Note 11 — Credit Facilities and Lease Obligations

Lease obligations consist of the following:

	January 31,					February 1,
	2016					2015
	(In thousands)
Capital lease obligations	$	2,709		$	2,940
Financing obligations		8,834			6,747
		11,543			9,687
Less: current portion		(326	)		(333	)
	$	11,217		$	9,354

2013 Revolving Credit Facility

On July 12, 2013, we entered into a $40 million revolving secured credit facility (the “2013 Facility”) which matures in July 2018. The 2013 Facility is secured by a first lien on substantially all of our personal property assets and certain of our domestic subsidiaries. No borrowings were made on the 2013 Facility on the closing date, and we repaid the $21.7 million remaining balance of the 2011 Term Loan and terminated the 2011 Secured Credit Facilities described below. We recorded a pretax charge of approximately $967,000 in the second quarter of fiscal 2014 to write off the unamortized deferred debt issuance costs related to the terminated facility and to reflect the termination of a related interest rate hedge described below.

Interest on borrowings under the 2013 Facility is payable either at LIBOR or the Base Rate (which is the greatest of the prime rate, the Fed funds rate plus 0.50%, or the one-month LIBOR rate plus 1.00%), in each case plus the Applicable Percentage. The Applicable Percentage for LIBOR loans ranges from 1.25% to 2.15%, and for Base Rate loans ranges from 0.25% to 1.15%, in each case depending on our leverage ratio. As of January 31, 2016, the Applicable Percentage was 1.25%.

The 2013 Facility contains provisions which permit us to obtain letters of credit, issuance of which constitutes usage of the lending commitments and reduces the amount available for cash borrowings. At January 31, 2016, we had approximately $10.2 million of letters of credit outstanding, substantially all of which secure our reimbursement obligations to insurers under our self-insurance programs.

We are required to pay a fee equal to the Applicable Percentage for LIBOR-based loans on the outstanding amount of letters of credit. There also is a fee on the unused portion of the 2013 Facility lending commitment, ranging from 0.15% to 0.35%, depending on our leverage ratio. As of January 31, 2016, the fee on the unused portion of the 2013 Facility was 0.15%.

The 2013 Facility requires us to meet certain financial tests, including a maximum leverage ratio and a minimum fixed charge coverage ratio. The leverage ratio is required to be not greater than 2.25 to 1.0 and the fixed charge coverage ratio is required to be not less than 1.3 to 1.0. As of January 31, 2016, our leverage ratio was 0.3 to 1.0 and the fixed charge coverage ratio was 3.7 to 1.0.

The operation of the restrictive financial covenants related to the 2013 Facility may limit the amount we may borrow under the 2013 Facility. The restrictive covenants did not limit our ability to borrow the full $29.8 million of unused credit under the 2013 Facility as of January 31, 2016.

The 2013 Facility also contains covenants which, among other things, generally limit (with certain exceptions): liquidations, mergers, and consolidations; the incurrence of additional indebtedness (including guarantees); the incurrence of additional liens; the sale, assignment, lease, conveyance or transfer of assets; certain investments; dividends and stock redemptions or repurchases in excess of certain amounts; transactions with affiliates; engaging in materially different lines of business; certain sale-leaseback transactions; and other activities customarily restricted in such agreements. The 2013 Facility also prohibits the transfer of cash or other assets to the Parent Company, whether by dividend, loan or otherwise, but provides for exceptions to enable the Parent Company to pay taxes, directors' fees and operating expenses, as well as exceptions to permit dividends in respect of our common stock and stock redemptions and repurchases, to the extent permitted by the 2013 Facility.

The 2013 Facility also contains customary events of default including, without limitation, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other indebtedness in excess of $5 million, certain events of bankruptcy and insolvency, judgment defaults in excess of $5 million and the occurrence of a change of control.

Borrowings and issuances of letters of credit under the 2013 Facility are subject to the satisfaction of usual and customary conditions, including the accuracy of representations and warranties and the absence of defaults.

2011 Secured Credit Facilities

On January 28, 2011, we entered into secured credit facilities (the “2011 Secured Credit Facilities”), consisting of a $25 million revolving credit line (the “2011 Revolver”) and a $35 million term loan (the “2011 Term Loan”), each of which were scheduled to mature in January 2016. The 2011 Secured Credit Facilities were secured by a first lien on substantially all of our assets and those of our domestic subsidiaries. On July 12, 2013, the 2011 Term Loan was paid in full and the 2011 Secured Credit Facilities were terminated.

On March 3, 2011, we entered into an interest rate derivative contract having an aggregate notional principal amount of $17.5 million. The derivative contract entitled us to receive from the counterparty the excess, if any, of the three-month LIBOR rate over 3.00% for each of the calendar quarters in the period beginning April 2012 and ending December 2015. We accounted for this derivative contract as a cash flow hedge. The contract was terminated in July 2013 following the retirement in full of the 2011 Term Loan. In the second quarter of fiscal 2014, the $516,000 unrealized loss on the contract previously included in Accumulated Other Comprehensive Income was reclassified to earnings in the consolidated statement of income because the hedged forecasted transaction (interest on the 2011 Term Loan) would not occur.

Lease Obligations

We acquire equipment and facilities under capital and operating leases and build-to-suit arrangements. In certain build-to-suit leasing arrangements, we incur hard costs related to the construction of leased stores and are therefore deemed the owner of the leased stores for accounting purposes during the construction period. We record the related assets and liabilities for construction costs incurred under these build-to-suit leasing arrangements during the construction period. Upon completion of the leased store, we consider whether the assets and liabilities qualify for derecognition under the sale-leaseback accounting guidance. These leasing arrangements do not qualify for sale-leaseback treatment and, accordingly, we record the transactions as financing obligations. A portion of the lease payments is allocated to land and is classified as an operating lease. The remainder of the lease payments is allocated between interest expense and amortization of the financing obligations. The assets are depreciated over their estimated useful lives. At the end of the lease term, the carrying value of the leased asset and the remaining financing obligation are expected to be equal, at which time we may either surrender the leased assets as settlement of the remaining financing obligation or enter into a new arrangement for the continued use of the asset.

The approximate future minimum lease payments under non-cancelable leases and build-to-suit leasing arrangements as of January 31, 2016 are set forth in the following table:

	Operating		Capital			Financing
Fiscal Year	Leases		Leases			Obligations
	(In thousands)

2017	$	15,914	$	814		$	990
2018		15,162		684			990
2019		12,809		507			990
2020		8,000		439			1,007
2021		7,783		434			1,092
Thereafter		114,365		6,048			17,413
	$	174,033		8,926			22,482
Portion representing interest				(6,058	)		(17,511	)
Portion representing executory costs				(159	)		-
Unamortized balance of financing obligations at end of lease term				-			3,863
Total capital lease and financing obligations			$	2,709		$	8,834

Rent expense, net of rental income, totaled $15.9 million in fiscal 2016, $13.4 million in fiscal 2015 and $12.3 million in fiscal 2014. Such rent expense includes rents under non-cancelable operating leases as well as sundry short-term rentals.

Cash Payments of Interest

Interest paid, inclusive of deferred financing costs, totaled approximately $1.5 million in fiscal 2016, $750,000 in fiscal 2015 and $940,000 in fiscal 2014.