Abercrombie & Fitch 2014 Annual Report Download - page 64

ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
64
A summary of future minimum payments under the Term Loan facility is as follows (in thousands):
Fiscal 2015 $ 3,000
Fiscal 2016 $ 3,000
Fiscal 2017 $ 3,000
Fiscal 2018 $ 3,000
Fiscal 2019 $ 3,000
Thereafter $ 284,250
Guarantees and Security
All obligations under the 2014 Credit Facilities are unconditionally guaranteed by A&F and certain of its subsidiaries. The ABL
Facility is secured by a first-priority security interest in certain working capital of the borrowers and guarantors consisting of
inventory, accounts receivable and certain other assets. The Term Loan Facility is secured by a second-priority security interest in
the same collateral, with certain exceptions. The Term Loan Facility is also secured by a first-priority security interest in certain
property and assets of the borrowers and guarantors, including certain fixed assets, intellectual property, stock of subsidiaries and
certain after-acquired material real property. The ABL Facility is secured by a second-priority security interest in the same collateral.
Interest and Fees
Amounts borrowed under the ABL Facility bear interest, at the Company's option, at either an adjusted LIBOR rate plus a margin
of 1.25% to 1.75% per annum, or an alternate base rate plus a margin of 0.25% to 0.75% per annum. The initial applicable margins
with respect to LIBOR loans and base rate loans, including swing line loans, under the ABL Facility are 1.50% and 0.50% per
annum, respectively, and are subject to adjustment each fiscal quarter beginning January 31, 2015, based on average historical
excess availability during the preceding quarter. The Company is also required to pay a fee of 0.25% per annum on undrawn
commitments under the ABL Facility. Customary agency fees and letter of credit fees are also payable in respect of the ABL
Facility.
At the Company's option, borrowings under the Term Loan Facility will bear interest at either (a) an adjusted LIBOR rate no lower
than 1.00% plus a margin of 3.75% per annum or (b) an alternate base rate plus a margin of 2.75% per annum. Customary agency
fees are also payable in respect of the Term Loan Facility.
The interest rate on borrowings under the Term Loan Facility was 4.75% as of January 31, 2015.
Representations, Warranties and Covenants
The 2014 Credit Facilities contain various representations, warranties and restrictive covenants that, among other things and subject
to specified exceptions, restrict the ability of A&F and its subsidiaries to incur indebtedness (including guarantees), grant liens,
make investments, pay dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage
in mergers, dispose of certain assets or change the nature of their business. In addition, excess availability equal to the greater of
10% of the loan cap or $30 million must be maintained under the ABL Facility. The 2014 Credit Facilities do not otherwise contain
financial maintenance covenants.
The Company was in compliance with the covenants under the 2014 Credit Facilities as of January 31, 2015.
13. DERIVATIVES
The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivatives, primarily
forward contracts, to manage the financial impacts of these exposures. The Company does not use forward contracts to engage in
currency speculation and does not enter into derivative financial instruments for trading purposes.
In order to qualify for hedge accounting treatment, a derivative must be considered highly effective at offsetting changes in either
the hedged item’s cash flows or fair value. Additionally, the hedge relationship must be documented to include the risk management
objective and strategy, the hedging instrument, the hedged item, the risk exposure, and how hedge effectiveness will be assessed