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DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
7. Long-Term Debt (Continued)
78
Guarantees and Collateral
Under the Guarantee and Collateral Agreement dated September 30, 2014 (the “Guarantee and Collateral Agreement”),
among the Guarantors in favor of the Trustee, the Guarantors guarantee the obligations of the Co-Issuers under the Indenture
and related documents and secure the guarantee by granting a security interest in substantially all of their assets.
The Notes are secured by a security interest in substantially all of the assets of the Co-Issuers and the Guarantors
(collectively, the “Securitization Entities”). On September 30, 2014, these assets (the “Securitized Assets”) generally included
substantially all of the domestic revenue-generating assets of the Corporation and its subsidiaries, which principally consist of
franchise agreements, area license agreements, development agreements, franchisee fee notes, equipment leases, agreements
related to the production and sale of pancake and waffle dry-mixes, owned and leased real property and intellectual property.
The Notes are obligations only of the Co-Issuers pursuant to the Indenture and are unconditionally and irrevocably
guaranteed by the Guarantors pursuant to the Guarantee and Collateral Agreement. Except as described below, neither we nor
any of our subsidiaries, other than the Securitization Entities, will guarantee or in any way be liable for the obligations of the
Co-Issuers under the Indenture or the Notes.
Covenants and Restrictions
The Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the
Co-Issuers maintain specified reserve accounts to be used to make required payments in respect of the Notes, (ii) provisions
relating to optional and mandatory prepayments, and the related payment of specified amounts, including specified make-whole
payments in the case of the Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event,
among other things, the transfers of the assets pledged as collateral for the Notes are in stated ways defective or ineffective and
(iv) covenants relating to recordkeeping, access to information and similar matters. The Notes are also subject to customary
rapid amortization events provided for in the Indenture, including events tied to failure of the Securitization Entities to maintain
the stated debt service coverage (“DSCR”) ratio, the sum of domestic retail sales for all restaurants being below certain levels
on certain measurement dates, certain manager termination events, certain events of default and the failure to repay or refinance
the Notes on the Class A-2 Anticipated Repayment Date. The Notes are also subject to certain customary events of default,
including events relating to non-payment of required interest, principal or other amounts due on or with respect to the Notes,
failure of the Securitization Entities to maintain the stated debt service coverage ratio, failure to comply with covenants within
certain time frames, certain bankruptcy events, breaches of specified representations and warranties and certain judgments.
The DSCR ratio is Net Cash Flow for the four quarters preceding the calculation date divided by the total debt service
payments of the preceding four quarters. Failure to maintain a prescribed DSCR ratio can trigger a Cash Trapping Event, A
Rapid Amortization Event, a Manager Termination Event or a Default Event as described below. In a Cash Trapping Event, the
Trustee is required to retain a certain percentage of cash flow in a restricted account. In a Rapid Amortization Event, all excess
Cash Flow is retained and used to retire principal amounts of debt. Key DSCR ratios are as follows:
• DSCR less than 1.75x but equal to or greater than 1.50x - Cash Trapping Event, 50% of Net Cash Flow
• DSCR less than 1.50x - Cash Trapping Event, 100% of Net Cash Flow
• DSCR less than 1.30x - Rapid Amortization Event
• DSCR less than 1.20x - Manager Termination Event
• DSCR less than 1.10x - Default Event
The DSCR for the reporting period ended December 31, 2014 was 4.9x.
Deferred Financing Costs
The Company incurred costs of approximately $24.3 million in connection with the issuance of the Notes. These deferred
financing costs will be amortized using the effective interest method over estimated life of the Notes. Amortization of these
deferred financing costs of $0.8 million was included in interest expense for the year ended December 31, 2014. Unamortized
deferred financing costs of $23.5 million was included as other non-current assets, net in the consolidated balance sheet as of
December 31, 2014.