Sonic 2012 Annual Report Download - page 42

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9. Debt
Long-term debt consists of the following at August 31:
2012 2011
Class A-2 senior secured fixed rate notes $ 481,250 $ 496,250
Class A-1 senior secured variable funding notes ––
Other 543 763
481,793 497,013
Less long-term debt due within one year (15,180) (15,178)
Long-term debt due after one year $ 466,613 $ 481,835
At August 31, 2012, future maturities of long-term debt were $15.2 million for fiscal year 2013, $15.3 million for fiscal
year 2014, and $15.0 million annually for fiscal years 2015, 2016 and 2017.
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, 2012 and 2011, the balance outstanding under the 2011 Fixed
Rate Notes including accrued interest totaled $482.0 million and $497.0 million, respectively, and carried a weighted-average
interest cost of 5.9%, 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 based on 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, 2012,
assets for these combined indirect subsidiaries totaled $356.6 million, including receivables for royalties, certain Company
and Franchise Drive-In real estate, intangible assets and restricted cash balances of $18.1 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.
Notes to Consolidated Financial Statements
August 31, 2012, 2011 and 2010 (In thousands, except per share data)