Annual report pursuant to Section 13 and 15(d)

Debt

v3.22.0.1
Debt
 12 Months Ended
Dec. 30, 2021
Debt Disclosure [Abstract]  
Debt Debt
The following table summarizes the Company's long-term debt as of December 30, 2021 and December 31, 2020:
in thousands Maturity Date Interest Rate Per Annum at December 30,
2021		 December 30,
2021		 December 31,
2020
Credit Facilities:
Term Loan B February 14, 2027 2.09% Variable $ 206,602  $ 143,179 
Term Loan B-1 February 14, 2027 n/a Variable —  74,625 
Total secured debt at par value 206,602  217,804 
Less: current maturities 2,103  1,647 
Long-term debt maturities 204,499  216,157 
Less: unamortized discount and debt issuance costs 8,737  9,000 
Total long-term debt $ 195,762  $ 207,157 
n/a - not applicable
Market risk associated with the Company's fixed and variable rate long-term debt relates to the potential change in fair value and negative impact to future earnings, respectively, from a change in interest rates. The aggregate fair value of debt is based primarily on the Company's estimates of interest rates, maturities, credit risk, and underlying collateral and is classified as Level 3 within the fair value hierarchy.
The following table summarizes scheduled maturities of the Company’s debt, including current maturities, as of December 30, 2021:
in thousands Amount
2022 $ 2,103 
2023 2,103 
2024 2,103 
2025 2,103 
2026 2,629 
Thereafter 195,561 
Total minimum debt payments $ 206,602 
Components of interest expense are as follows for the periods presented:
Fiscal Year Ended
in thousands December 30,
2021		 December 31,
2020		 December 26,
2019
Total interest costs, net of interest income $ 7,657  $ 9,606  $ 8,801 
Interest capitalized $ 2,733  $ 1,217  $ — 
Interest expense, net $ 4,924  $ 8,389  $ 8,801 
Term Loan Facility
On February 9, 2021 (the “Effective Date”), Outlets entered into a fifth amendment to the credit agreement governing its senior secured term loan facility (as amended, the “Term Loan Facility”). The fifth amendment provided for, among other things, a supplemental term loan in the aggregate principal amount of $65.0 million (the “Supplemental Term Loan Facility”) that increased the term loan B facility. The Supplemental Term Loan Facility has the same maturity date (February 14, 2027) and terms as the term loan B facility, except that voluntary prepayments made within six months after the Effective Date are subject to a 1.00% soft call prepayment premium. The other terms of loans under the Term Loan Facility remain unchanged, including the applicable margin for loans under the term loan B facility. The proceeds of the Supplemental Term Loan Facility, together with cash on hand, were used to (i) repay the $75.0 million term loan B-1 facility and (ii) pay fees and expenses incurred in connection with the Supplemental Term Loan Facility.
The Term Loan Facility (including loans under the Supplemental Term Loan Facility) provides a margin for loans of: (x) in the case of ABR Loans (as defined in the Term Loan Facility) 1.00% per annum (subject to a leverage-based step-up to 1.25% if Outlets exceeds certain leverage ratio tests), and (y) in the case of Eurodollar Loans (as defined in the Term Loan Facility) 2.00% per annum (subject to a leverage-based step-up to 2.25% if Outlets exceeds certain leverage ratio tests and a 0.00% floor on Eurodollar Loans).
All obligations under the Term Loan Facility (including loans under the Supplemental Term Loan Facility) are secured by (1) a first-priority security interest in substantially all of the property and assets of Outlets and the other guarantors under the Term Loan Facility, with certain exceptions, and (2) a second-priority security interest in the collateral securing the asset-based loan facility (“ABL” or “ABL Facility”).
The Company evaluated the fifth amendment to the Term Loan Facility in accordance with ASC 470-50, Debt, and determined that the amendment resulted in a debt modification that was not an extinguishment. Therefore, no loss on debt extinguishment was recognized. The Company incurred costs of $1.6 million in connection with the refinancing which were comprised of (i) $1.4 million of fees to creditors that were accounted for as debt issuance costs and are amortizing to interest expense over the term of the Term Loan Facility using the interest method and (ii) $0.2 million of professional fees to other third parties that were expensed during the fiscal year ended December 30, 2021 and included in general and administrative expense on the Consolidated Statements of Operations and Comprehensive Income.
Gain on Debt Extinguishment
During the second quarter of fiscal 2020, the Company evaluated a fourth amendment to the Term Loan Facility in accordance with ASC 470-50, "Debt - Modifications and Extinguishments," on a lender-by-lender basis and determined that the incremental term loan borrowing was provided entirely by one lender and its affiliates. As this lender held a portion of the existing Term Loan Facility debt, the Company performed the 10% cash flow test pursuant to ASC 470-50-40-10 and concluded that the results exceeded the 10% threshold. As a result, the Company accounted for this transaction as a partial extinguishment and derecognized the existing debt held by this lender and recorded the new debt at fair value. Based on the difference between the reacquisition price and carrying amount of debt, the Company recognized a $1.0 million gain on early extinguishment of debt during the second quarter of fiscal 2020, which included the original issuance discount of $4.1 million and $0.5 million of unamortized debt issuance costs related to the extinguished debt as part of the calculation.
ABL Facility
As of December 30, 2021, the Company's ABL Facility had a maximum availability of $400.0 million with actual available borrowings limited to the sum, at the time of calculation, of (a) eligible credit card receivables multiplied by the credit card advance rate, plus (b) the cost of eligible inventory, net of inventory reserves, multiplied by the applicable appraisal percentage, plus (c) 85% of eligible net trade receivables, plus (d) all eligible cash on hand, plus (e) 100% of the amount for which the eligible letter of credit must be honored after giving effect to any draws, minus certain Availability Reserves (each component as defined in the ABL Facility). The ABL Facility has a maturity date of February 14, 2025 and is available for issuance of letters of credit and contains a sublimit of $50.0 million for standby letters of credit and commercial letters of credit combined. Available borrowings under the facility are reduced by the face amount of outstanding letters of credit.
All obligations under the ABL Facility are secured by (1) a first-priority security interest in the cash and cash equivalents, accounts receivable, inventory, and related assets of Outlets and the other guarantors under the ABL Facility, with certain exceptions, and (2) a second-priority security interest in substantially all of the other property and assets of Outlets and the other guarantors under the Term Loan Facility.
Net availability under the ABL Facility, as reduced by outstanding letters of credit of $22.5 million, was $377.5 million based on financial data as of December 30, 2021.
Covenants
The credit agreements governing the Term Loan Facility and ABL Facility contain customary restrictive covenants, which, among other things and with certain exceptions, limit the Company’s ability to (i) incur additional indebtedness and liens in connection with such indebtedness, (ii) pay dividends and make certain other restricted payments, (iii) effect mergers or consolidations, (iv) enter into transactions with affiliates, (v) sell or dispose of property or assets, and (vi) engage in unrelated lines of business. In addition, these credit agreements subject the Company to certain reporting obligations and require that the Company satisfy certain financial covenants, including, among other things, a requirement that if borrowings under the ABL Facility exceed 90% of availability, the Company will maintain a certain fixed charge coverage ratio (defined as Consolidated EBITDA less non-financed capital expenditures and income taxes paid to consolidated fixed charges, in each case as more fully defined in the ABL Facility).
The Term Loan Facility has no financial maintenance covenants. The Company is currently in compliance with all material covenants under the credit agreements.
Deferred Debt Issuance Costs and Original Issue Discounts
Deferred debt issuance costs related to the ABL Facility were approximately $0.8 million as of December 30, 2021 and $1.0 million as of December 31, 2020 and are included in other assets on the Consolidated Balance Sheets. Deferred debt issuance costs and original issue discounts related to the Term Loan Facility were $8.7 million as of December 30, 2021 and $9.0 million as of December 31, 2020 and are included in term loans on the Consolidated Balance Sheets. For the fiscal years ended December 30, 2021, December 31, 2020, and December 26, 2019, deferred debt issuance and original issue discount amortization expense was $1.9 million, $1.4 million, and $1.1 million, respectively, and is included in interest expense, net on the Company’s Consolidated Statements of Operations and Comprehensive Income.
Fair Value of Debt
The fair values of certain of the Company’s debt instruments have been determined by utilizing Level 3 inputs, such as available market information and appropriate valuation methodologies, including the rates for similar instruments and the discounted cash flows methodology. Market risk associated with the Company’s fixed and variable rate long-term debt relates to the potential change in fair value and negative impact to future earnings, respectively, from a change in interest rates. The aggregate fair value of debt was based primarily on discounted cash flows utilizing estimated interest rates, maturities, credit risk, and underlying collateral and is classified primarily as Level 3 within the fair value hierarchy. At December 30, 2021 and December 31, 2020, the fair values of the Company’s debt are as follows:
in thousands
 December 30,
2021		 December 31,
2020
Total debt at par value
 $ 206,602  $ 217,804 
Less: unamortized discount and debt issuance costs
 8,737  9,000 
Net carrying amount
 197,865  208,804 
Fair value
 $ 202,986  $ 215,626