Item 1.01.
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Entry into a Material Definitive Agreement.
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Second Lien Credit Agreement
On
April 10, 2019, Restoration Hardware, Inc., a wholly-owned subsidiary of RH, entered into a Credit Agreement (the Second Lien Credit Agreement), dated as of April 9, 2019 and effective as of April 10, 2019, among
(i) Restoration Hardware, Inc., as lead borrower, (ii) the guarantors party thereto, (iii) the lenders party thereto, each of whom are funds and accounts managed or advised by either Benefit Street Partners L.L.C. and its affiliated
investment managers or Apollo Capital Management, L.P. and its affiliated investment managers, as applicable, and (iv) BSP Agency, LLC as administrative agent and collateral agent (the Second Lien Administrative Agent) with respect
to a second lien term loan in an aggregate principal amount equal to $200,000,000 with a maturity date of April 9, 2024 (the Second Lien Term Loan).
The Second Lien Term Loan bears interest at an annual rate generally based on LIBOR plus 6.50%. This rate is a floating rate that resets
periodically based upon changes in LIBOR rates during the life of the Second Lien Term Loan. At the date of borrowing, the rate was set at one month LIBOR plus 6.50%.
All obligations under the Second Lien Term Loan are secured by a second lien security interest in assets of the loan parties including
inventory, receivables and certain types of intellectual property. The second lien security interest is granted with respect to substantially the same collateral that secures the Eleventh Amended and Restated Credit Agreement, dated as of
June 28, 2017, as amended on June 12, 2018, as amended on November 23, 2018, and as further amended on April 4, 2019 (the ABL First Lien Credit Agreement), among Restoration Hardware, Inc., as lead borrower, various
other subsidiaries of RH named therein as borrowers, the guarantors party thereto, the lenders party thereto and Bank of America, N.A. as administrative agent and collateral agent (the First Lien Administrative Agent). The second lien ranks
junior in priority and is subordinated to the first lien in favor of the lenders with respect to the ABL First Lien Credit Agreement.
The
borrowings under the Second Lien Credit Agreement may be prepaid in whole or in part at any time, subject to certain minimum payment requirements including (i) a prepayment premium in the amount of 2.0% of the principal amount of the Second
Lien Term Loan that is prepaid during the first year after the effective date of the Second Lien Credit Agreement, (ii) 1.0% of the principal amount of the Second Lien Term Loan that is prepaid during the second year after the effective date of
the Second Lien Credit Agreement, and (iii) no prepayment premium after the second anniversary of the effective date of the Second Lien Credit Agreement.
The Second Lien Credit Agreement contains various restrictive and affirmative covenants generally in line with the covenants and restrictions
contained in the ABL First Lien Credit Agreement including required financial reporting, a negative pledge limiting the granting of liens, limitations on making certain loans or investments other than permitted investments, restricted payment
limitations limiting the payment of dividends and certain other transactions and distributions, limits on transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of a similar
type and size.
The Second Lien Credit Agreement contains a financial ratio covenant not found in the ABL First Lien Credit Agreement
based upon a net senior secured leverage ratio of consolidated secured debt to consolidated EBITDA as follows:
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The net senior secured leverage ratio test is based on the ratio of (i) the sum of (a) all obligations
outstanding under the Second Lien Term Loan and the ABL First Lien Credit Agreement plus (b) all other secured indebtedness of RH and certain of its subsidiaries that is (x) senior or
pari passu
to the lien on the Second Lien Term
Loan collateral or (y) secured by property that does not constitute Second Lien Term Loan collateral under the Second Lien Term Loan, less (c) all unrestricted cash and cash equivalents of RH and certain of its subsidiaries subject to a
blocked account control agreement, to (ii) consolidated EBITDA of RH and certain of its subsidiaries (the Net Senior Secured Leverage Ratio).
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The Net Senior Secured Leverage Ratio may not exceed 3:50 to 1:00 as of the last day of any fiscal quarter. The
Second Lien Credit Agreement also contains a consolidated fixed charge coverage ratio generally based on the same formulation set forth in the ABL First Lien Credit Agreement such that the borrower may not make certain restricted
payments in the event that the ratio of (i) consolidated EBITDA to the amount of (ii) debt service costs plus certain other costs is less than 1.00 to 1.00 (the FCCR Covenant) and the level of unused availability under
the ABL First Lien Credit Agreement drops below certain levels.
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