Sonic 2011 Annual Report Download - page 26

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In connection with the issuance of the 2011 Fixed Rate Notes, 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"). 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. The 2011 Variable Funding Notes have an expected life of five years with an
anticipated repayment date in May 2016 based on the terms of the debt agreement. Interest on the 2011 Variable Funding
Notes is payable monthly at rates equal to the one-month London Interbank Offered Rate or Commercial Paper, depending
on the funding source, plus 3.75% per annum. There is a 0.5% annual commitment fee payable monthly on the unused
portion of the 2011 Variable Funding Notes facility. We borrowed $35 million under the 2011 Variable Funding Notes
facility at closing and have the ability to draw additional amounts under the facility from time to time as needed. In June
2011, we repaid the outstanding balance under our 2011 Variable Funding Notes.
We used the $535 million of net proceeds from the issuance of the 2011 Fixed Rate Notes and 2011 Variable Funding
Notes (collectively, the “2011 Notes”) to repay our existing 2006 Notes in full and to pay the costs associated with the
securitized financing transaction, including the existing noteholder and insurer make-whole premiums.
Loan origination costs associated with our 2011 refinancing totaled $16.4 million and were allocated between the
2011 Notes. Loan costs are being amortized over each note’s expected life. The amount of loan costs expected to be
amortized over the next twelve months is reflected in “other current assets” on the Consolidated Balance Sheets.
While the 2011 Fixed Rate Notes and the 2011 Variable Funding Notes are structured to provide for seven-year and
five-year lives, respectively, they have a legal final maturity date of May 2041. We intend to repay or refinance the 2011
Notes on or before the end of their respective expected lives. In the event the 2011 Notes are not paid in full by the end
of their expected lives, the Notes 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.
We anticipate fiscal year 2012 interest expense on our 2011 Fixed Rate Notes, including the amortization of loan
origination costs, to be approximately $32 million annually, as a result of our refinancing and are scheduled to make
principal payments on our 2011 Fixed Rate Notes of approximately $15 million during fiscal year 2012. Mandatory principal
payments of $15 million annually under the new financing versus mandatory principal payments paid in fiscal year 2011
of $45.4 million will significantly increase the amount of our available free cash flow. For additional information on our May
2011 refinancing, see note 10 – Debt, included in Part II, Item 8, “Financial Statements and Supplementary Data” in this
Annual Report on Form 10-K.
Prior to the refinancing, during the second quarter of fiscal year 2011, we repurchased $62.5 million of our 2006
Variable Funding Notes in a privately negotiated transaction. We recognized a gain of $5.2 million on the extinguishment
of these notes during the second fiscal quarter of 2011.
The 2011 Notes are subject to a series of covenants and restrictions customary for transactions of this type, including
(i) required actions to better secure collateral upon the occurrence of certain performance-related events, (ii) application
of certain disposition proceeds as note prepayments after a set time is allowed for reinvestment, (iii) maintenance of
specified reserve accounts, (iv) maintenance of certain debt ser vice coverage ratios, (v) optional and mandator y
prepayments upon change in control, (vi) indemnification payments for defective or ineffective collateral, and (vii) covenants
relating to recordkeeping, access to information and similar matters. If certain covenants or restrictions are not met, the
2011 Notes are subject to customary accelerated repayment events and events of default. Although management does
not anticipate an event of default or any other event of noncompliance with the provisions of the debt, if such event
occurred, the unpaid amounts outstanding could become immediately due and payable.
We plan capital expenditures of approximately $25 to $30 million in fiscal year 2012. These capital expenditures
primarily relate to drive-in level expenditures, technology infrastructure expenditures and the development of additional
Company Drive-Ins. We expect to fund these capital expenditures through cash flow from operations as well as cash on hand.
As of August 31, 2011, our total cash balance of $50.5 million ($29.5 million of unrestricted and $21.0 million of
restricted cash balances) reflected the impact of the cash generated from operating activities, borrowing activity,
refranchising and capital expenditures mentioned above. In addition, we expect refunds from amended tax returns and
current-year overpayments totaling approximately $12.8 million to be received or applied to other tax obligations
during fiscal year 2012. We believe that existing cash, funds generated from operations and the undrawn availability of
$100 million under our 2011 Variable Funding Notes will meet our needs for the foreseeable future.
Management's Discussion and Analysis of Financial Condition and Results of Operations