Item 1.01 Entry into a Material Definitive Agreement.
On June 7, 2023, Bread Financial Holdings, Inc. (the “Company”) entered into a credit agreement (the “New Credit Agreement”) with certain of its subsidiaries, as guarantors (the “Guarantors”), JPMorgan Chase Bank, N.A., as administrative agent, and other financial institutions (together, the “lenders”), pursuant to which such lenders have agreed to provide a $700 million senior unsecured revolving credit facility (the “New RCF Facility”) and a $575 million senior unsecured delayed draw term loan facility (the “New Term Loan Facility” and together with the New RCF Facility, the “Facilities”) on terms and subject to conditions set forth in the New Credit Agreement. The effectiveness of the New Credit Agreement, and the Company’s ability to borrow under either Facility, will be subject to customary closing conditions and, in addition, that the Company shall have (i) incurred, established or issued an aggregate of at least $1.55 billion in aggregate principal amount (or in the case of common or preferred equity, gross proceeds) in the form of (a) term or revolving loan commitments (which may include the Facilities), (b) equity or equity-related securities and/or (c) unsecured debt securities ((b) and (c) together “capital markets transactions”) at or prior to 11:59 p.m., New York City time, on September 5, 2023; provided that the aggregate principal amount (or in the case of common or preferred equity, gross proceeds) of the capital markets transactions shall not be less than $250 million and (ii) repaid in full, and terminated the commitments to lending under, the Company’s existing credit agreement, by and among the Company as borrower, certain of the Company’s subsidiaries as guarantors, the banks party thereto and Wells Fargo Bank, N.A. as administrative agent, dated June 14, 2017, as amended, supplemented or otherwise modified from time to time (the “Existing Credit Agreement”). There can be no guarantee that we will fulfill such conditions on or before September 5, 2023 or that the New Credit Agreement will become effective.
Borrowings under the New Credit Agreement will bear interest at an annual rate equal to, at our option, either (a) Term SOFR plus a credit adjustment spread and the applicable margin ranging from 1.75% to 2.75%, dependent upon the ratio of our (i) consolidated tangible net worth to (ii) consolidated total assets, minus the sum of intangible assets and goodwill (the “TCE Ratio”), (b) Daily Simple SOFR plus a credit adjustment spread and the applicable margin ranging from 1.75% to 2.75%, dependent upon the TCE Ratio or (c) a base rate set forth in the New Credit Agreement plus the applicable margin ranging from 0.75% to 1.75%, dependent upon our TCE Ratio.
The New Credit Agreement will provide an uncommitted $700 million accordion feature that will allow the Company to request (x) one or more new term loan facilities, or (y) an increase to the Facilities, which, if provided, may be allocated between the New RCF Facility and the New Term Loan Facility at the option of the Company.
The Facilities will be subject to certain events of default which can be triggered by, among other things, failing to meet the financial covenants, which include maintaining (a) a minimum amount of unrestricted cash and eligible cash equivalents of the Company and the Guarantors, together with unused commitments under the New RCF Facility, of at least $150 million , (b) a common equity tier 1 capital ratio of not less than 10% at any time for each of the Company’s subsidiaries that is an insured depository institution, (c) a maximum average delinquency ratio for the managed receivables of Comenity Bank and Comenity Capital Bank of 4.50% for the most recently ended three consecutive calendar months ending on the last day of any fiscal quarter and (d) a consolidated tangible net worth of not less than the sum of (i) 70% of consolidated tangible net worth as of the end of the fiscal quarter ended March 31, 2023 (the “Measurement FQ”), plus (ii) 25% of cumulative net income of the Company and its consolidated subsidiaries determined in accordance with GAAP for each fiscal quarter commencing with the first fiscal quarter subsequent to the Measurement FQ (excluding any fiscal quarter in which net income of the Company and its consolidated subsidiaries is negative), plus
(iii) 25% of the aggregate net cash proceeds received by the Company in consideration for the issuance of capital stock of the Company (other than issuances to (x) any subsidiary or (y) any current or former director, officer or employee, or estate, heir or family member thereof, or otherwise in connection with an employee benefit plan or similar arrangement) after the end of the Measurement FQ, in each case, on terms and subject to conditions to be set forth in the New Credit Agreement.
The Facilities will mature on the date that is three years after the signing of the New Credit Agreement.
The foregoing description of the New Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the New Credit Agreement, a copy of which will be filed as an exhibit to the Company’s Report of Form 8-K to be filed on the date of effectiveness of the New Credit Agreement.
Upon effectiveness, the New Credit Agreement will replace our existing credit agreement, by and among the Company as borrower, certain of the Company’s subsidiaries as guarantors, the banks party thereto and Wells Fargo Bank, N.A. as administrative agent, dated June 14, 2017, as amended, supplemented or otherwise modified from time to time (as amended, the “Existing Credit Agreement”). We intend to use a portion of the proceeds from the offering of convertible notes announced today, together with cash on hand, to repay all outstanding loans, and terminate all remaining commitments, under the Existing Credit Agreement. As of June 7, 2023, there was an aggregate of $531 million outstanding under the term loan facility under the Existing Credit Agreement.