| Indebtedness and Credit Agreement |
10. Indebtedness and Credit Agreement Following is a summary of indebtedness and lease financing obligations as of September 2, 2023 and March 4, 2023: | | | | | | | | | September 2, | | March 4, | | | 2023 | | 2023 | Secured Debt: | | | | | | | Senior secured revolving credit facility due August 2026 ($2,037,000 and $1,200,000 face value less unamortized debt issuance costs of $13,467 and $16,117) | | | 2,023,533 | | | 1,183,883 | FILO Term Loan due August 2026 ($400,000 face value less unamortized debt issuance costs of $1,782 and $2,090) | | | 398,218 | | | 397,910 | | | | 2,421,751 | | | 1,581,793 | Second Lien Secured Debt: | | | | | | | 7.500% senior secured notes due July 2025 ($320,002 face value less unamortized debt issuance costs of $1,986 and $2,529) | | | 318,016 | | | 317,473 | 8.000% senior secured notes due November 2026 ($849,918 face value less unamortized debt issuance costs of $9,719 and $11,259) | | | 840,199 | | | 838,659 | | | | 1,158,215 | | | 1,156,132 | Unguaranteed Unsecured Debt: | | | | | | | 7.70% notes due February 2027 ($185,691 face value less unamortized debt issuance costs of $347 and $398) | | | 185,344 | | | 185,293 | 6.875% fixed-rate senior notes due December 2028 ($2,046 face value less unamortized debt issuance costs of $6 and $6) | | | 2,040 | | | 2,040 | | | | 187,384 | | | 187,333 | Lease financing obligations | | | 17,724 | | | 18,912 | Total debt | | | 3,785,074 | | | 2,944,170 | Current maturities of long-term debt and lease financing obligations | | | (3,773,356) | | | (6,332) | Long-term debt and lease financing obligations, less current maturities | | $ | 11,718 | | $ | 2,937,838 |
Credit Facility On December 20, 2018, the Company entered into a senior secured credit agreement (as amended by the First Amendment to Credit Agreement, dated as of January 6, 2020, the “Prior Credit Agreement”; and the Credit Agreement, as further amended by the Second Amendment (as defined below), the “Prior Amended Credit Agreement”), which provided for facilities consisting of a $2,700,000 senior secured asset-based revolving credit facility and a $450,000 “first-in, last-out” senior secured term loan facility, the proceeds of which were used in December 2018 to refinance its prior $2,700,000 existing credit agreement. On August 20, 2021, the Company entered into the Second Amendment to Credit Agreement (the “Second Amendment”), which, among other things, amended the Prior Credit Agreement to provide for a $2,800,000 senior secured asset-based revolving credit facility (the “Prior Senior Secured Revolving Credit Facility”) and a $350,000 “first-in, last-out” senior secured term loan facility (“Prior Senior Secured Term Loan” and together with the Prior Senior Secured Revolving Credit Facility, collectively, the “Prior Amended Facilities”). The Prior Amended Facilities extended the Company’s debt maturity profile and provided additional liquidity. Borrowings under the Prior Senior Secured Revolving Credit Facility bore interest at a rate per annum equal to, at the Company’s option, (x) a base rate (determined in a customary manner) plus a margin of between 0.25% to 0.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of between 1.25% and 1.75%, in each case based upon the Average ABL Availability (as defined in the Prior Amended Credit Agreement). Borrowings under the Prior Senior Secured Term Loan bore interest at a rate per annum equal to, at the Company’s option, (x) a base rate (determined in a customary manner) plus a margin of 1.75% or (y) an adjusted LIBOR rate (determined in a customary manner) plus a margin of 2.75%. On December 1, 2022, the Company entered into the Third Amendment to Credit Agreement (the “Third Amendment”), which, among other things, amended the Prior Amended Credit Agreement (the Prior Amended Credit Agreement, as modified by the Third Amendment, the “Existing Credit Agreement”) to provide for a $2,850,000 senior secured asset-based revolving credit facility (the “Existing Senior Secured Revolving Credit Facility”) and a $400,000 “first-in, last-out” senior secured term loan facility (the “Existing Senior Secured Term Loan” and, together with the Existing Senior Secured Revolving Credit Facility, collectively, the “Existing Facilities”), replaced the LIBOR rate with a Term SOFR-based rate as the applicable benchmark for the Existing Facilities, included COVID-19 vaccines in the borrowing base under the Existing Senior Secured Revolving Credit Facility, subject to limitations and conditions as specified in the Existing Credit Agreement, and increased the interest rate applicable to loans under the Existing Senior Secured Term Loan to (x) a base rate (determined in a customary manner) plus a margin of 2.00% or (y) an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 3.00%. The Company is required to pay fees between 0.250% and 0.375% per annum on the daily unused amount of the commitments under the Existing Senior Secured Revolving Credit Facility, depending on Average ABL Availability (as defined in the Existing Credit Agreement). The Existing Facilities are scheduled to mature on August 20, 2026 (subject to a springing maturity if certain of the Company’s existing secured notes are not refinanced or repaid prior to the date that is 91 days prior to the stated maturity thereof). The Company’s borrowing capacity under the Existing Senior Secured Revolving Credit Facility is based upon a specified borrowing base consisting of accounts receivable, inventory and prescription files. As of September 2, 2023, the Company had approximately $2,437,000 of borrowings outstanding under the Existing Facilities and had letters of credit outstanding under the Existing Senior Secured Revolving Credit Facility in a face amount of approximately $210,198, which resulted in remaining borrowing capacity under the Existing Senior Secured Revolving Credit Facility of $602,802. If at any time the total credit exposure outstanding under the Existing Senior Secured Revolving Credit Facility exceeds the borrowing base, the Company will be required to repay amounts outstanding to eliminate such shortfall. The Existing Credit Agreement restricts the Company and all of its subsidiaries including the subsidiaries that guarantee its obligations under the Existing Facilities and the secured guaranteed notes (collectively, the “Subsidiary Guarantors”) from accumulating cash on hand in excess of $200,000 at any time when revolving loans are outstanding (not including cash located in store and lockbox deposit accounts and cash necessary to cover current liabilities). The Existing Credit Agreement also states that if at any time (other than following the exercise of remedies or acceleration of any senior obligations or second priority debt and receipt of a triggering notice by the senior collateral agent from a representative of the senior obligations or the second priority debt) either (i) an event of default exists under the Existing Facilities or (ii) availability under the Existing Senior Secured Revolving Credit Facility is less than or equal to $283,250 for three consecutive business days or less than or equal to $206,000 on any day (a “cash sweep period”), the funds in the Company’s deposit accounts will be swept to a concentration account with the senior collateral agent and will be applied first to repay outstanding revolving loans under the Existing Facilities, and then held as collateral for the senior obligations until such cash sweep period is rescinded pursuant to the terms of the Existing Facilities. With the exception of EI, substantially all of the Company’s 100% owned subsidiaries guarantee the obligations under the Existing Facilities and the secured guaranteed notes. The Company’s obligations under the Existing Facilities and the Subsidiary Guarantors’ obligations under the related guarantees are secured by (i) a first-priority lien on all of the Subsidiary Guarantors’ cash and cash equivalents, accounts receivable, inventory, prescription files (including eligible script lists), intellectual property (prior to the repayment of the Existing Senior Secured Term Loan) and certain other assets arising therefrom or related thereto (including substantially all of their deposit accounts, collectively, the “ABL priority collateral”) and (ii) a second-priority lien on all of the Subsidiary Guarantors’ equipment, fixtures, investment property (other than equity interests in subsidiaries), intellectual property (following the repayment of the Existing Senior Secured Term Loan) and all other assets that do not constitute ABL priority collateral, in each case, subject to customary exceptions and limitations. The subsidiary guarantees related to the Company’s Existing Facilities and the secured guaranteed notes are full and unconditional and joint and several. The Company has no independent assets or operations. Other than EI, the subsidiaries, including joint ventures, that do not guarantee the Existing Facilities and applicable notes, are minor. The Existing Credit Agreement allows the Company to have outstanding, at any time, up to an aggregate principal amount of $1,500,000 in secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock in addition to borrowings under the Existing Facilities and existing indebtedness, provided that not in excess of $750,000 of such secured second priority debt, split-priority debt, unsecured debt and disqualified preferred stock shall mature or require scheduled payments of principal prior to 90 days after the latest maturity date of any Term Loan or Other Revolving Commitment (each as defined in the Existing Credit Agreement) (excluding bridge facilities allowing extensions on customary terms to at least the date that is 90 days after such date). Subject to the limitations described in the immediately preceding sentence, the Existing Credit Agreement additionally allows the Company to issue or incur an unlimited amount of unsecured debt and disqualified preferred stock so long as a Financial Covenant Effectiveness Period (as defined in the Existing Credit Agreement) is not in effect; provided, however, that certain of the Company’s other outstanding indebtedness limits the amount of unsecured debt that can be incurred if certain interest coverage levels are not met at the time of incurrence or other exemptions are not available. The Existing Credit Agreement also contains certain restrictions on the amount of secured first priority debt the Company is able to incur. The Existing Credit Agreement also allows for the voluntary repurchase of any debt or other convertible debt, so long as the Existing Facilities are not in default and the Company maintains availability under its revolver of more than $375,950. The Existing Credit Agreement has a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.00 to 1.00 (i) on any date on which availability under the Existing Senior Secured Revolving Credit Facility is less than $206,000 or (ii) on the third consecutive business day on which availability under the Existing Senior Secured Revolving Credit Facility is less than $257,500 and, in each case, ending on and excluding the first day thereafter, if any, which is the 30th consecutive calendar day on which availability under the revolver is equal to or greater than $257,500. As of September 2, 2023, the availability under the Existing Senior Secured Revolving Credit Facility was at a level that did not trigger the Existing Credit Agreement’s financial covenant. The Existing Credit Agreement also contains covenants which place restrictions on the incurrence of debt, the payments of dividends, the making of investments, sale of assets, mergers and acquisitions and the granting of liens. The Existing Credit Agreement provides for customary events of default including nonpayment, misrepresentation, breach of covenants and bankruptcy. It is also an event of default if the Company fails to make any required payment on debt having a principal amount in excess of $50,000 or any event occurs that enables, or which with the giving of notice or the lapse of time would enable, the holder of such debt to accelerate the maturity or require the repayment, repurchase, redemption or defeasance of such debt. As of September 2, 2023, the Company was in full compliance with the provisions and covenants associated with its debt agreements. The commencement of the Chapter 11 proceedings constituted an event of default that accelerated the Company’s obligations under the Unguaranteed Notes and the Secured Notes. Accordingly, all long-term debt was classified as current on the unaudited condensed consolidated balance sheet as of September 2, 2023. However, any efforts to enforce payment obligations under the debt instruments are automatically stayed as a result of the Chapter 11 proceedings. See Note 16, Subsequent Events, for further information. DIP ABL Credit Agreement As further discussed in Note 16, Subsequent Events, subject to the approval of the Bankruptcy Court, the Company, as borrower (the “DIP ABL Borrower”), and certain of the Company’s direct and indirect debtor-subsidiaries, as guarantors (together with the DIP ABL Borrower, the “DIP ABL Loan Parties”), expect to enter into that certain debtor-in-possession credit agreement (the “DIP ABL Credit Agreement”) with the lenders from time to time party thereto (the “DIP ABL Lenders”) and Bank of America, N.A., as administrative agent and collateral agent (the “DIP ABL Agent”), on the terms and conditions set forth therein. Pursuant to the DIP ABL Credit Agreement, the DIP ABL Lenders have agreed, upon the terms and conditions set forth therein, to make available to the DIP ABL Borrower a superpriority senior secured debtor-in-possession asset-based credit facility in the aggregate principal amount of $3.25 billion, consisting of (x) a $2.85 billion revolving credit facility (the “DIP Revolving Facility”), and (y) a $400 million first-in last-out term loan facility (the “DIP FILO Facility,” and, together with the DIP Revolving Facility, the “DIP ABL Facilities”) in order to (a) repay all outstanding obligations arising under, or related to, the Existing Credit Agreement and the Existing Facilities, (b) fund the Chapter 11 Cases, (c) provide working capital for the DIP ABL Loan Parties during the pendency of the Chapter 11 Cases, and (d) make certain other payments as more fully provided in the Bankruptcy Court orders approving the DIP ABL Facilities, all in accordance with an Approved Budget (subject to the Permitted Variance) and as otherwise provided therein. The DIP ABL Loan Parties’ obligations under the DIP ABL Credit Agreement will be secured by liens on substantially all of the personal property of the DIP ABL Loan Parties, subject to certain exceptions. The DIP ABL Facilities will mature on the date that is twelve months from the Closing Date. The interest rate applicable to loans under the DIP Revolving Facility is an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 3.25%. Additionally, the Company is required to pay a fee of 0.50% per annum on the daily unused amount of the commitments under the DIP Revolving Facility. The interest rate applicable to loans under the DIP FILO Facility is an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 5.25%, which margin is subject to downward adjustment to 4.75% upon the occurrence of certain paydown events, and a 1.00% upfront fee payable upon the Closing Date. The DIP ABL Credit Agreement includes customary negative covenants for debtor-in-possession loan agreements of this type, including covenants limiting the DIP ABL Borrower and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans, advances or guarantees, engage in mergers, consolidations, sales of assets and acquisitions and pay dividends and distributions, in each case subject to customary exceptions for debtor-in-possession loan agreements of this type. The DIP ABL Credit Agreement also includes representations and warranties, mandatory prepayments, affirmative covenants and events of default customary for financings of this type. Certain bankruptcy-related events are also events of default, including, but not limited to, the dismissal by the Bankruptcy Court of any of the Chapter 11 Cases, the conversion of any of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code, the appointment of a trustee pursuant to chapter 11 of the Bankruptcy Code, and certain other events related to the impairment of the DIP ABL Lenders’ rights or liens granted under the DIP ABL Credit Agreement. DIP Term Loan Credit Agreement As further discussed in Note 16, Subsequent Events, subject to the approval of the Bankruptcy Court, the Company, as borrower (the “DIP Term Loan Borrower”), and certain of the Company’s direct and indirect debtor-subsidiaries, as guarantors (together with the DIP Term Loan Borrower, the “DIP Term Loan Parties”), expect to enter into that certain debtor-in-possession term loan agreement (the “DIP Term Loan Credit Agreement,” and, together with the DIP ABL Credit Agreement, the “DIP Credit Agreements”) with the lenders from time to time party thereto (the “DIP Term Loan Lenders”) and Bank of America, N.A., as administrative agent and collateral agent (the “DIP Term Loan Agent”), on the terms and conditions set forth therein. Pursuant to the DIP Term Loan Credit Agreement, the DIP Term Loan Lenders have agreed, upon the terms and conditions set forth therein, including the approval of the Bankruptcy Court, to make available to the DIP Term Loan Borrower a senior secured debtor-in-possession term loan credit facility in the aggregate principal amount of $200 million (the “DIP Term Loan Facility,” together with the DIP ABL Facility and the DIP FILO Facility, the “DIP Facilities”) in order to (a) fund the Chapter 11 Cases, (b) make certain other payments as more fully provided in the Bankruptcy Court orders approving the DIP Term Loan Facility, and (c) provide working capital for the DIP Term Loan Parties during the pendency of the Chapter 11 Cases, all in accordance with an Approved Budget (subject to the Permitted Variance) and as otherwise provided therein. The obligations under the DIP Term Loan Credit Agreement will be secured by liens on substantially all of the real and personal property of the DIP Term Loan Parties, subject to certain exceptions. The DIP Term Loan Facility will mature on the date that is twelve months from the Closing Date. The interest rate applicable to loans under the DIP Term Loan Facility is an adjusted Term SOFR-based rate (determined in a customary manner) plus a margin of 7.50%. The DIP Term Loan Credit Agreement includes customary negative covenants for debtor-in-possession loan agreements of this type, including covenants limiting the DIP Term Loan Borrower and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness, create liens on assets, make investments, loans, advances or guarantees, engage in mergers, consolidations, sales of assets and acquisitions and pay dividends and distributions, in each case subject to customary exceptions for debtor-in-possession loan agreements of this type. The DIP Term Loan Credit Agreement also includes representations and warranties, mandatory prepayments, affirmative covenants and events of default customary for financings of this type. Certain bankruptcy-related events are also events of default, including, but not limited to, the dismissal by the Bankruptcy Court of any of the Chapter 11 Cases, the conversion of any of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code, the appointment of a trustee pursuant to chapter 11 of the Bankruptcy Code, and certain other events related to the impairment of the DIP Term Loan Lenders’ rights or liens granted under the DIP Term Loan Credit Agreement. In connection with the Chapter 11 Cases, the Debtors filed the DIP Motion seeking Bankruptcy Court approval of their entry into and performance under the DIP Credit Agreements and use of cash collateral, as well as certain related relief [Docket No. 38]. The Debtors the Bankruptcy Court has approved the DIP Motion on an interim basis from the bench, pending entry of a revised interim Order, which the Debtors expect to be entered in the immediate term. The Debtors will seek the Bankruptcy Court’s approval of the DIP Motion on a final basis in the coming weeks. Fiscal 2023 and 2024 Transactions On June 13, 2022, the Company commenced a series of cash tender offers to purchase up to $150,000 aggregate principal amount of the Company’s 7.500% Secured Notes, 8.000% Secured Notes, 7.70% Notes due 2027 (the “7.70% Notes”) and 6.875% Notes due 2028 (the “6.875% Notes,” together with the 7.70% Notes, the “Unguaranteed Notes”), subject to prioritized acceptance levels, a subcap of $100,000 with respect to the 7.500% Secured Notes and proration. On June 29, 2022, pursuant to an early settlement, the Company purchased an aggregate principal amount of $114,942 of its 7.500% Secured Notes, $51,695 aggregate principal amount of its 7.70% Notes and $26,955 aggregate principal amount of its 6.875% Notes. In connection therewith, the Company recorded a gain on debt retirement of $41,312, which included unamortized debt issuance costs. The debt repayment and related gain on debt retirement is included in the results of operations and cash flows during the second quarter of fiscal 2023. On November 3, 2022, the Company announced the commencement of a cash tender offer to purchase up to $200,000 aggregate purchase price (not including any accrued and unpaid interest) of the Company’s 7.500% Secured Notes, subject to proration. On November 30, 2022, pursuant to an early settlement, the Company purchased an aggregate principal amount of $160,497 of its 7.500% Secured Notes and on December 9, 2022, pursuant to the final settlement, the Company purchased an additional aggregate principal amount of $4,559 of its 7.500% Secured Notes. In connection therewith, the Company recorded a gain on debt retirement of $38,978, which includes unamortized debt issuance costs. The debt repayment and related gain on debt retirement is included in the results of operations and cash flows during the third quarter of fiscal 2023. On December 1, 2022, the Company entered into the Third Amendment in order to, among other things, increase the aggregate principal amount of commitments under the Existing Senior Secured Revolving Credit Facility from $2,800,000 to $2,850,000 and increase the aggregate principal amount of loans outstanding under the Existing Senior Secured Term Loan from $350,000 to $400,000. As a result of the Third Amendment, the Company has increased its liquidity by $100,000. In connection therewith, the Company recorded a loss on debt modification and retirement of $148, which includes unamortized debt issuance costs. The related loss on debt modification and retirement is included in the results of operations and cash flows during the fourth quarter of fiscal 2023. Maturities The commencement of the Chapter 11 proceedings constituted an event of default that accelerated the Company’s obligations under the Unguaranteed Notes and the Secured Notes (without any action on the part of such noteholders). Accordingly, all long-term debt was classified as current on the unaudited condensed consolidated balance sheet as of September 2, 2023. However, any efforts to enforce payment obligations under the debt instruments are automatically stayed as a result of the Chapter 11 proceedings. See Note 16, Subsequent Events, for further information.
|