IHOP 2014 Annual Report Download - page 68

49
Liquidity and Capital Resources of the Company
Refinancing of Long-Term Debt
Transaction Summary
On September 30, 2014, Applebee’s Funding LLC and IHOP Funding LLC (each a “Co-Issuer”), each a special purpose,
wholly-owned indirect subsidiary of the Company, issued $1.3 billion of Series 2014-1 4.277% Fixed Rate Senior Notes, Class
A-2 (the “Class A-2 Notes”) in an offering exempt from registration under the Securities Act of 1933, as amended. The Co-
Issuers also entered into a revolving financing facility of Series 2014-1 Variable Funding Senior Notes Class A-1 (the “Variable
Funding Notes”), which allows for drawings of up to $100 million of Variable Funding Notes and the issuance of letters of
credit. The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes.” The Notes were issued
in a securitization transaction pursuant to which substantially all of our domestic revenue-generating assets and our domestic
intellectual property, are held by the Co-Issuers and certain other special-purpose, wholly-owned indirect subsidiaries of the
Company (the “Guarantors”) that act as guarantors of the Notes and that have pledged substantially all of their assets to secure
the Notes.
On September 30, 2014, we repaid the entire outstanding principal balance of $463.6 million of our Senior Secured Credit
Facility (the “Credit Facility”); there were no premiums or penalties associated with the repayment. On October 30, 2014, after
a required 30-day notice period, we repaid the entire outstanding $760.8 million principal balance of our 9.5% Senior Notes
(the “Senior Notes”), along with a required make-whole premium for early repayment of $36.1 million. All of our obligations
under the Credit Facility and the Senior Notes terminated upon the respective repayments thereof.
This transaction was accounted for as an extinguishment of debt under U.S. GAAP. We recognized a loss on debt
extinguishment of $64.9 million, comprised of the $36.1 million make-whole premium on the Senior Notes and the write-off of
the unamortized debt discount and the issuance costs associated with the extinguished debt of $16.9 million and $11.9 million,
respectively.
The primary impacts of this transaction on our liquidity during 2014 were cash payments of $36.1 million for the make-
whole premium on the Senior Notes and $24.2 million for issuance costs of the new debt. Additionally, we were required to
fund various reserve accounts required by the indenture under which the new debt was issued totaling approximately $66.7
million. These reserve accounts are considered to be restricted cash. Partially offsetting these cash outflows were proceeds of
approximately $75 million received from issuance of the new debt in excess of the cash required to retire the old debt.
The primary impacts of this transaction on our liquidity in future years are (i) a reduction of approximately $34 million in
annual cash interest payments on long-term debt, (ii) elimination of interest rate risk on the variable-rate Credit Facility and
(iii) the extension of the maturity of our long-term debt to 2021. The retired Credit Facility would have expired in October 2017
and the Senior Notes were to be repaid in October 2018.
Class A-2 Notes
The Notes were issued under a Base Indenture, dated September 30, 2014 (the “Base Indenture”) and the related Series
2014-1 Supplement to the Base Indenture, dated September 30, 2014 (the “Series 2014-1 Supplement”), among the Co-Issuers
and Citibank, N.A., as the trustee (in such capacity, the “Trustee”) and securities intermediary. The Base Indenture and the
Series 2014-1 Supplement (collectively, the “Indenture”) will allow the Co-Issuers to issue additional series of notes in the
future subject to certain conditions set forth therein.
While the Notes are outstanding, payment of principal and interest is required to be made on the Class A-2 Notes on a
quarterly basis. The quarterly principal payment of $3.25 million on the Class A-2 Notes may be suspended when the leverage
ratio for the Company and its subsidiaries is less than or equal to 5.25x. In general, the leverage ratio is our indebtedness
(assuming all variable funding facilities are fully drawn) divided by adjusted EBITDA for the four preceding quarterly periods.
The complete definitions of all calculation elements of the leverage ratio are contained in the Indenture filed as an Exhibit to
Form 8-K filed on October 3, 2014. As of December 31, 2014, our leverage ratio was 4.8x; accordingly, no principal payment
on the Class A-2 Notes was required.
The legal final maturity of the Class A-2 Notes is in September 2044, but it is anticipated that, unless earlier prepaid to the
extent permitted under the Indenture, the Class A-2 Notes will be repaid in September 2021 (the “Class A-2 Anticipated
Repayment Date”). If the Co-Issuers have not repaid or refinanced the Class A-2 Notes prior to the Class A-2 Anticipated
Repayment Date, additional interest will accrue on the Class A-2 Notes equal to the greater of (i) 5.00% per annum and (ii) a