In a news release, Sears Holdings said it completed its separation of the Lands’ End business and received a $500 million dividend. In connection with the spin-off, Lands’ End also entered into a $175 million asset-based senior secured revolving credit facility and a $515 million term loan and indicated in a related 10-K filing that Bank of America was retained to assist in arranging a syndicate of institutional lenders to provide the facilities.
The following was excerpted from a related Lands’ End 10-K filing dated March 25, 2014 on the ABL facilities:
“In connection with the spin-off, Lands’ End said it was pursuing an ABL facility which would provide for maximum borrowings of approximately $175 million for Lands’ End, subject to a borrowing base, with a $30.0 million sub-facility for a UK subsidiary borrower of Lands’ End. We expect the ABL facility to have a letter of credit sub-limit of approximately $70.0 million for domestic letters of credit and a letter of credit sub-limit of approximately $15.0 million for letters of credit for the UK borrower.
Lands’ End is also pursuing a term loan facility of approximately $515 million, the proceeds of which we expect will be used to pay a dividend of $500 million to a subsidiary of Sears Holdings immediately prior to the distribution and to pay fees and expenses associated with the facilities. “We expect our operating free cash flows combined with cash on hand to be sufficient to meet our working capital needs, with anticipated borrowings under the ABL facility only for seasonal inventory needs, which we expect to repay prior to the fiscal year-end.
We have retained Bank of America to assist us in arranging a syndicate of institutional lenders to provide the facilities. Based on discussions with and feedback from Bank of America and potential syndicate members, we expect the facilities to have the terms described below.
The ABL facility is expected to mature on the five year anniversary of the closing date of the facility. The term loan facility is expected to mature on the seven year anniversary of the closing date of the facility and it is expected to amortize at a rate equal to 1% per annum, and to be subject to mandatory prepayment in an amount equal to a percentage of the borrower’s excess cash flows in each fiscal year, ranging from 0% to 50% depending on our secured leverage ratio, and with the proceeds of certain asset sales and casualty events.
All domestic obligations under the facilities will be unconditionally guaranteed by Lands’ End and, subject to certain exceptions, each of its existing and future direct and indirect domestic subsidiaries. In addition, the obligations of the UK borrower under the ABL facility will be guaranteed by its existing and future direct and indirect subsidiaries organized in the UK. The ABL facility will be secured by a first priority security interest in certain working capital of the borrowers and guarantors consisting primarily of accounts receivable and inventory. The term loan facility will be secured by a second priority security interest in the same collateral, with certain exceptions.
The term loan facility also will be secured by a first priority security interest in certain property and assets of the borrowers and guarantors, including certain fixed assets and stock of subsidiaries. The ABL facility will be secured by a second priority security interest in the same collateral.
The ABL Facility would be available following the spin-off for working capital and other general corporate purposes, and is expected to be undrawn at closing, other than for letters of credit.
The interest rates per annum applicable to the loans under the facilities are expected to be based on a fluctuating rate of interest measured by reference to, at the borrowers’ election, either (1) an adjusted LIBOR rate plus a borrowing margin, or (2) an alternative base rate plus a borrowing margin. The borrowing margin will be fixed for the term loan facility and is expected to be between approximately 3.0% and 4.0% in the case of LIBOR loans and between approximately 2.0% and 3.0% in the case of base rate loans. The borrowing margin for the ABL facility is expected to be subject to adjustment based on the average excess availability under the facility for the preceding fiscal quarter, and is expected to range from approximately 1.5% to 2.0% in the case of LIBOR borrowings and from 0.5% to 1.0% in the case of base rate borrowings.
Customary fees are expected to be payable in respect of both facilities. The ABL facility fees will include (1) commitment fees, based on a percentage ranging from approximately 0.25% to 0.375% of the daily unused portions of the facility, and (2) customary letter of credit fees.”