Sonic 2014 Annual Report Download - page 40

At August 31, 2014, future maturities of long-term debt were $9.8 million for fiscal years 2015, 2016 and 2017, $253.0 million
for fiscal year 2018 and no maturities in fiscal year 2019.
On May 20, 2011, in a private transaction, various subsidiaries of the Company (the “Co-Issuers”) issued $500 million of Series
2011-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2011 Fixed Rate Notes”), which bear interest at 5.4% per annum. The 2011
Fixed Rate Notes have an expected life of seven years with an anticipated repayment date in May 2018. The Co-Issuers also entered
into a securitized financing facility of Series 2011-1 Senior Secured Variable Funding Notes, Class A-1 (the “2011 Variable Funding
Notes” and, together with the 2011 Fixed Rate Notes, the “2011 Notes”). This revolving credit facility allows for the issuance of up
to $100 million of 2011 Variable Funding Notes and certain other credit instruments, including letters of credit. Interest on the
2011 Variable Funding Notes is based on the one-month London Interbank Offered Rate (“LIBOR”) or Commercial Paper (“CP”),
depending on the funding source, plus the base spread mentioned below, per annum. There is a 0.5% annual commitment fee
payable monthly on the unused portion of the 2011 Variable Funding Notes facility.
In the second quarter of fiscal year 2013, the Co-Issuers made a debt prepayment, at par, of $20.0 million on the 2011 Fixed
Rate Notes. In the fourth quarter of fiscal year 2013, in a private transaction the Co-Issuers refinanced and paid $155 million of the
2011 Fixed Rate Notes with the issuance of $155 million of Series 2013-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2013
Fixed Rate Notes”), which bear interest at 3.75% per annum. The 2013 Fixed Rate Notes have an expected life of seven years,
interest payable monthly, no scheduled principal amortization and an anticipated repayment date in July 2020. Additionally, the
Co-Issuers extended the 2011 Variable Funding Notes’ renewal date by two years to May 2018 and decreased the base spread from
3.75% to 3.50% in the fourth quarter of fiscal year 2013.
At August 31, 2014, the balance outstanding under the 2011 Fixed Rate Notes and 2013 Fixed Rate Notes, including accrued
interest, was $282.6 million and $155.2 million, respectively, and there was no outstanding balance under the 2011 Variable Funding
Notes. As of August 31, 2013, the balance outstanding under the 2011 Fixed Rate Notes and 2013 Fixed Rate Notes, totaled $292.4
million and $155.2 million, respectively, including accrued interest and there was no outstanding balance under the 2011 Variable
Funding Notes. The weighted-average interest cost of the 2011 Fixed Rate Notes and 2013 Fixed Rate Notes was 5.7% and 4.1%,
respectively. The weighted-average interest cost includes the effect of the loan origination costs.
In fiscal year 2013, the debt prepayment and the partial debt refinancing resulted in a pro-rata write-off of loan origination
costs from the 2011 Fixed Rate Notes, representing a majority of the $4.4 million loss which is reflected in “Net loss from early
extinguishment of debt” on the Consolidated Statements of Income. An additional $4.1 million in debt origination costs were
capitalized in conjunction with the 2013 Fixed Rate Notes. Loan costs are being amortized over each note’s expected life. The
amount of loan costs expected to be amortized over the next 12 months is reflected in “Other current assets” on the Consolidated
Balance Sheets.
While the 2011 Notes and the 2013 Fixed Rate Notes are structured to provide for seven-year lives from their original issuance
dates, they have legal final maturity dates of May 2041 and July 2043, respectively. The Company intends to repay or refinance the
2011 Notes and the 2013 Fixed Rate Notes on or before the end of their expected lives. If the Company prepays the debt prior to
the anticipated repayment date the Company may be required to pay a prepayment penalty under certain circumstances. In the
event the 2011 Notes and the 2013 Fixed Rate Notes are not paid in full by the end of their expected lives, they are subject to an
upward adjustment in the interest rate of at least 5% per annum. In addition, principal payments will accelerate by applying all of
the royalties, lease revenues and other fees securing the debt, after deducting certain expenses, until the debt is paid in full. Also,
any unfunded amount under the 2011 Variable Funding Notes will become unavailable.
The Co-Issuers and Sonic Franchising LLC (the “Guarantor”) are existing special purpose, bankruptcy remote, indirect
subsidiaries of Sonic Corp. that hold substantially all of Sonic’s franchising assets and real estate. As of August 31, 2014, assets
for these combined indirect subsidiaries totaled $319.9 million, including receivables for royalties, certain Company and Franchise
Drive-In real estate, intangible assets and restricted cash balances of $19.9 million. The 2011 Notes and the 2013 Fixed Rate Notes
are secured by franchise fees, royalty payments and lease payments, and the repayment of the 2011 Notes and the 2013 Fixed Rate
Notes is expected to be made solely from the income derived from the Co-Issuer’s assets. In addition, the Guarantor, a Sonic Corp.
subsidiary that acts as a franchisor, has guaranteed the obligations of the Co-Issuers under the 2011 Notes and the 2013 Fixed Rate
Notes and pledged substantially all of its assets to secure those obligations.
Notes to Consolidated Financial Statements
August 31, 2014, 2013 and 2012 (In thousands, except per share data)
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