IHOP 2015 Annual Report Download - page 62

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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
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 Base Indenture filed as Exhibit 4.1 to our Form 8-K filed with the SEC on October 3,
2014 (“Base Indenture”). As of December 31, 2015, our leverage ratio was 4.43x (See Exhibit 12.1); accordingly, no principal
payment on the Class A-2 Notes was required. The estimated impact on EBITDA of the 53rd calendar week in our fiscal 2015
reduced the December 31, 2015 leverage ratio by approximately 13 basis points.
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, the interest rate on the Class A-2 Notes will increase significantly. Specifically, additional interest will accrue
on the Class A-2 Notes equal to the greater of (i) 5.00% per annum and (ii) a per annum interest rate equal to the amount, if any,
by which the sum of the following exceeds the Class A-2 Note interest rate: (A) the yield to maturity (adjusted to a quarterly
bond-equivalent basis) on the Class A-2 Anticipated Repayment Date of the United States Treasury Security having a term
closest to 10 years plus (B) 5.00% plus (C) 2.150%.
The Notes are secured by the collateral described below under “Guarantees and Collateral.”
Variable Funding Notes
In connection with the issuance of the Class A-2 Notes, the Co-Issuers also entered into a revolving financing facility that
allows for the drawings of up to $100 million of Variable Funding Notes and the issuance of letters of credit. The Variable
Funding Notes were issued under the Indenture and allow for drawings on a revolving basis. Drawings and certain additional
terms related to the Variable Funding Notes are governed by the Class A-1 Note Purchase Agreement dated as of September 30,
2014 (the “Variable Funding Note Purchase Agreement”), among the Co-Issuers, the Guarantors, certain conduit investors,
financial institutions and funding agents, and Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. (“Rabobank
Nederdland”), New York Branch, as provider of letters of credit, as swingline lender and as administrative agent.
The Variable Funding Notes will be governed, in part, by the Variable Funding Note Purchase Agreement and by certain
generally applicable terms contained in the Indenture. Depending on the type of borrowing by the Co-Issuers, the applicable
interest rate under the Variable Funding Notes is calculated at a per annum rate equal to (a) LIBOR plus 2.50%, (b) (i) the
greatest of (x) the prime rate, (y) the federal funds effective rate plus 0.50% or (z) a daily rate equal to one month LIBOR plus
0.5% plus (ii) 2.00% or (c) the lenders’ commercial paper funding rate plus 2.50%. There is a scaled commitment fee based on
the unused portion of the Variable Funding Notes facility of between 50 to 100 basis points. It is anticipated that the principal
and interest on the Variable Funding Notes will be repaid in full on or prior to September 2019 (the “VFN Anticipated
Repayment Date”), subject to two additional one-year extensions at the option of the Company, which acts as the manager (as
described below), upon the satisfaction of certain conditions. Following the VFN Anticipated Repayment Date (and any
extensions thereof), additional interest will accrue on the Variable Funding Notes equal to 5.00% per annum. The Variable
Funding Notes and other credit instruments issued under the Variable Funding Note Purchase Agreement are secured by the
collateral described below under “Guarantees and Collateral.”
The Variable Funding Notes were undrawn upon issuance on September 30, 2014 and we have not drawn on them since
issuance. At December 31, 2015, approximately $5.9 million was pledged against the Variable Funding Notes for outstanding
letters of credit, leaving $94.1 million of Variable Funding Notes available for borrowings. The letters of credit are used
primarily to satisfy insurance-related collateral requirements.
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.