Note P—Subsequent Events
On January 3, 2023, Delta Apparel, Inc. and its
subsidiaries, M.J. Soffe, LLC, Culver City Clothing Company (f/k/a Junkfood Clothing Company), Salt Life,
LLC, and
DTG2Go, LLC (f/k/a Art
Gun, LLC) (collectively, the “Borrowers”)
entered into an Eighth
Amendment to the Fifth
Amended and Restated Credit
Agreement with Wells
Fargo Bank (the
“Agent”) and
the other lenders
set forth therein
(the “Eighth
Amendment”). The Eighth
Amendment essentially
clarifies the Amended
Credit Agreement’s
provisions regarding the inclusion of eligible in-transit inventory in the borrowing base and amends the definition of Increased Reporting Event to include 12.5% of the
lesser of the borrowing base and the maximum revolver
amount as opposed to 12.5% of the line cap.
On February 3, 2023, the
Borrowers entered into a Ninth
Amendment to the Fifth
Amended and Restated Credit
Agreement with the Agent and
the other lenders set forth
therein (the “Ninth Amendment”). The Ninth Amendment adds an Accommodation Period beginning on the amendment date and continuing through the date following
September 30, 2023, upon which Borrowers satisfy minimum availability thresholds and during which: (i)
the minimum borrowing availability thresholds applicable to
the Amended Credit
Agreement are (a)
through (and including)
April 1, 2023,
$
7,500,000
, (b) on
and after April
2, 2023 through
(and including) June
4, 2023, $
9,000,000
,
(c) on and after June 5, 2023, through
the date following September 30, 2023,
upon which Borrowers satisfy minimum availability
thresholds, $
10,000,000
; and (d) at all
times thereafter, $
0
; (ii) the Fixed
Charge Coverage Ratio (“FCCR”)
covenant is suspended;
(iii) Borrowers must
maintain specified minimum
EBITDA levels for
trailing
three-month periods starting March 4, 2023; (iv) the Applicable Margin with respect to loans under the Amended Credit Agreement is increased by
50
(v) a Cash Dominion
Trigger Event occurs if
availability is less
than $
2,000,000
.
The Ninth Amendment
also, among other
things, (i) amends
the FILO maximum
amount
calculation by reloading
5
% of eligible accounts receivable (capped at $
3,000,000
) and deferring the applicable amortization schedules to August 1, 2023; (ii) defers
the
monthly amortization payments for
real estate, machinery
and equipment, and intellectual
property assets to August
1, 2023; (iii) requires weekly
reporting of availability
through the date following
September
30, 2023, upon which
Borrowers satisfy minimum availability thresholds;
and (iv) prohibits certain
restricted payments through
the date following September 30, 2023, upon which Borrowers
satisfy minimum availability thresholds.
The foregoing summary of the Eighth and Ninth Amendments and the
transactions contemplated thereby does not purport to be complete and is qualified
in its entirety
by reference to the text of the
Eighth and Ninth Amendments, which are filed herewith as
Exhibits 10.1 and 10.2 to this
Quarterly Report on Form 10-Q and which are
incorporated herein by reference.
We
expect the Eighth
and Ninth Amendments will
enhance our borrowing base
and allow us to
access more of our
availability under the Amended
Credit Agreement
while easing the financial covenant restrictions for the remainder
of fiscal 2023.
See Part II, Item 5. Other Information for additional
detail regarding the Ninth Amendment.