IHOP 2008 Annual Report Download - page 122
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DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
10. Debt (Continued)
Covenants/Restrictions Compliance
The Company was in compliance with all the covenants/restriction related to the March 2007 and
November 2007 securitized notes as of December 31, 2008 and for each month since issuance of the
securitized notes.
Discount on Notes
The discount on notes reflects the difference between the proceeds received from the sale of the
notes and the face amount to be repaid over the life of the notes. The discount is being amortized as
additional interest expense over the estimated life of the notes under the effective interest method.
The proceeds received from the sale of the Applebee’s November 2007-1 Notes and the
Series 2007-3 FRN (collectively, the ‘‘Notes’’) are net of amounts paid or to be paid to the purchaser
of the Notes who plans to resell these Notes. Pursuant to the Company’s agreement with the purchaser,
the Company may be refunded an amount equal to 40% of the sum, if positive, of a defined resale
differential for the Notes resold within five business days after the later of (i) the completion of the
resale of all of the Notes to unaffiliated third party investors and (ii) August 29, 2008.
Deferred Financing Costs
In connection with the March 2007 and November 2007 securitization transactions, the Company
recorded approximately $82.5 million of deferred financing costs. These deferred financing costs will be
amortized using the effective interest method over the estimated life of the related debt. Total
amortization expense associated with the deferred financing costs for the years ended December 31,
2008 and 2007 was $17.3 million and $3.8 million, respectively. As of December 31, 2008 and 2007,
$64.7 million and $78.7 million respectively, of deferred financing costs are reported as Other Assets in
the consolidated balance sheet.
Interest Rate Swap
On July 16, 2007, the Company entered into an interest rate swap (the ‘‘Swap’’), which was
intended to hedge the interest payments on the securitized notes that were issued in November 2007 to
finance the Applebee’s acquisition. The Swap had a notional amount of $2.039 billion and a fixed
interest rate of 5.694%.
In connection with the closing of the November 2007 securitized financing transactions, the
Company settled the Swap at a cost of $124.0 million. As a result of the Swap settlement, the Company
incurred interest expense on the undesignated portion of the Swap in an amount of $62.1 million in
2007, and will amortize the designated portion of the Swap of $61.9 million into interest expense over
the expected four-year life of the Applebee’s November 2007-1 Notes and five-year life of IHOP
Series 2007-3 FRN.
108