IHOP 2015 Annual Report Download - page 63

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43
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”). As of September 30, 2014, these assets (the “Securitized Assets”) generally
included substantially all of the domestic revenue-generating assets of the Company 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, guarantee or in any way are 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. The complete definitions of the DSCR and all calculation elements are contained in
the Base Indenture. 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
Our DSCR for the reporting period ended December 31, 2015 was 5.40x (see Exhibit 12.1). The estimated impact on Net
Cash Flow of the 53rd calendar week in our fiscal 2015 improved the December 31, 2015 DSCR by approximately 11 basis
points.
Based on our current level of operations, we believe that our cash flow from operations, available cash and available
borrowings under our Variable Funding Notes will be adequate to meet our liquidity needs during 2015.
Previous Credit Facilities
We had a $75.0 million revolving credit facility (the “Revolving Facility”) under our extinguished Credit Facility. We did
not borrow from our Revolving Facility during 2014, and there were no outstanding borrowings under the Revolving Facility
when the Credit Facility was extinguished on September 30, 2014. The Revolving Facility also was used to collateralize letters
of credit that were required for insurance purposes.