IHOP 2008 Annual Report Download - page 117

DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
10. Debt (Continued)
Property Leasing, LLC and IHOP Real Estate, LLC, were formed as subsidiaries of IHOP
Franchising, LLC and an existing subsidiary, IHOP Properties, Inc., was transferred to IHOP
Franchising, LLC and converted to a limited liability company. On and after the closing of the
securitization transaction, these three subsidiaries (the ‘‘Real Estate Subsidiaries’’) own the real
property assets related to the IHOP restaurant franchising business, including the fee and leasehold
interests on the real property on which many IHOP restaurants are located and the related leases and
sub-leases, respectively, to franchisees.
In connection with the securitization transaction, the franchise agreements, franchise notes, area
license agreements (related to the United States and Mexico), product sales agreements, equipment
leases and other assets related to the IHOP restaurant franchising business were transferred to IHOP
Franchising, LLC, the intellectual property related to the IHOP restaurant franchising business, among
other things, was transferred to IHOP IP, LLC, the fee interests in real property and related franchisee
leases were transferred to IHOP Real Estate, LLC and certain of the leasehold interests related to the
IHOP franchised restaurants and the related subleases to franchisees were transferred to IHOP
Property Leasing, LLC. The remaining leasehold interests and franchisee subleases are owned by IHOP
Properties, LLC. The IHOP Co-Issuers have pledged all of their assets to the Indenture Trustee as
security for the March 2007 Notes and any additional notes issued by the IHOP Co-Issuers. Although
the March 2007 Notes are expected to be repaid solely from these subsidiaries’ assets, the March 2007
Notes are solely obligations of the IHOP Co-Issuers and none of the Company, its direct or indirect
subsidiaries, including the Real Estate Subsidiaries, guarantee or are in any way liable for the IHOP
Co-Issuers’ obligations under the Indenture, the March 2007 Notes or any other obligation in
connection with the issuance of the March 2007 Notes. The Company has agreed, however, to
guarantee the performance of the obligations of International House of Pancakes, LLC., its wholly
owned direct subsidiary, as servicer in connection with the servicing of the assets included as collateral
under the Indenture and certain indemnity obligations relating to the transfer of the collateral assets to
the IHOP Co-Issuers and the Real Estate Subsidiaries.
March 2007 Third Party Credit Enhancement
The March 2007 Notes are rated ‘‘Aaa,’’ and ‘‘AAA’’ by Moody’s Investors Services, Inc. and
Standard & Poor’s Ratings Services, respectively. Timely payment of interest (other than contingent
interest) and the outstanding principal of the March 2007 Notes were insured under a financial
guaranty insurance policy issued by Financial Guaranty Insurance Company (‘‘FGIC’’), the obligations
of which are rated ‘‘Aaa’’ and ‘‘AAA.’’ The insurance policy has been issued under an Insurance and
Indemnity Agreement among FGIC, the Company and various subsidiaries of the Company.
March 2007 Covenants/Restrictions
The March 2007 Notes are subject to a series of covenants and restrictions under the Indenture
customary for transactions of this type, including those relating to (i) the maintenance of specified
reserve accounts to be used to make required payments in respect of the March 2007 Notes, (ii) certain
debt service coverage and consolidated leverage ratios to be met, the failure of which may result in
early amortization of the outstanding principal amounts due in respect of the March 2007 Notes or
removal of International House of Pancakes, Inc., as servicer, among other things, (iii) optional
prepayment subject to certain conditions, (iv) the Company’s maintenance of more than 50% ownership
interest in International House of Pancakes, LLC. and a restriction on the Company’s merger with
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