Sally Beauty Supply 2011 Annual Report Download - page 77

$430.0 million and senior subordinated notes in an aggregate amount of $280.0 million, which we
collectively refer to as the Notes; and (iii) entered into the $400.0 million ABL credit facility, subject to
borrowing base limitations, of which approximately $70.0 million was drawn at closing, which resulted in
the incurrence of aggregate indebtedness in connection with the Separation Transactions of approximately
$1,850.0 million. Please see ‘‘Risk Factors—Risks Relating to Our Substantial Indebtedness.’’
During the fiscal year 2010, the Company prepaid in full its borrowings under the term loan A facility. As
of September 30, 2011, there were outstanding borrowings of $696.9 million under the term loan B facility,
at a contractual interest rate of 2.49%, and outstanding borrowings of $705.0 million under the Notes, at a
weighted average interest rate of 9.75%. As of September 30, 2011, there were no borrowings outstanding
under our ABL credit facility and we had $366.5 million available for borrowing under our ABL credit
facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.
Please see Note 21 of the ‘‘Notes to Consolidated Financial Statements’’ in ‘‘Item 8—Financial Statements
and Supplementary Data’’ contained elsewhere in this Annual Report.
The agreements and instruments governing our debt contain restrictions and limitations that could
significantly impact our ability to operate our business. These restrictions and limitations relate to:
• disposal of assets • making investments (including joint ventures)
• incurrence of additional indebtedness • mergers, consolidations or sales of
(including guarantees of additional subsidiaries’ assets
indebtedness) • ability of subsidiaries to pay dividends
• stock repurchase and distributions • making acquisitions of all of the business or
• certain debt prepayments and modifications assets of or stock representing beneficial
ownership of, any person
• liens on assets
Borrowings under the term loan facilities and the ABL credit facility are secured by substantially all of our
assets, those of Sally Investment Holdings LLC, those of our domestic subsidiaries and, in the case of the
ABL credit facility, those of our Canadian subsidiaries and a pledge of certain intercompany notes. During
the fiscal year 2010, the Company prepaid in full its borrowings under the Term Loan A facility.
Borrowings under the term loan B facility may be prepaid at our option at any time without premium or
penalty and is subject to mandatory prepayment in an amount equal to 50% of excess cash flow (as defined
in the agreement governing the term loan facilities) for any fiscal year unless a specified leverage ratio is
met. Additionally, the term loan B facility is subject to mandatory prepayment in an amount equal to 100%
of the proceeds of specified asset sales that are not reinvested in the business or applied to repay
borrowings under the ABL credit facility. No mandatory repayments of any kind were made or required to
be made in the fiscal year ended September 30, 2011.
The term loan facilities contain a covenant requiring Sally Holdings and its subsidiaries to meet certain
maximum consolidated secured leverage ratio levels, which decline over time. The consolidated secured
leverage ratio is a ratio of (A) net consolidated secured debt to (B) Consolidated EBITDA as defined in
the agreement underlying the term loan facilities. Compliance with the consolidated secured leverage ratio
is tested quarterly, with a maximum ratio of 3.50 as of September 30, 2011. Failure to comply with the
consolidated secured leverage ratio covenant under the term loan facilities would result in a default under
such facilities.
The ABL credit facility contains a covenant requiring Sally Holdings and its subsidiaries to maintain a
fixed-charge coverage ratio of at least 1.0 to 1.0 in the event that availability under the ABL credit facility
falls below certain thresholds. Sally Holdings must comply with the ratio in the event availability is less
than the greater of: (a) the lesser of $60.0 million or 15% of the then current borrowing base and
(b) $40.0 million. The fixed-charge coverage ratio is defined as the ratio of (A) EBITDA (as defined in the
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