Pier 1 2016 Annual Report Download - page 52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
or, if earlier, at the end of each interest period, at either (a) the LIBOR rate plus a spread varying from 125 to 175 basis points per
year, depending on the amount then borrowed under the Revolving Credit Facility, or (b) the prime rate (as defined in the
Revolving Credit Facility) plus a spread varying from 25 to 75 basis points per year, depending on the amount then borrowed
under the Revolving Credit Facility. The Company pays a fee ranging from 125 to 175 basis points per year for standby letters of
credit depending on the average daily availability as defined by the facility, 62.5 to 87.5 basis points per year for trade letters of
credit, and a commitment fee of 25 basis points per year for any unused amounts. As of February 27, 2016 and February 28,
2015, the fee for standby letters of credit was 125 basis points per year and 62.5 basis points per year for trade letters of credit.
In addition, the Company will pay, when applicable, letter of credit fronting fees on the amount of letters of credit outstanding.
The Revolving Credit Facility includes a requirement that the Company has minimum availability equal to the greater of 10% of the
line cap, as defined under the Revolving Credit Facility, or $20,000,000. The Company’s Revolving Credit Facility may limit the
ability of the Company to, among other things, incur or guarantee additional indebtedness, pay dividends on, or redeem or
repurchase capital stock, make certain acquisitions or investments, incur or permit to exist certain liens, enter into transactions with
affiliates or sell the Company’s assets to, or merge or consolidate with or into, another company, in each case, subject to certain
exceptions. The Company will not be restricted from paying certain dividends unless credit extensions on the line result in
availability over a specified period of time that is projected to be less than 17.5% of the lesser of either $350,000,000 or the
calculated borrowing base, subject to the Company meeting a fixed charge coverage requirement when availability over the same
specified period of time is projected to be less than 30.0% of the lesser of either $350,000,000 or the calculated borrowing base.
During fiscal 2016 and 2015 the Company repaid all cash borrowings under the Revolving Credit Facility. During fiscal 2014
there were no cash borrowings under the Revolving Credit Facility. Credit extensions under the Revolving Credit Facility are
limited to the lesser of $350,000,000 or the amount of the calculated borrowing base, as defined by the agreement, which was
$341,423,000 as of February 27, 2016. The borrowing base calculation is subject to advance rates and commercially
reasonable availability reserves. As of February 27, 2016, the Company utilized approximately $37,606,000 in letters of credit
and bankers’ acceptances against the Revolving Credit Facility. Of the outstanding balance, approximately $21,031,000 related
to a standby letter of credit for the Company’s workers’ compensation and general liability insurance policies, $9,715,000 related
to a standby letter of credit related to the Company’s industrial revenue bonds and $6,860,000 related to other miscellaneous
standby letters of credit. After excluding the $37,606,000 in utilized letters of credit and bankers’ acceptances from the
borrowing base, $303,817,000 remained available for cash borrowings.
Term Loan Facility — The Company entered into the Term Loan Facility on April 30, 2014. The Term Loan Facility matures on
April 30, 2021, and is secured by a second lien on all assets subject to a first lien under the Revolving Credit Facility and a first
lien on substantially all other assets of certain of the Company’s subsidiaries, subject to certain exceptions. At the Company’s
option, borrowings under the Term Loan Facility will bear interest, payable quarterly or, if earlier, at the end of each interest period,
at either (a) the LIBOR rate (as defined in the Term Loan Facility) subject to a 1% floor plus 350 basis points per year or (b) the
base rate (as defined in the Term Loan Facility) subject to a 2% floor plus 250 basis points per year. The Company’s weighted
average effective interest rate, including fees, was 5.1% for fiscal 2016. As of February 27, 2016, the Company had
$197,000,000 in borrowings under the Term Loan Facility with a carrying value of $192,865,000, net of unamortized discounts
and debt issuance costs. The proceeds of the loan were used for general corporate purposes, including working capital needs,
capital expenditures, and share repurchases and dividends permitted under the Term Loan Facility. The Term Loan Facility is
subject to quarterly amortization of principal equal to 0.25% of the original aggregate principal amount of the loans, with the
balance due at final maturity. The Company is subject to an annual excess cash flow repayment requirement, as defined in the
Term Loan Facility. At the Company’s option, and subject to the requirements and provisions of the Term Loan Facility, the
Company can prepay the Term Loan Facility at any time. The fair value of the Term Loan Facility was approximately
$188,135,000 as of February 27, 2016, which was measured at fair value using the quoted market price. The Term Loan Facility
was classified as Level 2 based on the frequency and volume of trading for which the price was readily available. Level 2 inputs
include quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the asset or liability.
The Term Loan Facility includes restrictions on the Company’s ability to, among other things, incur or guarantee additional
indebtedness, pay dividends on, or redeem or repurchase shares of the Company’s capital stock, make certain acquisitions or
investments, materially change the business of the Company, incur or permit to exist certain liens, enter into transactions with
affiliates or sell the Company’s assets to, or merge or consolidate with or into, another company, in each case subject to certain
exceptions. The Term Loan Facility does not require the Company to comply with any financial maintenance covenants, but
contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default. The
Term Loan Facility provides for incremental facilities, subject to certain conditions, including the meeting of certain leverage ratio
requirements as defined therein, to the extent such facilities exceed an incremental $200,000,000.
46 PIER 1 IMPORTS, INC. 2016 Form 10-K