| Item 1.01 |
Entry into a Material Definitive Agreement.
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Purchase Agreement, Indenture and Notes
On June 13, 2023, Bread Financial Holdings, Inc. (the “Company”) closed its previously announced offering of $316.25 million aggregate principal amount of 4.25% Convertible
Senior Notes due 2028 (the “Notes”). The Notes were issued pursuant to an indenture (the “Indenture”) dated as of June 13, 2023 among the Company, certain of the Company’s domestic subsidiaries as guarantors and U.S. Bank Trust Company, National
Association, as trustee (the “Trustee”).
In connection therewith, on June 8, 2023, the Company entered into a purchase agreement (the “Purchase Agreement”) with certain initial purchasers (the “Initial
Purchasers”) agreeing, subject to customary conditions, to issue and sell $275 million aggregate principal amount of Notes to the Initial Purchasers. Pursuant to the Purchase Agreement, the Company also granted the Initial Purchasers an option to
purchase, for settlement within a period of 13 days beginning on, and including, June 13, 2023, up to an additional $41.25 million aggregate principal amount of Notes. On June 12, 2023, the Initial Purchasers informed the Company that they were
exercising their option to purchase the additional $41.25 million aggregate principal amount of Notes. The Notes issued on June 13, 2023 include $41.25 million aggregate principal amount of Notes issued pursuant to the full exercise by the Initial
Purchasers of such option.
After deducting the Initial Purchasers’ discounts and our estimated offering expenses, the net proceeds to the Company from the offering of the Notes are estimated to be
approximately $305.5 million. After payment of the cost of entering into the capped call transactions described below, the Company intends to use the remainder of the net proceeds from the Notes offering to repay in part the outstanding loans under
the Company’s existing credit agreement, by and among the Company as borrower, certain of the Company’s subsidiaries as guarantors, the banks party thereto and Wells Fargo Bank, N.A. as administrative agent, dated June 14, 2017, as amended,
supplemented or otherwise modified from time to time (the “Existing Credit Agreement”).
The Notes will be the Company’s senior, unsecured obligations and will be (i) equal in right of payment to the rights of creditors under the Company’s other existing and
future senior, unsecured indebtedness (including indebtedness under the Existing Credit Agreement, the New Credit Agreement (as defined below), the 4.750% Senior Notes due 2024 and the 7.000% Senior Notes due 2026); (ii) senior in right of payment to
the rights of creditors under the Company’s existing and future indebtedness expressly subordinated to the Notes; (iii) effectively subordinated to any future secured indebtedness, to the extent of the value of the collateral securing that
indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables but excluding intercompany obligations and liabilities of a type not required to be reflected on a balance sheet
in accordance with GAAP, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s non-guarantor subsidiaries, including Comenity Bank, Comenity Capital Bank and the Company’s variable interest entities (VIEs)
and (v) senior in right of payment under any of the Company’s Series A Non-Voting Preferred Stock with respect to rights of creditors upon liquidation, winding up and dissolution. On the issue date, the Notes will be guaranteed by each of the
Company’s domestic subsidiaries that guarantees the Company’s obligations under its existing 4.750% Senior Notes due 2024, 7.000% Senior Notes due 2026, the Existing Credit Agreement and the New Credit Agreement. After the issue date, any wholly
owned domestic subsidiaries of the Company that guarantees, or becomes issuer, co-issuer or co-obligor (as applicable) of, any “Covered Debt Securities” (as defined in the Indenture) will become a subsidiary guarantor under the Indenture.
The Notes will accrue interest at a rate of 4.25% per annum, payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2023. The
Notes will mature on June 15, 2028, unless earlier repurchased, redeemed or converted. Holders may surrender their Notes, in integral multiples of $1,000 principal amount, for conversion into cash and, if applicable, shares of the Company’s common
stock, prior to the close of business on the second scheduled trading day immediately preceding the maturity date based on the applicable conversion rate and only under certain circumstances specified within the Indenture. Upon surrender of Notes for
conversion, the Company will pay cash up to the aggregate principal amount of the Notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common
stock at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the Notes being converted. The initial conversion rate for the Notes is 26.0247 shares of the
Company’s common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $38.43 per share of the Company’s common stock), subject to adjustment as provided in the Indenture. Holders will not receive any
cash payment or, if applicable, additional shares representing accrued and unpaid interest upon conversion of a Note, except in limited circumstances. Instead, interest will be deemed paid by the cash and, if applicable, shares of the Company’s
common stock paid or delivered, as the case may be, to holders upon conversion.
The Notes will be redeemable for cash in whole or in part (subject to the “Partial Redemption Limitation” (as defined in the Indenture)), at the Company’s option, on a
redemption date occurring on or after June 21, 2026 and before the 51st scheduled trading day before the maturity date, but only if the closing price per share of the Company’s common stock equals or exceeds 130% of the conversion price for each of
at least 20 trading days, whether or not consecutive, including the trading day immediately before the date the Company sends the related redemption notice, during the 30 consecutive trading days ending on, and including, the trading day immediately
before the date the Company sends such notice.
If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then noteholders may require the Company to repurchase all or a
portion of their Notes at a cash repurchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to, but excluding, the Fundamental Change repurchase date. The definition of Fundamental
Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s common stock.
If certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur or if the Company delivers a notice of
redemption, the Company will, in certain circumstances, increase the conversion rate applicable to Notes that are converted in connection with such Make-Whole Fundamental Change or Notes that are called (or deemed called as provide in the Indenture)
for redemption and converted in connection with such notice of redemption.
If an “Event of Default” (as defined in the Indenture) (other than specified events of bankruptcy, insolvency or reorganization of the Company (and not
solely with respect to a “Significant Subsidiary” of the Company or any group of “Guarantors” that, taken together, would constitute a “Significant Subsidiary” (each such term as defined in the Indenture))) occurs and is continuing, the trustee or
the holders of at least 25% in principal amount of the outstanding Notes may declare the principal and accrued and unpaid interest on all the outstanding Notes to be immediately due and payable. If an event of default relating to specified events of
bankruptcy, insolvency or reorganization involving the Company (and not solely with respect to a Significant Subsidiary or any group of Guarantors that, taken together, would constitute a Significant Subsidiary) occurs, the principal and accrued and
unpaid interest on all the outstanding Notes will automatically become immediately due and payable without further action or notice by any person.
With the exception of covenants restricting the Company’s ability to merge, consolidate or sell all or substantially all of the Company’s assets, the
Indenture does not provide for restrictive covenants.
The above descriptions of the Purchase Agreement, the Indenture and the Notes are summaries and are not complete, and are qualified in their entirety by
reference to the full and complete text of the Purchase Agreement, the Indenture and the Form of Note, a copy each of which is attached as Exhibits 10.1, 4.1 and 4.2, respectively, to this Current Report on Form 8-K and incorporated by reference
herein.
Capped Call Transactions
On June 8, 2023, in connection with the pricing of the Notes, the Company entered into privately negotiated capped call transactions (the “Base Capped Call
Transactions”) with certain of the Initial Purchasers or their affiliates and other financial institutions (the “Option Counterparties”). In addition, on June 12, 2023, in connection with the Initial Purchasers’ exercise of their option to purchase
additional Notes, the Company entered into additional capped call transactions (the “Additional Capped Call Transactions,” and, together with the Base Capped Call Transactions, the “Capped Call Transactions”) with each of the Option Counterparties.
The Capped Call Transactions cover, subject to customary anti-dilution adjustments, the aggregate number of shares of the Company’s common stock that initially underlie the Notes, and are expected generally to reduce potential dilution to the
Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap, based on
the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions is initially $61.48, which represents a premium of 100% over the last reported sale price of the Company’s common stock on June 8, 2023. The cost of the
Capped Call Transactions was approximately $39.2 million, which was paid to the Option Counterparties on June 13, 2023 in connection with the closing of the offering of Notes.
The Capped Call Transactions are separate transactions, each between the Company and the applicable Option Counterparty, and are not part of the terms of
the Notes and will not affect any holder’s rights under the Notes or the Indenture. Holders of the Notes will not have any rights with respect to the Capped Call Transactions.
The above description of the Capped Call Transactions is a summary and is not complete, and is qualified in its entirety by reference to the full and
complete text of the Form of Capped Call Confirmation, a copy of which is attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.
Credit Agreement
On June 13, 2023, upon closing of the Notes Offering and the repayment of all outstanding borrowings and termination of all commitments under the Existing
Credit Agreement, the commitments under the Company’s previously announced credit agreement, dated as of June 7, 2023, with certain of its subsidiaries, as guarantors, JPMorgan Chase Bank, N.A, as administrative agent, and other financial
institutions as lenders (the “New Credit Agreement”) became available to be borrowed, subject to customary borrowing conditions applicable to the borrowings thereunder. A description of the New Credit Agreement was included in Item 1.01 to the
Company’s Current Report on Form 8-K, filed on June 8, 2023, and is incorporated herein by reference.
Following the closing of the Notes Offering, all outstanding borrowings under the Existing Credit Agreement have been repaid and all commitments thereunder
have been terminated.
The above description of the New Credit Agreement is a summary and is not complete, and is qualified in its entirety by reference to the full and complete
text of the New Credit Agreement, a copy of which is attached as Exhibit 10.2 to this Current Report on Form 8-K and incorporated herein by reference.