Red Lobster 2008 Annual Report Download - page 64

Notes to Consolidated Financial Statements
60 DARDEN RESTAURANTS, INC.
Until September 20, 2007, we maintained a credit facility
under a Credit Agreement dated August 16, 2005 (Prior Credit
Agreement) with a consortium of banks under which we can
borrow up to $500.0 million. As part of the Prior Credit Agreement,
we could request issuance of up to $100.0 million in letters of
credit, the outstanding amount of which reduced the net bor-
rowing capacity under the Prior Credit Agreement. The Prior
Credit Agreement allowed us to borrow at interest rates that
varied based on a spread over (i) LIBOR or (ii) a base rate that
was the higher of the prime rate or one-half of one percent
above the federal funds rate, at our option. The interest rate
spread over LIBOR was determined by our debt rating. We
could also request that loans be made at interest rates offered
by one or more of the banks, which may have varied from the
LIBOR or base rate. The Prior Credit Agreement supported our
commercial paper borrowing program and would have expired
on August 15, 2010, but was terminated on September 20, 2007 in
connection with the new credit arrangements described below.
On September 20, 2007, to fund the RARE acquisition, we
entered into (i) a $750.0 million revolving Credit Agreement
dated as of September 20, 2007 (New Revolving Credit Agree-
ment) with Bank of America, N.A. (BOA), as administrative
agent, and the lenders (Revolving Credit Lenders) and other
agents party thereto, and (ii) a $1.15 billion 364-Day Credit
Agreement dated as of September 20, 2007 (Interim Credit
Agreement) with BOA, as administrative agent, and the lenders
thereto. The Interim Credit Agreement became available to
us upon the consummation of the RARE acquisition. The
Interim Credit Agreement and the New Revolving Credit
Agreement were used to fund the RARE acquisition. On
October 11, 2007, we completed the issuance of $1.15 billion
aggregate principal amount of long-term senior notes described
below, the proceeds of which were used to fully repay the Interim
Credit Agreement.
The New Revolving Credit Agreement is a senior unsecured
debt obligation of the Company and contains customary
representations, affirmative and negative covenants (including
limitations on liens and subsidiary debt, and a maximum con-
solidated lease adjusted total debt to total capitalization ratio
of 0.75 to 1.00) and events of default usual for credit facilities
of this type. As of May 25, 2008, we were in compliance with all
covenants under the New Revolving Credit Agreement.
The New Revolving Credit Agreement expires on
September 20, 2012, and the proceeds may be used for com-
mercial paper back-up, working capital and capital expenditures,
the refinancing of certain indebtedness, the partial financing
of the RARE acquisition as well as general corporate purposes.
The New Revolving Credit Agreement also contains a sub-limit
of $150.0 million for the issuance of letters of credit. The
borrowings and letters of credit obtained under the New
Revolving Credit Agreement may be denominated in U.S.
Dollars, Euro, Sterling, Yen, Canadian Dollars and each other
currency approved by the Revolving Credit Lenders. The
Company may elect to increase the commitments under the
New Revolving Credit Agreement by up to $250.0 million
(to an aggregate amount of up to $1.0 billion), subject to the
Company obtaining commitments from new and existing
lenders for the additional amounts.
Loans under the New Revolving Credit Agreement bear
interest at a rate of LIBOR plus a margin determined by
reference to a ratings-based pricing grid, or the base rate
(which is defined as the higher of the BOA prime rate and
the federal funds rate plus 0.500 percent). Assuming a “BBB”
equivalent credit rating level, the applicable margin under the
New Revolving Credit Agreement will be 0.350 percent. We
may also request that loans under the New Revolving Credit
Agreement be made at interest rates offered by one or more of
the Revolving Credit Lenders, which may vary from the LIBOR
or base rate, for up to $100.0 million of borrowings. The New
Revolving Credit Agreement requires that we pay a facility fee
on the total amount of such facility (ranging from 0.070 percent
to 0.175 percent, based on our credit ratings) and, in the event
that the outstanding amounts under the applicable New
Revolving Credit Agreement exceeds 50 percent of such New
Revolving Credit Agreement, a utilization fee on the total
amount outstanding under such facility (ranging from 0.050
percent to 0.150 percent, based on our credit ratings). As of
May 25, 2008, $130.0 million was outstanding under the New
Revolving Credit Agreement. In addition, $48.4 million of
commercial paper was outstanding as of May 25, 2008, which is
backed by this facility.
On October 11, 2007, we issued $350.0 million of unsecured
5.625 percent senior notes due October 2012, $500.0 million
of unsecured 6.200 percent senior notes due October 2017 and
$300.0 million of unsecured 6.800 percent senior notes due
October 2037 (collectively, the New Senior Notes) under a
registration statement filed with the Securities and Exchange
Commission on October 9, 2007. Discount and issuance costs,
which were $4.3 million and $11.7 million, respectively, are
being amortized over the terms of the New Senior Notes
using the straight-line method, the results of which approxi-
mate the effective interest method. The interest rate payable
on each series of the New Senior Notes will be subject to
adjustment from time to time if the debt rating assigned to
such series of the New Senior Notes is downgraded below a
certain rating level (or subsequently upgraded). The maximum
adjustment is 2.000 percent above the initial interest rate and
the interest rate cannot be reduced below the initial interest
rate. As of May 25, 2008, no such adjustments to the interest
rates had been made. We may redeem any series of the New
Senior Notes at any time in whole or from time to time in part,
at the principal amount plus a make-whole premium. If we