Item 1.02 Termination of a Material Definitive Agreement.
On April 9, 2019, Destination Maternity Corporation (the “Company”) and Bank of America, N.A. (“Bank of America”) mutually terminated that certain commitment letter between the parties, dated as of September 26, 2018 (the “Original Commitment Letter”), as amended by that certain commitment extension letter, dated as of December 17, 2018 (the “Commitment Extension Letter” and, with the Original Commitment Letter, the “Commitment Letter”).
Pursuant to the Commitment Letter, subject to the satisfaction of certain conditions, Bank of America had committed to provide the Company with senior secured credit facilities (the “Credit Facility”) in an amount of up to $77 million, the proceeds of which were expected to refinance the Company’s revolving credit facility with Wells Fargo Bank, N.A. (the “Revolving Credit Agreement”) and its term loan credit agreement with Pathlight Capital LLC (the “Term Loan Credit Agreement” together, with the Revolving Credit Agreement, the “Existing Credit Facilities”). In entering into the Commitment Letter the Company had sought to reduce the interest costs payable under its Existing Credit Facilities. However, following a detailed evaluation and analysis, the Commitment Letter was terminated after taking into account, among other reasons, the fact that the prepayment penalties associated with terminating the Existing Credit Facilities could have adversely impaired the Company’s liquidity position.
Following the termination of the Commitment Letter, the Company will maintain the Existing Credit Facilities. As of the date hereof, the Company is in full compliance with the terms and conditions of the Existing Credit Facilities. As of February 2, 2019, the Company had approximately $15.3 million of available borrowings under their Existing Credit Facilities.
The foregoing description of the Original Commitment Letter and the Commitment Extension Letter does not purport to be complete and is qualified in its entirety by reference to (a) the Original Commitment Letter, which was filed as Exhibit 10.1 to the Company’s Current Report filed on September 26, 2018, and (b) the Commitment Extension Letter which was filed as Exhibit 10.1 to the Company’s Current Report filed on December 17, 2018. The foregoing description of the Existing Credit Facilities does not purport to be complete and is qualified in its entirety by reference to the Company’s Current Report on Form 10-K filed on April 19, 2018, which incorporates by reference the Revolving Credit Agreement and Term Loan Credit Agreement in Exhibits 10.9 and 10.46, respectively.
Bank of America (and its respective subsidiaries or affiliates) have in the past provided, and may in the future provide, investment banking, underwriting, lending, commercial banking, trust and other advisory services to the Company and its subsidiaries for which they have received and may in the future receive compensation.
Item 7.01 Regulation FD Disclosure.
In connection with the termination of the Commitment Letter, the Company made the following statement:
While the proposed refinancing with Bank of America was an attempt to reduce the Company’s cost of capital, the Company is pleased to continue to have the support of its current lenders, Wells Fargo and Pathlight Capital. As the Company continues to improve its inventory position and reduce working capital needs, the Company will continue to look for opportunities to reduce its cost of capital, and deliver shareholder value. The Company remains focused on right sizing its inventory. At the end of fiscal year 2018, the Company reduced its balance sheet inventory by 10% versus the prior quarter, and reduced its aged inventory units by 21% versus the prior year. As previously announced, the Company expects to generate $7 million in cash flow during fiscal year 2019 from working capital improvements due to itson-going inventory reduction efforts.
