The amendment amends the company’s existing credit agreement dated Jan. 9, 2020 and provides a new $90.8 million 364-day senior term loan A to further solidify The Marcus Corporation’s balance sheet. The company intends to use proceeds from the term loan A to repay borrowings under its existing $225 million revolving credit facility, to pay costs and expenses related to the amendment, and for general corporate purposes.
The amendment also amends certain covenants and other terms, including waiving the company’s compliance with the consolidated fixed charge coverage ratio covenant until September 2021. In addition, during the period in which the term loan A is outstanding and testing of financial covenants under the credit agreement is suspended, the amendment also provides for a facility fee on the total revolver commitment equal to 0.40% and that the specified margin for borrowings under the revolving credit facility is 2.1% for LIBOR borrowings and 1.1% for ABR borrowings. The amendment also provides that the specified margin for borrowings under the term loan A is 2.5% for LIBOR borrowings and 1.5% for ABR borrowings, in each case, at all times. The amendment also establishes new minimum EBITDA and consolidated liquidity covenants and includes additional limitations on share repurchases, capital expenditures and the incurrence of priority debt.
The amendment also requires the company to temporarily suspend its quarterly dividend payments for the remainder of 2020 and limits the total amount of quarterly dividend payments during the first two quarters of fiscal 2021, unless the term loan A is repaid and the company is in compliance with prior financial covenants under the credit agreement, at which point the company has the ability to declare quarterly dividend payments as it deems appropriate.
Pursuant to the amendment, all borrowings under the credit agreement will be secured by substantially all of the company’s personal and real property assets, until such date as the term loan A is repaid and the company is in compliance with prior financial covenants under the credit agreement, at which point the credit agreement will return to an unsecured facility.
In conjunction with the amendment, the company also also entered into amendments to the purchase agreements for its outstanding 4.02% and 4.32% senior notes that waive the company’s consolidated fixed charge coverage ratio covenant until September 2021 and secures all borrowings under the senior notes by the majority of the company’s assets, until such date as the term loan A is repaid and the company is in compliance with prior financial covenants, at which point the senior notes will return to unsecured notes. The amendments to the senior notes also include an additional fee payable to each note holder equal to 0.725% per annum on outstanding borrowings until the notes return to unsecured status. Additionally, the amendments establish new minimum EBITDA and consolidated liquidity covenants and additional limitations on share repurchases, capital expenditures and the incurrence of priority debt substantially identical to those included in the amendment.
“The Marcus Corporation has been a conservatively run company for its entire 85 years of existence,” Gregory S. Marcus, president and CEO of The Marcus Corporation, said. “Beginning with my grandfather, Ben Marcus, and continuing with my father, Steve Marcus, its core foundation has always been a focus on maintaining a strong balance sheet. This philosophy has enabled us to weather numerous storms in the past and has positioned us well to weather the current crisis. I don’t think anyone could have imagined a day would come when we would be forced to temporarily close all of our movie theatres and hotels, but because of our enduring focus on our balance sheet, we entered this global COVID-19 crisis from a position of strength.”
At the end of fiscal 2019, The Marcus Corporation’s debt-to-capitalization ratio was 26%. Based upon preliminary information that is unaudited and subject to the completion of the company’s first quarter financial closing procedures, as of March 26, 2020, The Marcus Corporation had a cash balance of $126.5 million, which reflects the borrowing of $220.0 million of its $225.0 million revolving credit facility.
“Even if our theatres and hotels were required to remain closed for the rest of the year, a very unlikely scenario, we believe we have sufficient cash to sustain our operations, even without the new term loan A,” Marcus said. “With today’s announcement, we have provided for an additional ‘insurance policy’ to further enhance our liquidity, which we believe positions The Marcus Corporation to weather this current storm well into 2021, if needed.”
Headquartered in Milwaukee, The Marcus Corporation owns and/or manages 19 hotels, resorts and other properties, and also owns and operates 1,110 screens at 91 theatre locations.