Baskin Robbins 2013 Annual Report Download - page 22

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• requiring a substantial portion of our cash flow to be dedicate to debt service payments instead of other purposes,
thereby reducing the amount of cash flow available for working capital, capital expenditures, acquisitions, and other
general corporate purposes;
• increasing our vulnerability to adverse changes in general economic, industry, and competitive conditions;
• exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the senior
credit facility, are at variable rates of interest;
• limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
• placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt at
more favorable interest rates; and
• increasing our costs of borrowing.
Our variable rate debt exposes us to interest rate risk which could adversely affect our cash flow.
The borrowings under our senior credit facility bear interest at variable rates. Other debt we incur also could be variable rate
debt. If market interest rates increase, variable rate debt will create higher debt service requirements, which could adversely
affect our cash flow. Although we have variable-to-fixed interest rate swap agreements to hedge the floating interest rate on
$900.0 million notional amount of our outstanding term loan borrowings to limit our exposure to higher interest rates, they do
not offer complete protection from this risk given the total amount of our outstanding variable rate indebtedness.
The terms of our indebtedness restrict our current and future operations, particularly our ability to respond to changes or to
take certain actions.
The credit agreement governing our senior credit facility contains a number of restrictive covenants that impose significant
operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest,
including restrictions on our ability to:
• incur certain liens;
• incur additional indebtedness and guarantee indebtedness;
• pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;
• prepay, redeem, or repurchase certain debt;
• make investments, loans, advances, and acquisition;
• sell or otherwise dispose of assets, including capital stock of our subsidiaries;
• enter into transactions with affiliates;
• alter the business we conduct;
• enter into agreements restricting our subsidiaries' ability to pay dividends; and
• consolidate, merge, or sell all or substantially all of our assets.
In addition, the restrictive covenants in the credit agreement governing our senior credit facility require us to maintain specified
financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by
events beyond our control.
A breach of the covenants under the credit agreement governing our senior credit facility could result in an event of default
under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the
acceleration of any other debt to which a cross-acceleration or cross-default provision applies, including our interest rate swap
agreements. In addition, an event of default under the credit agreement governing our senior credit facility would permit the
lenders under our senior credit facility to terminate all commitments to extend further credit under that facility. Furthermore, if
we were unable to repay the amounts due and payable under our senior credit facility, those lenders could proceed against the
collateral granted to them to secure that indebtedness, which could force us into bankruptcy or liquidation. In the event our
lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that
indebtedness.
If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our senior
credit facility to avoid being in default. If we breach our covenants under our senior credit facility and seek a waiver, we may