IHOP 2012 Annual Report Download - page 71

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Beginning with fiscal 2012, the percentage of Excess Cash Flow required to be applied as a prepayment was subject to two
stepdowns: 25% of Excess Cash Flow if the consolidated leverage ratio (as defined in the Credit Agreement) is less than 4.5:1 but
greater than or equal to 3:1 as of the end of the fiscal year; and 0% of Excess Cash Flow if the consolidated leverage ratio is less
than 3:1 as of the end of the fiscal year.
We may voluntarily prepay loans under both the Term Facility and the Revolving Facility without premium or penalty.
Restricted Payments
The Credit Agreement contains covenants considered customary for similar types of facilities that limit certain permitted
restricted payments, including those related to dividends and repurchases of our common stock. Such restricted payments are
limited to a cumulative amount comprised of (i) a general restricted payments allowance of $35.0 million, plus (ii) 50% of Excess
Cash Flow for each fiscal year in which the consolidated leverage ratio is greater than 5.5:1; (iii) 100% of Excess Cash Flow for
each fiscal year if the consolidated leverage ratio is less than 5.5:1; and (iv) proceeds from the exercise of options to purchase our
common stock, less any amounts paid as dividends or to repurchase our common stock.
February 2013 Amendment
On February 4, 2013, we entered into Amendment No. 2 ("Amendment No. 2") to the Credit Agreement. Pursuant to
Amendment No. 2, the interest rate margin for Term Loans was reduced from 2.00% to 1.75% for Base Rate-denominated loans
and from 3.00% to 2.75% for LIBOR-based loans. The interest rate margin for Revolving Loans was reduced from 3.50% to 1.75%
for Base Rate-denominated loans and from 4.50% to 2.75% for LIBOR-based loans. The interest rate floors used to determine the
Base Rate and LIBOR reference rates for Term Loans were reduced from 2.25% to 2.00% for Base Rate-denominated Term Loans
and from 1.25% to 1.00% for LIBOR-based Term Loans. The commitment fee for the unused portion of the revolving credit
facility was reduced from 0.75% to 0.50% and, if the consolidated leverage ratio is reduced below 4.75:1, from 0.50% to 0.375%.
Assuming LIBOR rates in effect as of December 31, 2012, we anticipate Amendment No. 2 will have the effect of lowering interest
rates on our LIBOR-based Term Loans from 4.25% to 3.75%.
In addition, Amendment No. 2 establishes the following consolidated leverage ratio thresholds for Excess Cash Flow
prepayments: 50% if the consolidated leverage ratio is 5.75:1 or greater; 25% if the consolidated leverage ratio is less than 5.75:1
and greater than or equal to 5.25:1; and 0% if the consolidated leverage ratio is less than 5.25:1. Amendment No. 2 also revised
the definition of “Permitted Amount” so that it is now measured on a quarterly basis for purposes of computing the permitted
amount of restricted payments, which includes payment of dividends on and repurchases of our common stock. Finally, Amendment
No.2 revised the definition of "Excess Cash Flow" to eliminate the deduction for any extraordinary receipts or disposition proceeds.
All of these provisions will be retroactively applied to the calculation of Excess Cash Flow for fiscal 2012. All other material
provisions, including maturity and covenants under the Credit Agreement, remain unchanged.
Concurrent with Amendment No. 2, on February 4, 2013, we borrowed $472.0 million under the Term Facility, retiring the
same amount of then-outstanding borrowings under Amendment No. 1. Pursuant to Amendment No. 2, our mandatory repayment
of 1% per year is now based on this balance of $472 million, as compared to the previous outstanding balance of $742 million
borrowed concurrent with Amendment No. 1.
As a result of applying the revision of the definition of Excess Cash Flow retroactively as provided for in Amendment No. 2,
there were no mandatory repayments of Term Loans required in 2012 and our permitted amount of restricted payments is
approximately $85 million as of December 31, 2012.
Based on our current level of operations, we believe that our cash flow from operations, available cash and available borrowings
under our Revolving Facility will be adequate to meet our liquidity needs during 2013. We have not entered into hedging agreements
to mitigate the effect of changes in variable interest rates charged on borrowings under the Credit Agreement.
9.5% Senior Notes due 2018
In October 2010, we issued $825.0 million aggregate principal amount of 9.5% Senior Notes due October 30, 2018 (the
"Senior Notes") pursuant to an Indenture (the "Indenture") by and among the Company, the Guarantors party thereto and Wells
Fargo Bank, National Association, as trustee. The Senior Notes are unsecured senior obligations of the Company and are jointly
and severally guaranteed on a senior unsecured basis by the Guarantors under the Credit Agreement. There are no mandatory
repayments of the Senior Notes, although under certain conditions we may be required to repurchase Senior Notes with excess
proceeds of assets sales or upon a change of control, as described in the Indenture under which the Senior Notes were issued.
There were no such required repurchases during 2012.