Item 1.01Entry into a Material Definitive Agreement.
On December 2, 2019, and effective as of November 22, 2019, School Specialty,
Inc. (the "Company") entered into the Fifth Amendment (the "Term Loan
Amendment") of its Loan Agreement dated as of April 7, 2017 (the "Term Loan
Agreement") among the Company, as borrower, certain of its subsidiaries, as
guarantors, the financial institutions party thereto, as lenders (the "Term Loan
Lenders") and TCW Asset Management Company LLC, as the agent (the "Term Loan
Agent"), in order to, among other things: (1) establish a forbearance period
during which the Term Loan Lenders would forbear the exercise of any rights or
remedies with respect to the Existing Events of Default until a Termination
Event (which would be the earliest of (a) January 31, 2020, (b) March 31, 2020
if a Specified Unsecured Prepetition Debt Satisfaction Event has occurred prior
to January 31, 2020 (the earlier of (a) or (b), the "Outside Date"), (c) at the
election of the Term Loan Agent, the occurrence of an event of default, other
than the Existing Defaults and Anticipated Defaults, (d) the expiration or
termination of the forbearance period described in the ABL Agreement below, or
(e) the occurrence of any Termination Event); (2) provide for the payment of a
$6 million closing fee, which may be reduced to not less than $1.25 million
under certain circumstances; (3) provide for approximately $3.5 million in other
fees to be added to the principal balance of the New Term Loan; (4) in
replacement of the Third Amendment Warrants, issue warrants to purchase, for a
price of $0.01 per share, 18% of the outstanding common stock of the Company,
with such warrants earned in full and vesting immediately on the date of
issuance, but not exercisable until the Outside Date (the "Fifth Amendment
Warrants"), provided that if the Obligations are paid in full in cash on or
prior to (a) February 29, 2020, the Company shall have the right to buy back 50%
of the Fifth Amendment Warrants, and (b) the Outside Date, the Company shall
have the right to buy back 75% of the Fifth Amendment Warrants, in each case for
a price of $0.01 per share; (5) amend the definition of Applicable Margin so
that it will no longer depend on the Net Senior Leverage Ratio and will instead
be set at 7.00% per annum for all Prime Rate Loans and 8.00% per annum for all
LIBOR Rate Loans; (6) amend the definition of PIK Interest Rate so that it will
no longer depend on the Net Senior Leverage Ratio and will instead be set at
2.00% per annum; (7) provide that the New Term Loan and other Obligations shall
bear interest at the Default Rate and to increase the Default Rate by 1.00%,
which increase will be paid in kind by adding such amount to the principal
balance of the Term Loan; (8) convert LIBOR Rate Loans to Prime Rate Loans as
their interest periods expire and eliminate the Company's ability to request to
convert or continue the Term Loan or any portion thereof as LIBOR Rate Loans;
(9) require the delivery on a weekly basis of detailed 13-week budgets (each, a
"Budget"); (10) amend the financial covenants, including the elimination of the
Fixed Charge Coverage Ratio and the Net Senior Leverage Ratio during the
forbearance period, resetting the Minimum EBITDA to be tested monthly, resetting
the minimum Specified Availability to the greater of $12.5 million, replacing
the existing clean-down and ABL Facility usage covenant with the same covenants
as reflected in the ABL Agreement; (11) limit the use of cash receipts to
payment of Budget disbursements and require that the Company not submit ABL
borrowing requests in excess of the amount needed to fund the Budget; (12)
require the Company to pursue a merger, financing transaction, or sale
transaction that will cause the Company to repay the Obligations in full on or
prior to the Outside Date, subject to the satisfaction of various milestones and
conditions; (13) provide full access rights to the Term Loan Agent, its counsel
and its advisors; (14) schedule the maturity date of the Term Loan for November
12, 2020; (15) eliminate a number of the Company's rights under the Term Loan
Agreement, including but not limited to its right to consent to assignments, to
make Permitted Acquisitions, to reinvest proceeds of Asset Dispositions and
Extraordinary Proceeds, and to make Specified Asset Dispositions; and (16)
provide for enhanced inspection rights for the Term Loan Agent.
For purposes of the Term Loan Agreement, a "Specified Unsecured Prepetition Debt
Satisfaction Event" means, among other things, that a specified percentage of
the Specified Unsecured Prepetition Debt has been amended such that its final
maturity is not on or before December 11, 2020, does not
--------------------------------------------------------------------------------
3
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
provide for any payments before that date except for limited percentages in
certain limited circumstances, it accrues interest, payable solely in kind, at a
rate per annum reasonably satisfactory to the Term Loan Agent and the Required
Term Loan Lenders, and can be secured by a third lien on the Term Loan Priority
Collateral, that is subject to an intercreditor agreement, among other things.
Also on December 2, 2019, and effective as of November 22, 2019, the Company
entered into the Eighth Amendment (the "ABL Amendment") to its Loan Agreement
dated June 11, 2013 (the "ABL Agreement") among the Company, certain of its
subsidiary borrowers, Bank of America, N.A. and Bank of Montreal as lenders (the
"ABL Lenders"), and Bank of America, N.A., as agent for the ABL Lenders (the
"ABL Agent") in order to, among other things: (1) establish a forbearance period
during which the ABL Lenders would forbear the exercise of any rights or
remedies with respect to the Existing Events of Default until a Termination
Event (which would be the earliest of (a) January 31, 2020, (b) March 31, 2020
if a Specified Unsecured Prepetition Debt Satisfaction Event has occurred prior
to January 31, 2020 (the earlier of (a) or (b), the "Outside Date"), (c) at the
election of the ABL Agent, the occurrence or existence of an event of default,
other than the Existing Defaults or Anticipated Defaults, (d) the expiration or
termination of the forbearance period provided by the Term Loan Agreement
described above, or (e) the occurrence of any Termination Event); (2) provide
for the payment of a fee equal to 0.50% times the amount of the Commitments in
effect as of the Closing Date under the ABL; (3) amend the definition of
Applicable Margin so that it will no longer depend on the Fixed Charge Coverage
Ratio and will instead be set at 300 bps for all Base Rate Loans and 400 bps for
all LIBOR Loans; (4) require the delivery on a weekly basis of detailed 13-week
budgets (each, a "Budget"); (5) amend the financial covenants, including the
elimination of the Fixed Charge Coverage Ratio and the Net Senior Leverage Ratio
during the forbearance period, adding a covenant testing trailing twelve-month
EBITDA on a monthly basis, in a manner consistent with the Fifth Amendment,
replacing the existing clean-down covenant in Section 10.2.3 of the ABL
Agreement with a clean-down covenant requiring the Loans be paid down to
$10,000,000 at fiscal year end December 28, 2019; (6) limit the use of cash
receipts to payment of Budget disbursements and require that the Company not
submit ABL borrowing requests in excess of the amount needed to fund the Budget;
(7) require the Company to pursue a merger, sale, or other restructuring
transaction that will cause the Company to repay the Term Loan Obligations in
full on or prior to the Outside Date, subject to the satisfaction of various
milestones and conditions; (8) provide full access rights to the ABL Agent, its
counsel and its advisors; (9) schedule the maturity date of the ABL at least 30
days prior to the extended maturity date of the New Term Loan Agreement
described above (October 12, 2020); (10) eliminate a number of the Company's
rights under the ABL Agreement, including but not limited to its right to
consent to assignments, to make Permitted Acquisitions, and to make Specified
Asset Dispositions; (11) amend the definitions of Availability Reserve and
Borrowing Base to add an availability block equal to $15,000,000; and
(12) provide for enhanced inspection rights for the ABL Agent.
The Term Loan Amendment and the ABL Amendment are filed as exhibits herewith and
incorporated herein by reference. The foregoing descriptions of the Term Loan
Amendment and the ABL Amendment do not purport to be complete and are qualified
in their entirety by the full text of such agreements.
The parties also entered into amendments to the related guarantee and collateral
agreements, which are filed as exhibits herewith and incorporated herein by
reference.
--------------------------------------------------------------------------------
4
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Item 9.01.Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. Description
10.1 Fifth Amendment, dated as of November 22, 2019, to the
Loan Agreement, dated as of April 7, 2017, by and among
School Specialty, Inc., as borrower, certain of its
subsidiaries, as guarantors, the financial parties
thereto, as lenders, and TCW Asset Management Company,
LLC, as agent.
10.2 Eighth Amendment, dated as of November 22, 2019, to the
Loan Agreement dated as of June 11, 2013, by and among
School Specialty, Inc. and certain of its subsidiaries,
as borrowers, Bank of America, N.A. and Bank of Montreal,
as lenders, Bank of Montreal as syndication agent, and
Bank of America, N.A., as agent for the lenders.
10.3 First Amendment to Guarantee and Collateral Agreement,
dated as of November 22, 2019, by and among School
Specialty, Inc., as borrower, certain of its
subsidiaries, as guarantors, and TCW Asset Management
Company, LLC, as agent.
10.4 First Amendment to Amended and Restated Guarantee and
Collateral Agreement, dated as of November 22, 2019, by
and among School Specialty, Inc. as a borrower, certain
of its subsidiaries, as borrowers and guarantors, and
Bank of America, N.A., as agent.
--------------------------------------------------------------------------------
5
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
© Edgar Online, source Glimpses
SCHOOL SPECIALTY, LLC 
