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Item 1.01.
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Entry into a Material Definitive Agreement.
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Background
As previously disclosed, on May 15, 2019,
Fred’s, Inc. (the “Company”) and certain of its subsidiaries entered into that certain Forbearance Agreement, Eighth Amendment to Credit Agreement and Fourth Amendment to Amended and Restated Addendum to Credit Agreement (the
“Original Forbearance Agreement”) in response to certain events of default identified by the Company’s Lenders (as defined below) under the Company’s Credit Agreement (as defined below). Among other things, the Original
Forbearance Agreement provided for: (i) the Company’s and certain of its subsidiaries’ stipulation of the occurrence of certain events of default and (ii) the Lenders’ agreement to forbear from exercising remedies under the
Credit Agreement with respect to the stipulated events of default, including the closure of the Closed Stores (as defined in the Original Forbearance Agreement), in each case, until July 22, 2019, subject to the satisfaction of certain
conditions. The conditions included a requirement for the Company to obtain a signed commitment letter or letters by June 21, 2019 for a refinancing of all loans under the Credit Agreement by July 22, 2019 (the “Commitment Letter
Condition”), with the failure to comply with such condition or other conditions resulting in the early termination of the forbearance period. As of June 21, 2019, the Company had not obtained a signed commitment letter for a refinancing of
all loans under the Credit Agreement, and accordingly the Commitment Letter Condition was not satisfied.
On June 21, 2019, the Company announced
that it would close an additional 49 underperforming front stores as part of an ongoing effort to optimize store footprint, with the pharmacies remaining open at such locations. In connection with these closures, on June 20, 2019, the Company
and certain of its subsidiaries entered into that certain First Amendment to Forbearance Agreement and Ninth Amendment to Credit Agreement (the “First Amendment”), by and among the Company and certain of its subsidiaries, Regions Bank, in
its capacity as administrative agent and
co-collateral
agent (“Regions”), Bank of America, N.A., in its capacity as
co-collateral
agent (together with Regions,
the “Agents”), and Regions Bank and Bank of America, N.A., as lenders (the “Lenders”). Among other things, the First Amendment provided for (1) an amendment to the definition of “Closed Stores” to include the 49
front stores referenced above; and (2) a reduction of commitments from $125 million to $115 million on June 15, 2019 and a corresponding decrease to the availability requirement. The foregoing description of the First Amendment
is qualified in its entirety by reference to the full text of the First Amendment, which is filed as Exhibit 10.1 to this Current Report on Form
8-K
and incorporated herein by reference. The Original
Forbearance Agreement, as amended by the First Amendment, is referred to herein as the “Forbearance Agreement.”
Second Amendment to
Forbearance Agreement
On July 1, 2019, the Company and certain of its subsidiaries entered into that certain Second Amendment to Forbearance
Agreement, Tenth Amendment to Credit Agreement, Fifth Amendment to Amended and Restated Addendum to Credit Agreement and Third Amendment to Security Agreement (the “Second Amendment”), by and among the Company and certain of its
subsidiaries, the Agents and the Lenders. The Second Amendment amends the Company’s existing (i) Forbearance Agreement, (ii) Credit Agreement, dated as of April 9, 2015, as amended as of October 23, 2015,
December 28, 2016, January 27, 2017, July 31, 2017, August 22, 2017, April 5, 2018, August 23, 2018, May 15, 2019 and June 20, 2019 (as amended, the “Credit Agreement”), (iii) Amended and Restated
Addendum to Credit Agreement, dated as of January 27, 2017, as amended as of July 31, 2017, August 23, 2018, October 15, 2018 and May 15, 2019 (the “Addendum”) and (iv) Security Agreement, dated as of
April 9, 2015, as amended as of July 31, 2017 and August 23, 2018.
Among other things, the Second Amendment provides for the following:
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the funding of a revolving loan of $10,290,411, which was made on July 1, 2019;
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a reduction of commitments from $115 million to $97.5 million on July 1, 2019 and a further
reduction of commitments to $91 million on July 13, 2019, in each case along with corresponding decreases to the availability requirement;
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an agreement to continue to pursue commitment letters for a refinancing transaction;
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an acknowledgment of the failure to satisfy the Commitment Letter Condition;
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a requirement to deliver daily updates to borrowing base certificates with respect to inventory; and
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grants of security interests in additional collateral, including substantially all personal property and the
distribution center located at 2815 GA Highway 257, Dublin, Georgia 31021, and an agreement to grant additional security interests on certain additional real property upon Agents’ request.
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The Second Amendment does not require the Lenders to forbear from exercising remedies under the Credit Agreement with respect to the stipulated events of
default. An event of default, which is not cured or waived, permits, among other remedies, acceleration of the Company’s indebtedness under the Credit Agreement and the addition, at the option of the Required
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