IHOP 2009 Annual Report Download - page 82

During 2009, we completed the franchising of seven company-operated Applebee’s restaurants in
the New Mexico markets. Proceeds from asset dispositions, including the seven restaurants, totaled
$15.8 million for the twelve months ended December 31, 2009. Of that amount, $11.8 million was used
to retire Applebee’s Notes (see Note 8 of the Notes to the Consolidated Financial Statements).
Credit Facilities
Applebee’s has a $100 million revolving credit facility, the Series 2007-1 Class A-1 Variable
Funding Senior Notes. IHOP has a $25 million revolving credit facility, the Series 2007-2 Variable
Funding Notes. At December 31, 2009, both revolving credit facilities had been fully drawn and the
Company does not presently have additional committed sources of credit. However, we believe that our
unrestricted cash and cash equivalents, which totaled $82.3 million as of December 30, 2009, and cash
generated from operating activities provide adequate liquidity for the foreseeable future in the absence
of additional credit facilities.
The payments up to $30.0 million of the Series 2007-1 Class A-1 Variable Funding Senior Notes
and the entire issue of the Series 2007-1 Class A-2-II-A Fixed Rate Term Senior Notes issued in
connection with the Applebee’s securitization are insured under a financial guaranty insurance policy. If
the insurance company were to become subject to insolvency or similar proceedings, an event of default
would occur under the indenture pursuant to which the notes were issued, and the holders of the
variable funding notes would no longer be required to fund draws on the facility. We have no reason to
question the solvency of the insurance company that insures these payments, and its senior unsecured
debt obligations are highly rated at the current time.
The payments of the Series 2007-2 Variable Funding Senior Notes and the Series 2007-1 Fixed
Rate Notes issued in connection with the March 2007 IHOP securitization are insured under a financial
guaranty insurance policy. There are concerns about the solvency of FGIC and the effectiveness of the
insurance policy as FGIC is presently required to suspend payment on all claims in accordance with an
order issued by the New York Insurance Department on November 24, 2009. While the insolvency of
FGIC will not cause an event of default under the Indenture pursuant to which these notes were
issued, it will cause FGIC to cease being the controlling party with respect to the March 2007 Notes
and will require the IHOP Co-Issuers to obtain consent from a majority of the Noteholders rather than
FGIC for any actions to be taken with respect to the securitization program, including amendments
that require the consent of the controlling party.
Our ability to pay the interest on our indebtedness, to make scheduled payments of principal and
to fund planned capital expenditures will depend on future performance of our operations, which, to a
certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. Based upon the current level of operations and our current
expectations for future periods in light of the current economic environment, we presently anticipate
that our cash and cash equivalents, which totaled $82.3 million as of December 31, 2009, together with
expected cash flows from operations will be sufficient to meet our anticipated cash requirements for
working capital, retirement of securitized debt, capital expenditures and other obligations for at least
the next 12 months. Further, based on current projections, we believe that we will remain in
compliance with the debt covenants discussed above for at least the next 12 months. However, if we are
not able to achieve forecasted revenue targets and operating improvements, this assessment would have
to be reconsidered. Additionally, certain Applebee’s Notes have accelerated payment dates in
December 2012, and we will likely seek to refinance this debt if it has not been repaid prior to then.
We may not be able to effect any future refinancing of our debt on commercially reasonable terms or
at all.
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