SHORT-TERM BORROWINGS AND LONG-TERM DEBT |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Short-term Borrowings and Long-term Debt | SHORT-TERM BORROWINGS AND LONG-TERM DEBT Credit Facilities
On May 17, 2019, the Company entered into a $1.55 billion senior secured credit facility (the "Credit Agreement") under which it incurred $1.05 billion of indebtedness, the proceeds of which were used primarily to finance a cash transfer to VF in connection with the Separation. At inception, this facility consisted of a five-year $750.0 million term loan A facility (“Term Loan A”), a seven-year $300.0 million term loan B facility (“Term Loan B”) and a five-year $500.0 million revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders and agents party thereto.
The Credit Agreement contained certain affirmative and negative covenants customary for financings of this type, including maintenance of ratios as defined in the Credit Agreement for consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") to consolidated debt (the "Total Leverage Ratio") of 4.00 to 1.00 and EBITDA to consolidated interest expense (the "Consolidated Interest Coverage Ratio") of 3.00 to 1.00, both as measured over the most recent four consecutive fiscal quarters. As of March 2020, the Company was in compliance with all covenants.
On May 5, 2020, given the uncertainties of COVID-19 and the associated impact on future results of operations, the Company entered into an amendment to the Credit Agreement (the “Amendment”) to address potential covenant compliance issues during future reporting periods. The Amendment establishes a temporary relief period for the Company (the "Relief Period") for certain provisions regarding financial covenants including (i) increase of the maximum Total Leverage Ratio, (ii) addition of a minimum liquidity floor of $200.0 million, (iii) addition of a $250.0 million limit on available cash, and (iv) imposition of stricter limitations on investments, acquisitions, restricted payments (including dividends) and the incurrence of indebtedness. The Relief Period is effective until the earlier of (i) the date on which a compliance certificate is delivered for the Company's quarter ended June 2021 or (ii) the date on which a compliance certificate is delivered in respect of any previous fiscal quarter demonstrating that the Company is in full compliance with all financial covenants that were in effect prior to the Amendment and upon the Company's written notification to the administrative agent that the Relief Period should end on such date. For quarterly measurement periods subsequent to the Amendment, the Company is required to maintain a Total Leverage Ratio not to exceed 5.50 to 1.00, 5.50 to 1.00, 5.00 to 1.00 and 4.50 to 1.00 for the periods ended June 2020, September 2020, December 2020 and March 2021, respectively.
The Company expects to maintain compliance with the applicable financial covenants for at least one year from the issuance of our financial statements for the period ended March 2020. If economic conditions caused by COVID-19 do not recover as currently estimated by management, this could impact the Company’s ability to maintain compliance with the applicable financial covenants and require the Company to seek additional amendments to the Credit Agreement. If the Company is not able to enter into such amendments, this would lead to an event of default which, if not cured timely, could require the Company to repay its outstanding debt. In that situation, the Company may not be able to generate sufficient liquidity, through new or refinanced debt, equity financing or asset sales, to repay its outstanding debt.
Short-term Borrowings
At March 2020, December 2019 and March 2019, the Company had $46.4 million, $47.8 million and $36.1 million, respectively, of international lines of credit with various banks, which are uncommitted and may be terminated at any time by either the Company or the banks. Total outstanding balances under these arrangements were $3.5 million, $1.1 million and $8.4 million at March 2020, December 2019 and March 2019, respectively, and primarily consist of letters of credit that are non-interest bearing to the Company.
Long-term Debt
The following table presents the components of long-term debt as recorded in the Company's balance sheet:
The Revolving Credit Facility may be used to borrow funds in both U.S. dollar and certain non-U.S. dollar currencies, and has a $75.0 million letter of credit sublimit. As of March 2020, the Company had $475.0 million of outstanding borrowings under the Revolving Credit Facility and $1.3 million of outstanding standby letters of credit issued on behalf of the Company, leaving $23.7 million available for borrowing against this facility. The outstanding borrowings under the Revolving Credit Facility as of March 2020 were the result of drawdowns taken by the Company as a precautionary measure to provide increased financial flexibility, strengthen the Company’s near-term cash position and provide additional funding for working capital in response to COVID-19, and were repaid at the closing of the Amendment in May 2020 to the extent required to comply with the available cash limitation.
The interest rate per annum applicable to the Revolving Credit Facility and Term Loan A is either a base rate plus a margin of 75 basis points or 175 basis points over the applicable LIBOR benchmark, at the Company's election. During the Relief Period, these rates will either be 225 basis points over the base rate or 325 basis points over the applicable LIBOR benchmark, at the Company’s election. The Company is also required to pay a facility fee to the lenders, currently equal to 30 basis points of the undrawn amount of the facility. During the Relief Period, this facility fee will be equal to 50 basis points of the undrawn amount of the facility. Outside of the Relief Period, these credit spreads and facility fees are subject to adjustments based on the Company's credit ratings.
Additionally, the interest rate per annum applicable to Term Loan B is either a base rate plus a margin of 325 basis points or 425 basis points over the applicable LIBOR benchmark, at the Company's election. The LIBOR rate for both loans is subject to a "floor" of 0%. Interest payments are due quarterly on both Term Loan A and Term Loan B.
Term Loan A had an outstanding principal amount of $700.0 million at March 2020 and December 2019, which is recorded net of unamortized debt issuance costs. As of March 2020, interest expense on this facility was being recorded at an effective annual interest rate of 3.2%, including the amortization of debt issuance costs and the impact of the Company’s interest rate swap agreements.
Term Loan B had an outstanding principal amount of $223.0 million at March 2020 and December 2019, which is recorded net of unamortized original issue discount and debt issuance costs. As of March 2020, interest expense on this facility was being recorded at an effective annual interest rate of 5.9%, including the amortization of original issue discount, debt issuance costs and the impact of the Company’s interest rate swap agreements.
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