Sonic 2011 Annual Report Download - page 45

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10. Debt
Long-term debt consists of the following at August 31:
2011 2010
Class A-2 senior secured fixed rate notes $ 496,250 $ 403,400
Class A-1 senior secured variable funding notes – 187,250
Other 763 971
497,013 591,621
Less long-term debt due within one year 15,178 61,749
Long-term debt due after one year $ 481,835 $ 529,872
At August 31, 2011, future maturities of long-term debt were $15.2 million for fiscal years 2012, 2013 and 2014, and
$15.0 million for fiscal years 2015 and 2016.
On May 20, 2011, 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”) in a private transaction which bears 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 based on the terms of the debt agreement. At August 31, 2011, the balance outstanding under the 2011 Fixed Rate
Notes including accrued interest totaled $497.0 million and carried a weighted-average interest cost of 5.8%, including
the effect of the loan origination costs described below.
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. The company borrowed $35 million under the 2011 Variable Funding
Notes facility at closing, and has the ability to draw additional amounts under the facility from time to time as needed. In
June 2011, the company repaid the outstanding balance under its 2011 Variable Funding Notes.
Sonic 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 its existing Series 2006-1 Senior Secured Variable Funding Notes,
Class A-1 (the “2006 Variable Funding Notes”) and Series 2006-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2006
Fixed Rate Notes” and, together with the 2006 Variable Funding Notes, the“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 the company’s 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. The company intends 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.
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, 2011,
assets for these combined indirect subsidiaries totaled $381.1 million, including receivables for royalties, certain Company
and Franchise Drive-In real estate, intangible assets and restricted cash balances of $21.0 million. The 2011 Notes are
secured by franchise fees, royalty payments and lease payments, and the repayment of the 2011 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 pledged substantially all
of its assets to secure those obligations.
Neither Sonic Corp., the ultimate parent of the Co-Issuers and the Guarantor, nor any other subsidiary of Sonic, guarantee
or in any way are liable for the obligations of the Co-Issuers under the 2011 Notes. The company has, however, agreed to cause
the performance of certain obligations of its subsidiaries, principally related to managing the assets included as collateral
for the 2011 Notes and certain indemnity obligations relating to the transfer of the collateral assets to the Co-Issuers.
Notes to Consolidated Financial Statements
August 31, 2011, 2010 and 2009 (In thousands, except per share data)