8-KMaterial Agreements

ROSS STORES, INC. 8-K Report, Material Agreement (Jul 7, 2020)

Filed July 7, 2020For Securities:ROST

Summary

Ross Stores, Inc. (ROST) filed a Form 8-K on July 6, 2020, to report a material definitive agreement. The company entered into a First Amendment to its Note Purchase Agreement, originally dated October 17, 2006, which governs its outstanding $65 million in 6.53% Series B Senior Notes due December 2021. This amendment modifies certain financial covenants related to these notes. The primary purpose of the amendment is to align the covenants with those in the company's existing revolving credit facilities. Notably, two previous covenants related to debt-to-capitalization and interest coverage ratios have been replaced. The new covenants include a "Consolidated Adjusted Debt to EBITDAR ratio" requirement (no less than 4.50:1.00 starting in fiscal Q1 2021) and a minimum liquidity requirement of $800 million initially, stepping down to $500 million thereafter. These changes aim to provide financial flexibility while ensuring the company maintains adequate financial health.

Key Highlights

  • 1Ross Stores amended its Note Purchase Agreement for its Series B Senior Notes.
  • 2The amendment modifies financial covenants related to the $65 million in outstanding notes due December 2021.
  • 3New covenants are now aligned with those in the company's revolving credit facilities.
  • 4Two prior financial covenants (debt-to-capitalization and interest coverage) have been replaced.
  • 5A new "Consolidated Adjusted Debt to EBITDAR" ratio covenant is introduced, with a minimum requirement of 4.50:1.00 starting Q1 fiscal 2021.
  • 6A minimum liquidity requirement of $800 million (initially) and $500 million (thereafter) has been established.
  • 7These changes are intended to provide the company with greater financial flexibility.

Frequently Asked Questions

The main purpose of this filing is to report that Ross Stores, Inc. has entered into a First Amendment to its Note Purchase Agreement. This amendment modifies the financial covenants associated with its outstanding Series B Senior Notes.

The amendment replaces two previous financial covenants (debt-to-capitalization and interest coverage ratios) with two new ones: a 'Consolidated Adjusted Debt to EBITDAR ratio' (requiring a ratio of no less than 4.50:1.00 from fiscal Q1 2021) and a minimum liquidity requirement of $800 million initially, which will be $500 million thereafter. These new covenants are consistent with those in the company's revolving credit facilities.

The amendment does not change the principal amount or maturity date of the Series B Senior Notes ($65 million due December 2021). Instead, it alters the financial performance metrics the company must meet to remain in compliance with the terms of the note agreement. The updated covenants are designed to provide more flexibility, particularly in light of potential economic conditions.

EBITDAR stands for Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent. It is a measure of a company's operating performance and is often used in financial covenants as it can provide a more normalized view of a company's ability to service its debt, especially for retailers who have significant rent expenses.