the 6.125% Notes. On May 28, 2021, the Company redeemed 100% of the remaining outstanding 6.125% Notes at par. In connection therewith, the Company recorded a loss on debt retirement of $396 which included unamortized debt issuance costs. The debt repayment and related loss on debt retirement is included in the results of operations and cash flows. On August 20, 2021, the Company entered into the Second Amendment in order to, among other things, increase the aggregate principal amount of commitments under the Senior Secured Revolving Credit Facility from $2,700,000 to $2,800,000 and decrease the aggregate principal amount of loans outstanding under the Senior Secured Term Loan from $450,000 to $350,000. In connection therewith, the Company recorded a loss on debt modification and retirement of $2,839 which included unamortized debt issuance costs. The debt repayment and related loss on debt modification and retirement is included in the results of operations and cash flows. On June 13, 2022, the Company commenced a series of cash tender offers to purchase up to $150,000 aggregate principal amount of the Company’s 7.50% Senior Secured Notes due 2025 (the “2025 Notes”), 8.0% Senior Secured Notes due 2026, 7.70% Notes due 2027 (the “2027 Notes”) and 6.875% Notes due 2028 (the “2028 Notes”), subject to prioritized acceptance levels, a subcap of $100,000 with respect to the 2025 Notes and proration. On June 29, 2022, pursuant to an early settlement, the Company purchased an aggregate principal amount of $114,942 of its 2025 Notes, $51,695 aggregate principal amount of its 2027 Notes and $26,955 aggregate principal amount of its 2028 Notes. In connection therewith, the Company recorded a gain on debt retirement of $41,312, which included unamortized debt issuance costs. The debt repayment and related gain on debt retirement is included in the results of operations and cash flows. On November 3, 2022, the Company announced the commencement of a cash tender offer to purchase up to $200,000 aggregate purchase price (not including any accrued and unpaid interest) of the Company’s 2025 Notes, subject to proration. On November 30, 2022, pursuant to an early settlement, the Company purchased an aggregate principal amount of $ 160,497 and on December 9, 2022, the Company purchased an additional aggregate principal amount of $4,559 of its 2025 Notes. On December 1, 2022, the Company entered into the Third Amendment in order to, among other things, increase the aggregate principal amount of commitments under the Senior Secured Revolving Credit Facility from $2,800,000 to $2,850,000 and increase the aggregate principal amount of loans outstanding under the Senior Secured Term Loan from $350,000 to $400,000. As a result of the Third Amendment, the Company has increased its liquidity by $100,000. In connection therewith, the Company anticipates a loss on debt modification and retirement of less than $1,000, which includes unamortized debt issuance costs. The related loss on debt modification and retirement will be included in the results of operations and cash flows during the fourth quarter of fiscal 2023. Maturities The aggregate annual principal payments of long-term debt for the remainder of fiscal 2023 and thereafter are as follows: 2023—$0; 2024—$0; 2025—$0; 2026—$485,058; 2027—$2,735,609 and $2,046 thereafter. |
