Baskin Robbins 2012 Annual Report Download - page 80

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-70-
ABS Notes
On May 26, 2006, certain of the Company’s subsidiaries (the “Co-Issuers”) entered into a securitization transaction. In
connection with this securitization transaction, the Co-Issuers issued 5.779% Fixed Rate Series 2006-1 Senior Notes, Class A-2
(“Class A-2 Notes”) with an initial principal amount of $1.5 billion and 8.285% Fixed Rate Series 2006-1 Subordinated Notes,
Class M-1 (“Class M-1 Notes”) with an initial principal amount of $100.0 million. In addition, the Company also issued
Class A-1 Notes (the Class A-1 Notes, together with the Class A-2 Notes and the Class M-1 Notes, the “ABS Notes”), which
permitted the Co-Issuers to draw up to a maximum of $100.0 million on a revolving basis.
Total debt issuance costs incurred and capitalized in relation to the ABS Notes were $72.9 million, of which $6.0 million was
amortized to interest expense during fiscal year 2010.
A portion of the ABS Notes were repurchased and retired in fiscal year 2009. In 2010, all remaining outstanding ABS Notes in
the amount of $1.45 billion were repaid in full with proceeds from the term loans and senior notes, as well as available cash. As
a result, a net loss on debt extinguishment of $62.0 million was recorded, which includes the write-off of deferred financing
costs of $37.4 million, make whole payments of $23.6 million, and other professional and legal costs.
Maturities of long-term debt
Excluding the impact of any additional principal payments made and excess cash flow payments required by the senior credit
facility as discussed above, and considering the extended maturity of the term loans to February 2020, the aggregate maturities
of long-term debt for 2013 through 2017 are $19.0 million per year.
(9) Derivative instruments and hedging transactions
The Company is exposed to global market risks, including the effect of changes in interest rates, and may use derivative
instruments to mitigate the impact of these changes. The Company does not use derivatives with a level of complexity or with a
risk higher than the exposures to be hedged and does not hold or issue derivatives for trading purposes. The Company's hedging
instruments consist solely of interest rate swaps at December 29, 2012. The Company's risk management objective and strategy
with respect to the interest rate swaps is to limit the Company's exposure to increased interest rates on its variable rate debt by
reducing the potential variability in cash flow requirements relating to interest payments on a portion of its outstanding debt.
The Company documents its risk management objective and strategy for undertaking hedging transactions, as well as all
relationships between hedging instruments and hedged items.
In September 2012, the Company entered into variable-to-fixed interest rate swap agreements with three counterparties to
hedge the risk of increases in cash flows (interest payments) attributable to increases in three-month LIBOR above 1.0%, the
designated benchmark interest rate being hedged, through November 2017. The notional value of the swaps totals $900.0
million, and the Company is required to make quarterly payments on the notional amount at a fixed average interest rate of
approximately 1.37%, resulting in a total interest rate of approximately 4.37% on the hedged amount when considering the
applicable margin in effect at December 29, 2012. In exchange, the Company receives interest on the notional amount at a
variable rate based on a three-month LIBOR spot rate, subject to a 1.0% floor. The swaps have been designated as hedging
instruments and are classified as cash flow hedges. They are recognized on the Company's consolidated balance sheets at fair
value and classified based on the instruments' maturity dates. Changes in the fair value measurements of the derivative
instruments are reflected as adjustments to other comprehensive income (loss) and/or current earnings.
The fair values of derivatives instruments consisted of the following (in thousands):
December 29,
2012
December 31,
2011
Consolidated balance sheet
classification
Interest rate swaps - liability $ 2,809 — Other long-term liabilities
Total fair values of derivative instruments - liability $ 2,809 —