Note F—Debt
Credit Facility
On May 10, 2016,
we entered into
a Fifth Amended
and Restated Credit Agreement
(as further amended,
the “Amended Credit
Agreement”) with Wells
Fargo Bank,
National Association
(“Wells Fargo”), as Administrative
Agent, the Sole
Lead Arranger and
the Sole
Book Runner, and
the financial institutions
named therein
as Lenders,
which are Wells Fargo,
PNC Bank,
and Regions
Bank. Our
subsidiaries M.J.
Soffe, LLC, Culver
City Clothing
Company, Salt Life,
LLC, and
DTG2Go, LLC
(collectively,
the "Borrowers"), are co-borrowers under
the Amended Credit Agreement.
The Borrowers entered into amendments
to the Amended Credit Agreement
with Wells Fargo
and the
other lenders
on November 27, 2017,
March 9, 2018,
October 8, 2018, November 19,
2019, April 27, 2020,
August 28, 2020,
June 2,
2022, January 3,
2023,
February 3, 2023, and March 23, 2023.
On June 2, 2022, the Borrowers entered into the
Seventh Amendment to the Fifth Amended and Restated
Credit Agreement with Wells
Fargo and the other lenders
set
forth therein (the “Seventh Amendment”). The Seventh
Amendment, (i) removes LIBOR based borrowing
and utilizes SOFR (Secured Overnight Financing Rate)
as the
primary pricing structure, (ii) amends
the pricing structure based on SOFR
plus a CSA (Credit Spread Adjustment)
defined as
10
15
tenors, (iii) sets the SOFR floor to
0
bps, (iv) reloads the fair market value
of real estate and intellectual property within the
borrowing base calculation and resets their
respective amortization
schedules, (v) sets
the maturity
date to
5
years from
the closing
date, and
(vi) updates the
requirement for
our Fixed
Charge Coverage
Ratio
(“FCCR”) for the preceding 12-month period to not be less than
1.0
1.1
).
On January 3, 2023, the Borrowers entered into the Eighth Amendment to
the Fifth Amended and Restated Credit Agreement with Wells Fargo 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
On February 3, 2023, the Borrowers entered into
the Ninth Amendment to the Fifth Amended and
Restated Credit Agreement with Wells Fargo and the other lenders set
forth therein (“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
0
; (ii)
the 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
basis points; and (v) a Cash Dominion Trigger
Event occurs if availability is less than $
2,000,000
.
On March 23, 2023, the Borrowers entered into the Tenth Amendment to the Fifth Amended and Restated Credit Agreement with Wells
Fargo and the other lenders set
forth therein to account for specified costs and expenses
in calculating EBITDA for purposes of the Amended Credit
Agreement.
The Amended Credit Agreement allows us to borrow
up to $
170
million (subject to borrowing base limitations), including
a maximum of $
25
million in letters of credit.
Provided that no event of default exists,
we have the option to increase the
maximum credit to $
200
million (subject to borrowing base limitations),
conditioned upon the
Administrative Agent's ability to secure
additional commitments and customary closing conditions. The
Amended Credit Agreement contains a
subjective acceleration
clause and a “springing”
lockbox arrangement (as defined in
ASC 470, Debt) whereby
remittances from customers will be
forwarded to our general bank
account and
will not reduce
the outstanding debt until
and unless a
specified event or an
event of default occurs.
We classify
borrowings under the Amended
Credit Agreement as
long-term debt with consideration of current maturities.
As of March 2023, we had
$
153.1
million outstanding under our U.S. revolving credit facility
at an average interest rate of
7.6
%. Our cash on hand combined
with the
availability under the U.S. revolving
credit facility totaled $
12.8
million. At March 2023 and September
2022, there was $
19.6
24.9
million, respectively, of
retained earnings free of restrictions to make cash dividend
payments or stock repurchases to the extent
permitted under our U.S. revolving credit facility.
Honduran Debt
Since March 2011, we have
entered into term loans and a
revolving credit facility with Banco Ficohsa, a
Honduran bank, to finance investments in both
the operations
and capital expansion of our
Honduran facilities. In December 2020, we
entered into a new term
loan and revolving credit facility with
Banco Ficohsa, both with
five
-
year terms, and
simultaneously settled
the prior term
loans and revolving
credit facility with
outstanding balances
at the time
of settlement of
$
1.1
9.5
respectively. Additionally, in May 2022, we entered
into a new term
loan with a
five
-year term with a
principal amount of $
3.7
million. These loans are
secured by a first-
priority lien on the assets of our Honduran operations and are not guaranteed by our U.S. entities.
These loans are denominated in U.S. dollars, and the carrying value of
the debt approximates its fair value. As the revolving
credit facility permits us to re-borrow funds up
to the amount repaid, subject to certain
objective covenants, and we
intend to re-borrow funds, subject to those covenants, the amounts
borrowed are classified as long-term debt.
El Salvador Debt
In September 2022, we entered into
a new term loan with
a
five
-year term with a principal amount of
$
3.0
million with Banco Ficohsa, a Panamanian bank,
to finance
investments in our
El Salvador operations.
This loan is secured
by a first-priority lien
on the assets
of our El Salvador
operations and is
not guaranteed by
our U.S. entities.
The loan is
denominated in U.S.
dollars, and the
carrying value of
the debt approximates
its fair value.
Information about this
loan and
the outstanding balance
as of
March 2023 is listed as part of the long-term debt schedule below.
Additional information about these loans and the outstanding balances
as of March 2023 is as follows (in thousands):