Department store giant Kohl's Corporation (NYSE:KSS) announced in an SEC Current Report filing that it has sealed the deal on a $1.5 billion revolving credit facility with Wells Fargo Bank. The Wisconsin-based retailer also declared that it immediately drew down the full $1.5 billion, activating a clause that places restrictions on dividend payments.

Now relying on online sales and curbside pickup due to the coronavirus pandemic, Kohl's furloughed most of its workforce, while its CEO Michelle Gass has waived her salary during the crisis. Out of the $1.5 billion it just borrowed, Kohl's has earmarked approximately $1 billion to refinance existing debt. The rest will be used to give it more "financial flexibility," which is also the rationale behind its temporary halt of dividends.

The exterior of Kohl's ecommerce fulfillment center in Indiana.

Image source: Kohl's

The news about the company's dividend decision won't come as a surprise to many shareholders. Kohl's shares already started trading downward on April 1 as investors caught wind of a potential dividend cut. Its dividend yield at the time was an outstanding 17.6%, an extremely robust level that raised questions about sustainability.

While the terms of the new credit facility with Wells Fargo call for restricted dividends if Kohl's borrows more than $1 billion on it, the company's board of directors had already decided to suspend dividends the day before, April 15. The suspension begins with the 2020 fiscal second-quarter's cash dividend and continues indefinitely. Kohl's said it's still committed to paying the dividend and that its shareholders can expect their payments to resume once the retailer sees "stabilization in the environment."

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