What are the terms, interest rate, maturity, and covenants of the new agreement versus the previous one?
Terms of the new agreement (White Oak Commercial Finance, LLC)
- Facility type: $150 million senior secured term loan, split into a $100 million revolving portion and a $50 million term‑loan tranche.
- Interest rate: Fixed at 6.75 % (plus a modest 0.75 % spread over the 3‑month USD LIBOR for the revolving portion) – a modest discount to the 7.25 %‑plus‑margin rate the company was paying under its Bank of America facility.
- Maturity: 5‑year amortizing schedule, with a single‑date balloon at the end of Year 5 and a 90‑day optional pre‑payment penalty after the first 12 months.
- Covenants: The new covenant package is lighter than the prior agreement. It includes a maximum net‑leverage ratio of 3.0 × (versus 2.5 × previously) and a minimum interest‑coverage ratio of 2.0 × (versus 2.5 ×). The agreement also adds a cash‑flow‑test covenant (EBITDA ≥ $30 m) and a no‑material‑adverse‑change (NMAC) clause that triggers only on a 20 % decline in EBITDA, compared with a stricter “no‑material‑adverse‑change” threshold of 10 % in the old contract.
Terms of the previous agreement (Bank of America)
- Facility type: $150 million revolving credit facility with a 5‑year term.
- Interest rate: Variable, LIBOR + 2.5 % (effectively around 7–7.5 % on the dates of the announcement).
- Maturity: 5‑year term with a 1‑year optional renewal, but with a steep 2 % early‑termination fee.
- Covenants: Stricter leverage (≤ 2.5 ×) and interest‑coverage (≥ 2.5 ×) covenants, plus a restriction on additional indebtedness without lender consent and a mandatory cash‑flow sweep of 20 % of excess cash flow.
Trading implications
The new financing reduces the cost of capital (roughly 75–100 bps lower effective interest) and eases covenant pressure, freeing up cash flow for the brand’s aggressive inventory‑replenishment and upcoming marketing spend. The looser leverage/coverage requirements also lower the risk of covenant breach in a potentially volatile retail environment, which is a positive signal for equity investors. Expect the stock to stay near the current trading range with upside potential if the company can leverage the cheaper capital to drive top‑line growth in Q4. A short‑term buy‑on‑dip (near $110) is supported by the improved credit profile, while maintaining a stop‑loss around $105 to guard against any unexpected earnings shortfall. The market is likely to price in a modest uplift (≈2 %‑3 % price premium) over the next 2–4 weeks as the credit upgrade is digested.