Quarterly report pursuant to Section 13 or 15(d)

DEBT

v3.19.2
DEBT
6 Months Ended
Aug. 03, 2019
DEBT  
DEBT

5. DEBT

Long-term debt consists of the following (in thousands):

August 3,

February 2,

August 4,

Interest Rate

2019

2019

2018

Term loan credit facility

Variable

$

2,195,000

$

2,207,450

$

2,220,560

Asset-based revolving credit facility

Variable

 

 

 

118,000

Senior notes

8.00

%

 

500,000

 

 

Senior subordinated notes

5.875

%

 

 

510,000

 

510,000

Total debt

 

2,695,000

 

2,717,450

 

2,848,560

Less unamortized discount/premium and debt costs

(14,709)

(11,550)

(13,212)

Total debt, net

2,680,291

2,705,900

2,835,348

Less current portion

 

(24,900)

 

(24,900)

 

(140,261)

Long-term debt

$

2,655,391

$

2,681,000

$

2,695,087

Revolving Credit Facility

As of August 3, 2019 and August 4, 2018, the borrowing base under our senior secured asset-based revolving credit facility (“Amended Revolving Credit Facility”) was $789.3 million and $850.0 million, respectively, of which Michaels Stores, Inc. (“MSI”) had unused borrowing capacity of $686.1 million and $644.8 million, respectively. As of August 3, 2019 and August 4, 2018, outstanding standby letters of credit, which reduce our borrowing base, totaled $103.2 million and $87.2 million, respectively. On August 30, 2019, the Amended Revolving Credit Facility was amended to extend the maturity to August 2024. There were no other significant changes to the terms under the Amended Revolving Credit Facility.

8% Senior Notes due 2027

On July 8, 2019, MSI issued $500 million in principal amount of 2027 Senior Notes. The 2027 Senior Notes were issued pursuant to an indenture among MSI, certain subsidiaries of MSI, as guarantors, and U.S. Bank National Association, as trustee (the “2027 Senior Notes Indenture”).  The 2027 Senior Notes mature on July 15, 2027 and bear interest at a rate of 8% per year, with interest payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2020.

The net proceeds from the offering and sale of the 2027 Senior Notes, together with cash on hand, were used to redeem MSI’s outstanding 2020 Senior Subordinated Notes.

The 2027 Senior Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by each of MSI’s subsidiaries that guarantee indebtedness under the Amended Revolving Credit Facility and the Amended and Restated Term Loan Credit Facility (collectively defined as the “Senior Secured Credit Facilities”).

The 2027 Senior Notes are general, unsecured obligations of MSI, and the guarantees of the 2027 Senior Notes are general, unsecured obligations of the guarantors. They (i) rank equally in right of payment with all of MSI’s and the guarantors’ existing and future senior debt, including the Senior Secured Credit Facilities, (ii) are effectively subordinated to any of MSI’s and the guarantors’ existing and future secured debt to the extent of the value of the assets securing such debt, including the Senior Secured Credit Facilities, (iii) are structurally subordinated to all of the liabilities of MSI’s subsidiaries that are not guaranteeing the 2027 Senior Notes, and (iv) are senior in right of payment with all of MSI’s and the guarantors’ existing and future subordinated debt.

At any time prior to July 15, 2022, MSI may redeem (a) up to 40% of the aggregate principal amount of the 2027 Senior Notes with the gross proceeds from one or more Equity Offerings, as defined in the 2027 Senior Notes Indenture, at a redemption price of 108% of the principal amount plus accrued and unpaid interest thereon to, but excluding, the redemption date and/or (b) all or part of the 2027 Senior Notes at 100% of the principal amount plus any accrued and unpaid interest thereon to, but excluding, the redemption date plus a make-whole premium. Thereafter, MSI may redeem all or part of the 2027 Senior Notes at the redemption prices set forth below (expressed as percentages of the principal amount of the 2027 Senior Notes to be redeemed) plus any accrued and unpaid interest thereon to, but excluding, the applicable date of redemption, if redeemed during the twelve month period beginning on July 15 of each of the years indicated below:

Year

Percentage

2022

104

%

2023

102

%

2024 and thereafter

100

%

Upon a change in control, MSI is required to offer to purchase the 2027 Senior Notes at 101% of the aggregate principal amount, plus any accrued and unpaid interest thereon to, but excluding, the date of purchase.

Subject to certain exceptions and qualifications, the 2027 Senior Notes Indenture contains covenants that, among other things, limit MSI’s ability and the ability of its restricted subsidiaries, including the guarantors, to:

incur additional indebtedness or issue certain disqualified stock or preferred stock;

create liens;

pay dividends on MSI’s capital stock or make distributions or redeem or repurchase MSI’s capital stock;

prepay subordinated debt or make certain investments, loans, advances, and acquisitions;

transfer or sell assets;

engage in consolidations, amalgamations or mergers, or sell, transfer or otherwise dispose of all or substantially all of their assets; and

enter into certain transactions with affiliates.

The 2027 Senior Notes Indenture also provides for customary events of default which, if any of them occurs, would require or permit the principal of and accrued interest on the 2027 Senior Notes to become or to be declared due and payable. As of August 3, 2019, MSI was in compliance with all covenants.

As of August 3, 2019, net debt issuance costs totaled $6.1 million and are being amortized over the life of the 2027 Senior Notes. As a result of the redemption of our 2020 Senior Subordinated Notes on July 29, 2019, MSI recorded a loss on the early extinguishment of debt of $1.2 million during the second quarter of fiscal 2019.

Interest Rate Swaps

In April 2018, we executed two interest rate swaps with an aggregate notional value of $1 billion associated with our outstanding Amended and Restated Term Loan Credit Facility. The interest rate swaps have a maturity date of April 30, 2021 and were executed for risk management and are not held for trading purposes. The objective of the interest rate swaps is to hedge the variability of cash flows resulting from fluctuations in the one-month LIBOR. The swaps replaced the one-month LIBOR with a fixed interest rate of 2.7765% and payments are settled monthly. The swaps qualify as cash flow hedges and changes in the fair values are recorded in accumulated other comprehensive income in the consolidated balance sheet. The changes in fair value are reclassified from accumulated other comprehensive income to interest expense in the same period that the hedged items affect earnings. Amounts reclassified from accumulated other comprehensive income to interest expense during the second quarters of fiscal 2019 and fiscal 2018 were $0.9 million and $2.0 million, respectively. Amounts reclassified from accumulated other comprehensive income to interest expense during the six months ended August 3, 2019 and August 4, 2018 were $1.6 million and $2.1 million, respectively.