CREDIT FACILITY

9 Months Ended

Oct. 27, 2012

CREDIT FACILITY

CREDIT FACILITY

NOTE 8 — CREDIT FACILITY

On July 12, 2012, Christopher & Banks Corporation and its two subsidiaries, Christopher & Banks, Inc. and Christopher & Banks Company (collectively the “Borrowers”), entered into a Credit Agreement (the “New Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”) as Lender.  The New Credit Facility replaced our prior credit facility with Wells Fargo.  The New Credit Facility provides us with revolving credit loans of up to $50.0 million in the aggregate, subject to a borrowing base formula based primarily on eligible credit card receivables, inventory and real estate, as defined in the New Credit Facility, and up to $10.0 million of which may be drawn in the form of standby and documentary letters of credit. The New Credit Facility expires in July 2017.

We recorded approximately $0.4 million of deferred financing costs in the second quarter of fiscal 2012 in connection with the New Credit Facility.  The deferred financing costs have been recorded within other assets on the consolidated balance sheet and will be amortized as interest expense over the related term of the New Credit Facility.

Borrowings under the New Credit Facility will generally accrue interest at a rate ranging from 2.0% to 2.5% over the London Interbank Offered Rate (“LIBOR”) or 1.0% to 1.5% over Wells Fargo’s prime rate, based on the amount of excess availability as such term is defined in the New Credit Facility.  Letters of credit fees range from 1.5% to 2.5%, depending upon excess availability.

The New Credit Facility contains certain affirmative and negative covenants.  The affirmative covenants include certain reporting requirements, maintenance of properties, payment of taxes and insurance, compliance with laws, environmental compliance and other provisions customary in such agreements.  Negative covenants limit or restrict, among other things, secured and unsecured indebtedness, fundamental changes in the business, investments, liens and encumbrances, transactions with affiliates and other matters customarily restricted in such agreements.  The sole financial covenant contained in the New Credit Facility requires us to maintain availability at least equal to the greater of (a) ten percent (10%) of the borrowing base or (b) $3.0 million.

The New Credit Facility contains events of default that include failure to pay principal or interest when due, failure to comply with the covenants set forth in the New Credit Facility, bankruptcy events, cross-defaults and the occurrence of a change of control, subject to the grace periods, qualifications and thresholds as specified in the New Credit Facility.  If an event of default under the New Credit Facility occurs and is continuing, the loan commitments may be terminated and the principal amount outstanding, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.

Our obligations under the New Credit Facility are secured by the assets of the Company and its subsidiaries pursuant to a Security Agreement, dated July 12, 2012 (the “Security Agreement”).  Pursuant to the Security Agreement, we pledged substantially all of our assets as collateral security for the loans to be made pursuant to the New Credit Facility, including accounts owed to us, bank accounts, inventory, other tangible and intangible personal property, intellectual property (including patents and trademarks), and stock or other evidences of ownership of 100% of all of the Company’s subsidiaries.

We had no revolving credit loan borrowings under our previous or New Credit Facility during the first nine months of fiscal 2012 or the entire transition period.  Historically, we have utilized our credit facility only to open letters of credit.  The total borrowing base at October 27, 2012 was $46.4 million.  As of October 27, 2012, we had open on-demand letters of credit of $3.7 million.  Accordingly, after reducing the borrowing base for the open letters of credit and the required minimum availability of $3.0 million, or 10% of the borrowing base, the net availability of revolving credit loans under the New Credit Facility was $38.1 million at October 27, 2012.