IHOP 2010 Annual Report Download - page 122

DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
8. Debt (Continued)
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
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’’) under an Insurance and Indemnity Agreement among FGIC,
the Company and various subsidiaries of the Company. There were concerns about the solvency of
FGIC and the effectiveness of the insurance policy as FGIC was 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 did not cause an event of default under the Indenture pursuant to
which the March 2007 Notes were issued, it did cause FGIC to cease being the controlling party with
respect to the March 2007 Notes and required the IHOP Co-Issuers to obtain consent from a majority
of the Noteholders rather than FGIC for any actions that were taken with respect to the securitization
program, including amendments that require the consent of the controlling party.
March 2007 Covenants/Restrictions
The March 2007 Notes were 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 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 could have resulted 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 unaffiliated entities, unless the Company was the surviving entity or the surviving entity
assumed all of the Company’s obligations in connection with the securitization transaction and certain
other conditions were satisfied; (v) limitations on indebtedness that may have been incurred by the
Company on a consolidated basis; and (vi) recordkeeping, access to information and similar matters.
The March 2007 Notes were also subject to customary events of default, including events relating to
non-payment of interest and principal due on or in respect of the March 2007 Notes, failure to comply
with covenants within certain time frames, certain bankruptcy events, breach of representations and
warranties, failure of security interest to be effective, a valid claim being made under the relevant
insurance policy and the failure to meet the applicable debt service coverage ratio.
March 2007 Use of Proceeds
The net proceeds from the sale of the March 2007 Fixed Rate Notes on March 16, 2007 were
$171.7 million. Of this amount, $114.2 million was used to repay existing indebtedness of the Company;
$2.4 million was deposited into an interest reserve account for the Series 2007-1 FRN; and $3.1 million
was deposited into a lease payment account for payment to third-party property lessors. The Company
used the remaining proceeds primarily to pay the costs of the transaction and for share repurchases. In
November, 2007, a total of $15.0 million was drawn on the Series 2007-2 VFN which was used as part
of the payment for the Applebee’s acquisition. The remaining $10.0 million balance on the
Series 2007-2 VFN was subsequently drawn in June 2009 and used to repurchase debt on the open
market.
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