Item 1.01. Entry into a Material Definitive Agreement.
On July 12, 2019, Fred’s, Inc. (the “Company”) and certain of its subsidiaries entered into that certain Third Amendment to Forbearance Agreement and Eleventh Amendment to Credit Agreement (the “Third 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”). The Third Amendment amends the Company’s existing (i) Forbearance Agreement, Eighth Amendment to Credit Agreement and Fourth Amendment to Amended and Restated Addendum to Credit Agreement, dated as of May 15, 2019, as amended as of June 20, 2019 and July 1, 2019 (as amended, the “Forbearance Agreement”) and (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, June 20, 2019 and July 1, 2019 (as amended, the “Credit Agreement”).
Among other things, the Third Amendment provides for the following:
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an amendment to the definition of “Closed Stores” (the closures of which are included in the events of default stipulated by the Company and certain of its subsidiaries in the Forbearance Agreement) to include an additional 129 front stores; and
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a change to the permitted variance from forecasted amounts for disbursements from 15% to 10%.
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The Third 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 Lenders (as defined in the Credit Agreement), of 200 basis points to the applicable interest rate with respect to all loans under the Credit Agreement (the “Default Rate”). As of the date of this Current Report on Form 8-K, the Lenders have not taken any action to accelerate the Company’s indebtedness, impose the Default Rate or exercise other remedies under the Credit Agreement, but there can be no assurance that the Lenders will not do so in the future. If the Company’s indebtedness is accelerated, whether due to the stipulated events of default or otherwise, the Company cannot be certain that it will have sufficient funds available to pay the accelerated indebtedness or that it will have the ability to refinance the accelerated indebtedness on terms favorable to the Company or at all. Any future exercise of remedies by the Lenders under the Credit Agreement could have a material adverse effect on the Company’s business, results of operations and financial condition and could impact the Company’s ability to continue as a going concern.
The Lenders (and their respective subsidiaries or affiliates) have in the past provided, or may in the future provide, investment banking, underwriting, lending, commercial banking, trust and other advisory services to the Company, its subsidiaries or affiliates. These parties have received, and may in the future receive, customary compensation from the Company, its subsidiaries or affiliates, for such services.
The foregoing description of the Third Amendment is qualified in its entirety by reference to the full text of the Third Amendment, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference.