Levi Strauss & Co.
As Economic Slowdown Continues, Retailers Are Balancing Liquidity Against Financial Covenant Requirements
Thu 06/04/2020 09:19 AM
In a prior report dated April 29, we analyzed the potential impact of the coronavirus on the financial covenants and related liquidity outlook for a number of retail companies, including At Home Group, Party City, The Container Store and GameStop.
In this report, we discuss the liquidity profile and financial covenants of various retail companies, including Levi Strauss & Co., Lands' End Inc. and Abercrombie and Fitch.
Levi Strauss and Lands' End’s revolver agreements contain a springing 1x fixed charge coverage ratio covenant, and our analysis finds that those covenants appear to not be at risk of being breached. Abercrombie and Fitch’s revolver agreement contains a minimum availability requirement of the greater of $30 million and 10% of the line cap, which is not at risk of being breached. Our findings, however, are based on figures reported by the companies in their most recent reporting cycles, pro forma for recent borrowings. Because EBITDA for 2020 periods is expected to be significantly less due to the Covid-19 pandemic, the actual ratio levels may be worse than their pro forma levels indicate.
Our findings are summarized in the below table and discussed in more detail further below.
Levi Strauss disclosed that in early April it drew $300 million on its ABL revolver and issued $500 million of 5.00% senior notes due 2025. Pro forma for the draw and issuance, the company had $2.2 billion of liquidity, including $1.7 billion of cash and $520 million of additional revolver availability.
Levi Strauss’ revolver contains a springing 1x fixed charge coverage ratio (“FCCR”) covenant, which is calculated as the ratio of (a) EBITDA less taxes and capex to (b) the sum of interest and scheduled debt principal payments. The covenant is tested on a rolling basis if availability is less than the greater of $65 million and 10% of the line cap, which was $850 million as of Feb. 23, 10% of which is $85 million.
The company’s FCCR as of Feb. 23, pro forma for the $300 million revolver draw and $500 million notes issuance, was approximately 4.5x. The covenant was not tested as of Feb. 23 because pro forma availability was $520 million. The covenant will be tested if the company draws an additional $435 million on the revolver.
Assuming availability under the revolver is reduced below that threshold and assuming all else holds constant, EBITDA as of Feb. 23 of approximately $724 million can decline by no more than about $344 million before the covenant may be breached.
For Levi Strauss’ capital structure, click HERE.
Lands' End disclosed that in early April it drew $75 million on its ABL revolver. Pro forma for the revolver draw, the company had $267 million of liquidity, including $152 million of cash and $115 million of additional revolver availability.
Lands’ End’s revolver contains a springing 1x fixed charge coverage ratio (“FCCR”) covenant, which is calculated as the ratio of (a) EBITDA less taxes and unfinanced capex to (b) the sum of cash interest and scheduled debt principal payments. The covenant is tested on a rolling basis if availability is less than the greater of $15 million and 10% of the line cap, which was $200 million as of April 6, 10% of which is $20 million.
The company’s FCCR as of Jan. 31, pro forma for the $75 million revolver draw, was approximately 1.2x. The covenant was not tested as of Jan. 31 because pro forma availability was then $115 million. The covenant will be tested if the company draws an additional $95 million on the revolver.
Assuming availability under the revolver is reduced below that threshold and assuming all else holds constant, EBITDA as of Jan. 31 of approximately $78 million can decline by no more than about $6 million before the covenant may be breached.
For Lands’ End’s capital structure, click HERE.
Abercrombie disclosed that on March 26 it drew $210 million on its ABL revolver. Pro forma for the revolver draw, the company had $942 million of liquidity, including $881 million of cash and $61 million of additional revolver availability.
Abercrombie’s revolver contains a minimum availability covenant, which requires that availability be at least the greater of $30 million and 10% of the line cap, which was $272 million as of Feb. 1, 10% of which is $27 million.
The maintenance covenant is tested regardless of availability, and, although Abercrombie is currently in compliance with the covenant, based on current financials, it cannot incur more than $30 million of revolving debt and remain in compliance.
For Abercrombie’s capital structure, click HERE.
--Maribeth Lemen
In this report, we discuss the liquidity profile and financial covenants of various retail companies, including Levi Strauss & Co., Lands' End Inc. and Abercrombie and Fitch.
Levi Strauss and Lands' End’s revolver agreements contain a springing 1x fixed charge coverage ratio covenant, and our analysis finds that those covenants appear to not be at risk of being breached. Abercrombie and Fitch’s revolver agreement contains a minimum availability requirement of the greater of $30 million and 10% of the line cap, which is not at risk of being breached. Our findings, however, are based on figures reported by the companies in their most recent reporting cycles, pro forma for recent borrowings. Because EBITDA for 2020 periods is expected to be significantly less due to the Covid-19 pandemic, the actual ratio levels may be worse than their pro forma levels indicate.
Our findings are summarized in the below table and discussed in more detail further below.
Levi Strauss & Co.
Levi Strauss disclosed that in early April it drew $300 million on its ABL revolver and issued $500 million of 5.00% senior notes due 2025. Pro forma for the draw and issuance, the company had $2.2 billion of liquidity, including $1.7 billion of cash and $520 million of additional revolver availability.
Levi Strauss’ revolver contains a springing 1x fixed charge coverage ratio (“FCCR”) covenant, which is calculated as the ratio of (a) EBITDA less taxes and capex to (b) the sum of interest and scheduled debt principal payments. The covenant is tested on a rolling basis if availability is less than the greater of $65 million and 10% of the line cap, which was $850 million as of Feb. 23, 10% of which is $85 million.
The company’s FCCR as of Feb. 23, pro forma for the $300 million revolver draw and $500 million notes issuance, was approximately 4.5x. The covenant was not tested as of Feb. 23 because pro forma availability was $520 million. The covenant will be tested if the company draws an additional $435 million on the revolver.
Assuming availability under the revolver is reduced below that threshold and assuming all else holds constant, EBITDA as of Feb. 23 of approximately $724 million can decline by no more than about $344 million before the covenant may be breached.
For Levi Strauss’ capital structure, click HERE.
Lands' End
Lands' End disclosed that in early April it drew $75 million on its ABL revolver. Pro forma for the revolver draw, the company had $267 million of liquidity, including $152 million of cash and $115 million of additional revolver availability.
Lands’ End’s revolver contains a springing 1x fixed charge coverage ratio (“FCCR”) covenant, which is calculated as the ratio of (a) EBITDA less taxes and unfinanced capex to (b) the sum of cash interest and scheduled debt principal payments. The covenant is tested on a rolling basis if availability is less than the greater of $15 million and 10% of the line cap, which was $200 million as of April 6, 10% of which is $20 million.
The company’s FCCR as of Jan. 31, pro forma for the $75 million revolver draw, was approximately 1.2x. The covenant was not tested as of Jan. 31 because pro forma availability was then $115 million. The covenant will be tested if the company draws an additional $95 million on the revolver.
Assuming availability under the revolver is reduced below that threshold and assuming all else holds constant, EBITDA as of Jan. 31 of approximately $78 million can decline by no more than about $6 million before the covenant may be breached.
For Lands’ End’s capital structure, click HERE.
Abercrombie and Fitch
Abercrombie disclosed that on March 26 it drew $210 million on its ABL revolver. Pro forma for the revolver draw, the company had $942 million of liquidity, including $881 million of cash and $61 million of additional revolver availability.
Abercrombie’s revolver contains a minimum availability covenant, which requires that availability be at least the greater of $30 million and 10% of the line cap, which was $272 million as of Feb. 1, 10% of which is $27 million.
The maintenance covenant is tested regardless of availability, and, although Abercrombie is currently in compliance with the covenant, based on current financials, it cannot incur more than $30 million of revolving debt and remain in compliance.
For Abercrombie’s capital structure, click HERE.
--Maribeth Lemen
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2024 Reorg Research, Inc. All rights reserved.