Long-Term Debt Maturities

NOTE 6—LONG-TERM DEBT

The Company’s long-term debt consisted of the following:

 

		February 22, 2014				February 23, 2013
4.50% Secured Term Loan Facility due March 2019		$	1,474			$	—
8.00% Senior Notes due May 2016			628				1,000
6.75% Senior Notes due June 2021			400				—
2.17% to 4.25% Revolving ABL Credit Facility due March 2018			—				—
8.00% Secured Term Loan Facility due August 2018			—				834
7.50% Senior Notes due November 2014			—				490
2.21% to 4.25% Revolving ABL Credit Facility due August 2017			—				207
Accounts Receivable Securitization Facility			—				40
Other			18				28
Net discount on debt, using effective interest rates of 4.63% to 8.58%			(16	)			(40	)
Total debt			2,504				2,559
Less current maturities of long-term debt			(18	)			(19	)
Long-term debt		$	2,486			$	2,540

Future maturities of long-term debt, excluding the net discount on debt, as of February 22, 2014 consist of the following:

 

Fiscal Year
2015		$	18
2016			15
2017			643
2018			15
2019			15
Thereafter			1,814

 

The Company’s credit facilities and certain long-term debt agreements have restrictive covenants and cross-default provisions which generally provide, subject to the Company’s right to cure, for the acceleration of payments due in the event of a breach of a covenant or a default in the payment of a specified amount of indebtedness due under certain other debt agreements. The Company was in compliance with all such covenants and provisions for all periods presented.

Senior Secured Credit Agreements

As of February 23, 2013, there were borrowings outstanding under the Company’s six-year $850 term loan due August 2018 (the “Secured Term Loan Facility due August 2018”) of $834 at the rate of LIBOR plus 6.75 percent and including a LIBOR floor of 1.25 percent, of which $9 was classified as current. The Secured Term Loan Facility due August 2018 was also guaranteed by the Company’s material subsidiaries. To secure their obligations under the Secured Term Loan Facility due August 2018, the Company and the guarantors granted a perfected first-priority mortgage lien and security interest for the benefit of the facility lenders in certain of their owned or ground-leased real estate and the equipment located on such real estate. As of February 23, 2013, there was $302 of owned or ground-leased real estate and associated equipment pledged as collateral, classified as Property, plant and equipment, net as well as $767 of assets included in Long-term assets of discontinued operations in the Consolidated Balance Sheets. In addition, the obligations under the Secured Term Loan Facility due August 2018 were secured by second-priority secured interests in the collateral securing the five-year $1,650 asset-based revolving credit facility (the “Revolving ABL Credit Facility due August 2017”), subject to certain limitations to ensure compliance with the Company’s outstanding debt instruments and leases.

On March 21, 2013, the Company entered into (i) an amended and restated five-year $1,000 (subject to borrowing base availability) asset-based revolving credit facility, which pursuant to an accordion feature may be increased to $1,250 upon our request and subject to the agreement of the lenders participating in the increase (the “Revolving ABL Credit Facility due March 2018”), secured by the Company’s inventory, credit card receivables and certain other assets, which bears interest at the rate of LIBOR plus 1.75 percent to LIBOR plus 2.25 percent or prime plus 0.75 percent to 1.25 percent, with facility fees ranging from 0.25 percent to 0.375 percent, depending on utilization and (ii) a new six-year $1,500 term loan (the “Secured Term Loan Facility due March 2019”), secured by substantially all of the Company’s real estate, equipment and certain other assets, which bears interest at the rate of LIBOR plus 5.00 percent and includes a floor on LIBOR set at 1.25 percent (collectively, the “Refinancing Transactions”). The proceeds of the Refinancing Transactions were used to replace the Company’s Revolving ABL Credit Facility due August 2017, the Secured Term Loan Facility due August 2018 and the $200 accounts receivable securitization facility, and refinanced the $490 of 7.50 percent senior notes due November 2014.

Certain of the Company’s material subsidiaries are co-borrowers under the Revolving ABL Credit Facility due March 2018, and this facility is guaranteed by the rest of the Company’s material subsidiaries (the Company and those subsidiaries named as borrowers and guarantors under the Revolving ABL Credit Facility due March 2018, the “ABL Loan Parties”). To secure their obligations under this facility, the ABL Loan Parties have granted a perfected first-priority security interest for the benefit of the facility lenders in its present and future inventory, credit card, wholesale trade, pharmacy and certain other receivables, prescription files and related assets. In addition, the obligations under the Revolving ABL Credit Facility due March 2018 are secured by second-priority liens on and security interests in the collateral securing the Secured Term Loan Facility due March 2019, subject to certain limitations to ensure compliance with the Company’s outstanding debt instruments and leases.

As of February 22, 2014, there were no outstanding borrowings under the Revolving ABL Credit Facility due March 2018. Facility fees under this facility were 0.375 percent. Letters of credit outstanding under the Revolving ABL Credit Facility due March 2018 were $101 at fees up to 2.125 percent and the unused available credit under this facility was $786. As of February 22, 2014, the Revolving ABL Credit Facility due March 2018 was secured on a first priority basis by $1,066 of assets included in Inventories, net, all eligible receivables included in Receivables, net, all of the Company’s pharmacy scripts included in Intangible assets, net and all credit card receivables of wholly-owned stores included in Cash and cash equivalents in the Consolidated Balance Sheets. The maturity date of the Revolving ABL Credit Facility due March 2018 is subject to a springing maturity date that is 90 days prior to May 1, 2016, if more than $250 of the 8.00 percent Senior Notes due 2016 remain outstanding as of that date. Refer to Note 15—Subsequent Events for information regarding the Company’s subsequent amendment to the Revolving ABL Credit Facility due March 2018.

The revolving loans under the Revolving ABL Credit Facility due March 2018 may be voluntarily prepaid in certain minimum principal amounts, in whole or in part, without premium or penalty, subject to breakage or similar costs. The Company and those subsidiaries named as borrowers under the Revolving ABL Credit Facility due March 2018 are required to repay the revolving loans in cash and provide cash collateral under this facility to the extent that the revolving loans and letters of credit exceed the lesser of the borrowing base then in effect or the aggregate amount of the lenders’ commitments under the Revolving ABL Credit Facility due March 2018. During fiscal 2014, the Company borrowed $3,803 and repaid $4,010 under its Revolving ABL Credit Facility due August 2017 and Revolving ABL Credit Facility due March 2018. During fiscal 2013, the Company borrowed $2,291 and repaid $2,111 under its previous revolving credit facility, which was refinanced in August 2012, and its Revolving ABL Credit Facility due August 2017.

The Secured Term Loan Facility due March 2019 is also guaranteed by the Company’s material subsidiaries (together with the Company, the “Term Loan Parties”). To secure their obligations under the Secured Term Loan Facility due March 2019, the Company granted a perfected first-priority security interest for the benefit of the facility lenders in the Term Loan Parties’ equity interest in Moran Foods, LLC, the parent entity of the Company’s Save-A-Lot business, and the Term Loan Parties granted a perfected first priority security interest in substantially all of their intellectual property and a first priority mortgage lien and security interest in certain owned or ground leased real estate and certain additional equipment. As of February 22, 2014, there was $704 of owned or ground-leased real estate and associated equipment pledged as collateral, classified as Property, plant and equipment, net in the Consolidated Balance Sheets. In addition, the obligations of the Term Loan Parties under the Secured Term Loan Facility due March 2019 are secured by second-priority security interests in the collateral securing the Revolving ABL Credit Facility due March 2018.

The loans under the Secured Term Loan Facility due March 2019 may be voluntarily prepaid in certain minimum principal amounts, subject to the payment of breakage or similar costs and, in certain circumstances, a prepayment fee. Pursuant to the Secured Term Loan Facility due March 2019, the Company must, subject to certain customary reinvestment rights, apply 100 percent of Net Cash Proceeds (as defined in the facility) from certain types of asset sales (excluding proceeds of the collateral security of the Revolving ABL Credit Facility due March 2018 and other secured indebtedness) to prepay the loans outstanding under the Secured Term Loan Facility due March 2019. Beginning with the fiscal year ended February 22, 2014, the Company must prepay loans outstanding under the facility no later than 90 days after the fiscal year end in an aggregate principal amount equal to a percentage (which percentage ranges from 0 to 50 percent depending on the Company’s Total Secured Leverage Ratio (as defined in the facility) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the facility) for the fiscal year then ended minus any voluntary prepayments made during such fiscal year with Internally Generated Cash (as defined in the facility). Based on the Company’s Excess Cash Flow for the fiscal year ended February 22, 2014, no prepayment will be required. The potential amount of prepayment from Excess Cash Flow that will be required for fiscal 2015 is not reasonably estimable. As of February 22, 2014, the loans outstanding under the Secured Term Loan Facility due March 2019 had a remaining principal balance of $1,474, none of which was classified as current.

In connection with the Refinancing Transactions, the Company paid financing costs of approximately $76 during fiscal 2014, of which approximately $61 was capitalized and $15 was expensed. In addition, the Company recognized a non-cash charge of approximately $38 for the write-off of existing unamortized financing costs and $22 for the accelerated amortization of original issue discount on the refinanced debt instruments.

 

On May 16, 2013, the Company entered into an amendment to the Secured Term Loan Facility due March 2019 (the “Term Loan Amendment”) that reduced the interest rate for the term loan from LIBOR plus 5.00 percent with a floor on LIBOR set at 1.25 percent to LIBOR plus 4.00 percent with a floor on LIBOR set at 1.00 percent. The Term Loan Amendment also amended the Secured Term Loan Facility due March 2019 to provide that the Company may incur additional term loans under the facility in an aggregate principal amount of up to $500 instead of $250 as in effect prior to the Term Loan Amendment, subject to identifying term loan lenders or other institutional lenders willing to provide the additional loans and the satisfaction of certain terms and conditions. The Term Loan Amendment also contains modified covenants to give the Company additional strategic and operational flexibility. Since the Secured Term Loan Facility due March 2019 was refinanced within the first year of its inception, the Company paid the lenders thereunder a 1.00 percent refinancing premium per the terms of the facility. In connection with the completion of the Term Loan Amendment, the Company paid premiums and financing costs of approximately $17 during fiscal 2014, of which approximately $10 was capitalized and $7 was expensed. In addition, the Company recognized a non-cash charge of approximately $20 for the write-off of existing unamortized financing costs and $7 for the accelerated amortization of original issue discount on the Secured Term Loan Facility due March 2019 during fiscal 2014.

On January 31, 2014, the Company entered into a second amendment to the Secured Term Loan Facility due March 2019 (the “Second Term Loan Amendment”) that further reduced the interest rate for the term loan from LIBOR plus 4.00 percent to LIBOR plus 3.50 percent with the floor on LIBOR remaining at 1.00 percent. The Second Term Loan Amendment also eliminated the springing maturity provision that would have accelerated the maturity of the facility to 90 days prior to May 1, 2016 if more than $250 of the 2016 Senior Notes (defined below) remained outstanding as of that date. In addition, the amendment increased the Company’s flexibility to make future investments permitted under the Secured Term Loan Facility due March 2019. In connection with the completion of the Second Term Loan Amendment, the Company paid and expensed financing costs of approximately $4 during the fiscal fourth quarter ended February 22, 2014. In addition, the Company recognized a non-cash charge of approximately $1 for the write-off of existing unamortized financing costs and accelerated amortization of the original issue discount on the Secured Term Loan Facility due March 2019 during the fourth quarter ended February 22, 2014.

Debentures

On May 21, 2013, the Company completed a modified “Dutch Auction” tender offer (the “Debt Tender Offer”) to purchase up to $372 aggregate principal amount of its outstanding 8.00 percent Senior Notes due 2016 (the “2016 Senior Notes”), in accordance with the terms and subject to the conditions set forth in an Offer to Purchase dated May 2, 2013 and the accompanying Letter of Transmittal. On May 15, 2013 (the “Early Tender Time”), an aggregate principal amount of $372 of the 2016 Senior Notes were validly tendered (and not validly withdrawn) pursuant to the Debt Tender Offer. All notes validly tendered (and not validly withdrawn) pursuant to the Debt Tender Offer at or prior to the Early Tender Time were accepted for purchase and settled by the Company on May 21, 2013. As a result of the Debt Tender Offer being fully subscribed at the Early Tender Time, no 2016 Senior Notes tendered after the Early Tender Time were accepted for purchase.

On May 21, 2013, the Company issued $400 of 6.75 percent Senior Notes due June 2021 (the “2021 Senior Notes”). The Company filed a registration statement on Form S-4 with the Securities and Exchange Commission (the “SEC”) for the exchange of registered 2021 Senior Notes for any and all unregistered 2021 Senior Notes that were issued on May 21, 2013. The exchange offer was completed on December 19, 2013, with all unregistered 2021 Senior Notes that were issued on May 21, 2013 being exchanged for registered 2021 Senior Notes. In connection with the Debt Tender Offer and the issuance of the 2021 Senior Notes, the Company paid financing costs and tender premiums of approximately $52 during the first quarter ended June 15, 2013, of which approximately $3 was capitalized and $49 was expensed. In addition, the Company recognized non-cash charges of $11 for the write-off of existing unamortized financing costs and accelerated amortization of original issue discount on the Secured Term Loan Facility due March 2019 during fiscal 2014.

The remaining $628 of 2016 Senior Notes and the $400 of 2021 Senior Notes contain operating covenants, including limitations on liens and on sale and leaseback transactions. The Company was in compliance with all such covenants and provisions for all periods presented.

 

Other

Prior to the completion of the Refinancing Transactions and at February 23, 2013, the Company had the ability to borrow up to $200 on a revolving basis under its accounts receivable securitization facility, with borrowings secured by eligible accounts receivable, which remained under the Company’s control. As of February 23, 2013, there was $40 of outstanding borrowings under this facility at 1.98 percent. Facility fees on the unused portion were 0.70 percent. As of February 23, 2013, there was $282 of accounts receivable pledged as collateral, classified in Receivables, net, in the Consolidated Balance Sheet. As discussed above, this facility was repaid and terminated on March 21, 2013 in connection with the Refinancing Transactions.

As of February 23, 2013, the Company had $18 of debt with current maturities that were classified as long-term debt due to the Company’s intent to refinance such obligations with the Revolving ABL Credit Facility due March 2018 or other long-term debt.

Future maturities of long-term debt, excluding the net discount on debt, as of February 22, 2014 consist of the following:

 

Fiscal Year
2015		$	18
2016			15
2017			643
2018			15
2019			15
Thereafter			1,814

The Company’s long-term debt consisted of the following:

 

		February 22, 2014				February 23, 2013
4.50% Secured Term Loan Facility due March 2019		$	1,474			$	—
8.00% Senior Notes due May 2016			628				1,000
6.75% Senior Notes due June 2021			400				—
2.17% to 4.25% Revolving ABL Credit Facility due March 2018			—				—
8.00% Secured Term Loan Facility due August 2018			—				834
7.50% Senior Notes due November 2014			—				490
2.21% to 4.25% Revolving ABL Credit Facility due August 2017			—				207
Accounts Receivable Securitization Facility			—				40
Other			18				28
Net discount on debt, using effective interest rates of 4.63% to 8.58%			(16	)			(40	)
Total debt			2,504				2,559
Less current maturities of long-term debt			(18	)			(19	)
Long-term debt		$	2,486			$	2,540