Summary
Starbucks Corporation (SBUX) announced on November 19, 2010, the execution of a new $500 million unsecured, revolving credit facility. This facility, maturing on November 17, 2014, provides the company with significant financial flexibility, including the option to increase commitments up to $1 billion. The interest rate is set at 1.50% over LIBOR, subject to adjustments based on credit ratings and financial covenants. This new credit agreement replaces a previous facility that was terminated concurrently. The covenants include maintaining a fixed charge coverage ratio of 2.50 to 1, and customary events of default are detailed. This move indicates Starbucks' proactive approach to managing its liquidity and capital structure.
Key Highlights
- 1Starbucks entered into a new $500 million unsecured, revolving credit facility.
- 2The credit facility has a maturity date of November 17, 2014.
- 3The company has the option to increase credit commitments by an additional $500 million, potentially reaching a total of $1 billion.
- 4The interest rate is set at 1.50% over LIBOR, with potential adjustments based on credit ratings and financial performance.
- 5The new credit agreement led to the termination of a prior credit facility dated August 12, 2005.
- 6Key covenants include maintaining a minimum fixed charge coverage ratio of 2.50 to 1.
- 7The agreement outlines standard events of default, including change of control and cross-defaults.
Frequently Asked Questions
The new credit agreement provides Starbucks with financial flexibility and liquidity. It serves as a revolving credit facility that the company can draw upon for its operational needs, potential investments, or to manage its working capital.
An unsecured credit facility means that Starbucks is not required to pledge specific assets as collateral to secure the loan. This is typically indicative of a company with a strong credit profile, as lenders are comfortable extending credit based on the company's general creditworthiness.
The provision to increase the credit facility up to $1 billion suggests that Starbucks anticipates potential future needs for a larger pool of capital or wants to ensure it has substantial borrowing capacity available to support growth or manage unforeseen circumstances.
Starbucks terminated its previous credit agreement in connection with entering into the new, likely more favorable or better-suited, credit facility. Companies often renegotiate or replace credit lines to secure better terms, terms that align with their current financial strategy, or a larger credit capacity.