Gap Inc. Extends $2.2 Billion Asset-Based Credit Facility to 2031 with Enhanced Terms and Flexibility

Extended Maturity and Structural Updates to Core Credit Facility

Gap Inc., a global apparel retailer managing multiple specialty brands, amended its primary asset-based lending (ABL) facility on July 17, 2026, through Amendment No. 2 to the Fourth Amended and Restated Revolving Credit Agreement. The amendment notably extends the maturity date from July 13, 2027, to July 2031, granting the company an additional four years of access to its $2.2 billion revolving credit line. Bank of America, N.A. remains the administrative and collateral agent under the updated agreement.

The amendment also removes previously embedded sustainability-linked pricing adjustments, simplifying the interest rate framework. Furthermore, the facility has been updated to comply with regulatory and legal changes since the original July 13, 2022 agreement, modernizing its operational structure while preserving its core mechanics.

Revised Interest Rate Structure and Borrowing Terms

Under the amended ABL Credit Facility, U.S. dollar-denominated loans bear interest at a per annum rate based on SOFR (with a zero floor) plus a margin between 125 and 150 basis points, depending on borrowing base availability. The company may alternatively select a base rate calculated as the highest of four benchmarks: Federal Funds Rate plus 0.50%, Bank of America prime rate (or equivalent Toronto prime rate for Canadian borrowers), one-month Term SOFR plus 1.00%, or 1.00%, each plus a margin of 25 to 50 basis points, also tied to borrowing base availability.

Loans in other currencies carry interest rates specified elsewhere in the agreement. Undrawn availability incurs an annual fee of 25 basis points. These updated interest provisions replace the prior sustainability-linked pricing, providing Gap with a more conventional and transparent pricing model consistent with market standards for asset-based credit facilities.

Collateral and Guarantee Structure Safeguarding Lender Interests

Gap’s obligations under the amended agreement continue to be guaranteed by select U.S. and Canadian subsidiaries, maintaining the multi-entity support structure established in previous amendments. All Credit Parties—including The Gap, Inc. and designated U.S. and Canadian subsidiaries—grant secured interests in specified assets such as inventory, receivables, and related collateral. This first lien security ensures lender recourse to Gap’s most liquid operating assets.

The collateral arrangement reflects the asset-based nature of the facility, providing lenders direct claims on inventory and trade receivables that underpin Gap’s working capital cycle. The amendment does not materially alter the scope or priority of these secured interests, preserving protections consistent with the original 2022 agreement and its first amendment.

Sublimits and Incremental Borrowing Capacity

The facility’s maximum availability remains $2.2 billion for revolving loans in U.S. dollars or alternative currencies. Within this, three sublimits apply: $300 million for letters of credit, $200 million for swingline loans, and $200 million specifically for Canadian Borrowers. These sublimits allocate capacity for distinct borrowing purposes and entities within Gap’s corporate structure.

Gap also retains the option to increase availability or add "last-out" term loans up to the greater of $500 million or suppressed availability plus voluntary reductions, with a cap of $100 million on such term loans. This feature provides additional flexibility to expand liquidity if operational or strategic needs arise during the extended term through 2031.

Operating Covenants and Corporate Activity Restrictions

The amended agreement maintains customary covenants limiting Gap and its subsidiaries’ activities, including restrictions on asset sales, mergers, capital leases outside ordinary business, related-party transactions, derivatives, incurring or prepaying debt, granting liens, making investments, paying dividends or repurchasing securities, guaranteeing third-party obligations, sale-leasebacks, and corporate structure changes.

Many covenants apply on a tiered basis, triggering stricter controls when unused availability falls below specified thresholds. This approach offers Gap operational flexibility during periods of ample liquidity while imposing tighter restrictions during constrained borrowing capacity. A springing fixed charge coverage ratio financial covenant activates when availability declines below a set level, providing an additional lender safeguard during liquidity stress.

Default Events and Remedies

The amended ABL Credit Agreement preserves standard default provisions allowing lenders to act if Gap or guarantors fail to meet obligations. Defaults include payment failures, breaches of representations, covenant violations, failure to meet other agreement obligations, and defaults on other material indebtedness with cross-default triggers. Additional defaults cover bankruptcy, insolvency, material judgments, pension underfunding, change of control, and invalidity of guarantees or security documents.

Upon default and after any grace periods, lenders may terminate commitments, declare borrowings immediately due, and foreclose on collateral. These provisions align with market norms for asset-based lending facilities of this scale and complexity.

Use of Proceeds and Capital Deployment Flexibility

Funds drawn under the amended facility are designated for working capital, capital expenditures, and general corporate purposes across Gap and its subsidiaries. This broad usage scope grants the company flexibility to manage seasonal working capital needs, store remodels, expansions, and IT investments without requiring lender approval for each use, provided uses remain within general corporate purposes.

The revolving credit can be drawn and repaid at Gap’s discretion until maturity in July 2031. Voluntary prepayments may be made anytime without penalty, and mandatory prepayments occur upon defined events. This structure balances Gap’s capital control with lender protections.

Regulatory Updates and Market Alignment in Credit Terms

The amendment updates the ABL Credit Agreement to reflect regulatory and legal changes since 2022, though specific regulatory modifications are not detailed. These likely include evolving documentation standards, asset-based lending market practices, and possibly federal rate-setting or statutory requirements. The removal of sustainability-linked pricing adjustments suggests a market recalibration regarding ESG-linked financial terms.

By extending the maturity to July 2031 and modernizing terms, Gap secures medium-term liquidity certainty while aligning its credit facility with current market and regulatory expectations. The amendment preserves the $2.2 billion asset-based facility’s fundamental structure, enhancing clarity on interest rates, collateral, and covenants. This approach enables Gap to maintain dependable capital access without a full refinancing or restructuring.