School Specialty term loan, ABL amendments add restrictions

By Wendy Van Sickle

Columbus, Ohio, March 18 – School Specialty, Inc. entered into an amendment to its term loan agreement with TCW Asset Management Co. LLC as agent on March 13, and also amended its ABL loan agreement dated June 11, 2013 with Bank of America, NA and Bank of Montreal as lenders, according to an 8-K filing with the Securities and Exchange Commission.

TCW amendment

This amendment increased the applicable margin based on net senior leverage ratio and further increased the applicable margin by a PIK interest rate, which will be subject to adjustment based on the net senior leverage ratio.

It also provides the agent with some board observation rights and limits the amount of outstanding revolving loans to $10 million on the last Saturday of fiscal year 2019 and each day during a 20 consecutive day period that includes that day if the company has not raised $25 million in junior capital proceeds used in a manner specified in the term loan amendment, or $0 on the last Saturday of fiscal year 2019 and each day during a 35 consecutive day period that includes that day if such junior capital raise satisfaction event has occurred.

Additionally, the amendment reduces the limit on capital expenditures to $12.5 million for the four fiscal quarters ending March 30, June 29 and Sept. 28, 2019 and $10 million for the four fiscal quarters ending Dec. 28, 2019.

It also removes the obligation to comply with some financial covenants for the fiscal year ended Dec. 29, 2018; amends the calculation of the fixed charge coverage ratio and reduces the fixed charge coverage ratio in for the remainder of the term of the agreement; and amends the calculation of the net senior leverage ratio and increases the net senior leverage ratio for the remainder of the term, which may be adjusted upon a junior capital raise satisfaction event.

Additional changes include amending a cap on add-backs for non-recurring, unusual or extraordinary charges, business optimization expenses and other restructuring charges; requiring the company to maintain specified availability under the ABL agreement of not less than the greater of $12.5 million or 10% of the commitments; expanding the definition of permitted indebtedness to include subordinated debt used to repay the term loan or the specified unsecured prepetition debt; and providing for additional inspection and audit rights to be conducted by an advisory firm to be appointed by the agent.

In connection with the term loan amendment, the company separately agreed that, starting with the fiscal month ending Sept. 28, 2019, to the extent the payment in full in cash of the obligations has not occurred, the School Specialty will deliver to the agent, on or prior to the date that is 30 days following the last day of each fiscal month warrants to purchase, for a price of $0.001 per share, a designated percentage of the outstanding common stock of the company, with such warrants earned in full and vesting immediately on the date of issuance.

The total number of warrants delivered to the agent shall not exceed warrants to purchase more than 18% of the outstanding common stock of the company.

ABL amendment

This amendment amend the cap on add-backs for non-recurring, unusual or extraordinary charges, business optimization expenses and other restructuring charges or reserves and cash expenses relating to earn outs and similar obligations in definition of EBITDA; limits the total amount of outstanding revolving loans to $10 million on the last Saturday of fiscal year 2019 and each day during a 20 consecutive day period that includes that day if the company has not raised $25 million in junior capital proceeds used in a manner specified in the term loan amendment, or $0 on the last Saturday of fiscal year 2019 and each day during a 35 consecutive day period that includes that day if such junior capital raise satisfaction event has occurred.

It also expands the definition of permitted indebtedness to include subordinated debt in an amount not to exceed $30 million which has been used, first, to repay the specified unsecured prepetition debt, and, to the extent that debt has been repaid in full, the term loan.

The amendment also conditions the repayment of indebtedness with junior capital proceeds upon satisfaction of payment conditions and required the specified unsecured prepetition debt to be repaid in full before junior capital proceeds may be applied to the repayment of other indebtedness.

School Specialty is a Greenville, Wis.-based education company.

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