Michael Kors to focus on debt reduction after Jimmy Choo acquisition

By Devika Patel

Knoxville, Tenn., July 25 – Michael Kors Holdings Ltd. has committed bridge financing from JPMorgan Chase Bank, NA and Goldman Sachs Bank USA to provide the funds needed to complete its planned acquisition of Jimmy Choo plc.

Jimmy Choo shareholders will receive 230p per share, for an enterprise value of about $1.35 billion.

The bridge facility is made up of a £1,115,000,000 term loan that has a 364-day maturity, according to a company announcement.

JPMorgan is lead arranger and administrative agent while Goldman Sachs Bank USA is joint lead arranger and syndication agent.

Michael Kors expects to refinance the commitments with long-term senior secured debt, the announcement said.

Although the company is taking on some debt for the purchase, it plans to prioritize debt reduction after the transaction is completed in order to bring its leverage ratio down to a target range of 2x to 2.25x.

“We are going to re-prioritize our capital allocation and pay down debt following the acquisition,” chief executive officer John D. Idol said on the company’s conference call announcing the acquisition on Tuesday.

“We want to get back to our target leverage ratio of 2x to 2.25x and believe that we can do that in a fairly rapid order given the significant cash flow potential and generation of the combined businesses,” Idol said.

Another top executive echoed Idol’s remarks, saying the company is committed to keeping its investment-grade rating, which necessitates paying down the acquisition debt, bringing Michael Kohrs’ leverage ratio down to the target range.

“We are committed to maintaining an investment-grade credit profile, which includes targeting a leverage ratio of 2x to 2.25x,” executive vice president, chief operating officer and chief financial officer Thomas J. Edwards, Jr. said.

“Following the acquisition, we expect pro forma leverage to be slightly above our target range and we will adjust our capital allocation to prioritize debt reduction,” Edwards said.

The transaction is expected to close in the fourth quarter of calendar 2017.

The luxury lifestyle brand is based in London.

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