Wendy's 2010 Annual Report Download - page 43

Credit Agreement
As further described in “Liquidity and Capital Resources—Long-term Debt—Credit Agreement” below, on
May 24, 2010, Wendy’s/Arby’s Restaurants, entered into a $650.0 million Credit Agreement (the “Credit
Agreement”), which includes a $500.0 million senior secured term loan facility (the “Term Loan”) and a
$150.0 million senior secured revolving credit facility (the “Credit Facility”).
The Companies recognized a loss on early extinguishment of debt of $26.2 million in the second quarter of
2010 primarily related to the repayment of the Wendy’s 6.25% senior notes from the proceeds of the Term Loan.
This loss consisted of (1) a $15.0 million premium payment required to redeem the Wendy’s 6.25% senior notes,
(2) $5.5 million for the write-off of the unaccreted discount of the Wendy’s 6.25% senior notes (recorded in
connection with the Wendy’s Merger), and (3) $5.7 million for the write-off of deferred costs associated with the
repayment of the prior senior secured term loan.
Senior Notes
On June 23, 2009, Wendy’s/Arby’s Restaurants issued $565.0 million principal amount of Senior Notes (the
“Senior Notes”). The Senior Notes will mature on July 15, 2016 and accrue interest at 10.00% per annum, payable
semi-annually on January 15 and July 15, the first payment of which was made on January 15, 2010. The Senior
Notes were issued at 97.533% of the principal amount, representing a yield to maturity of 10.50% and resulting in
net proceeds of $551.1 million. The $13.9 million discount is being accreted and the related charge included in
“Interest expense” until the Senior Notes mature. The Senior Notes are fully and unconditionally guaranteed, jointly
and severally, on an unsecured basis by certain direct and indirect domestic subsidiaries of Wendy’s/Arby’s
Restaurants (collectively, the “Guarantors”).
Deerfield
(Wendy’s/Arby’s)
On December 21, 2007, Wendy’s/Arby’s sold its 63.6% capital interest in Deerfield & Company, LLC
(“Deerfield”), an asset management business and a subsidiary of Wendy’s/Arby’s until its sale, to Deerfield Capital
Corp (“DFR”) (the “Deerfield Sale”). The Deerfield Sale resulted in non-cash proceeds to Wendy’s/Arby’s
aggregating $134.6 million, consisting of (1) 9.6 million convertible preferred shares (the “Preferred Stock”) of a
subsidiary of DFR with an estimated fair value of $88.4 million at the date of the Deerfield Sale and (2) $48.0 million
principal amount of series A senior secured notes of DFR due in December 2012 (the “DFR Notes”) with an
estimated fair value of $46.2 million at the date of the Deerfield Sale.
On March 11, 2008, DFR stockholders approved the one-for-one conversion of all its outstanding convertible
preferred stock into DFR common stock, which converted the Preferred Stock held by Wendy’s/Arby’s into a like
number of shares of DFR common stock. On March 11, 2008, Wendy’s/Arby’s Board of Directors approved the
distribution of the shares of DFR common stock then held by Wendy’s/Arby’s to Wendy’s/Arby’s stockholders. The
distribution in the form of a dividend, which was valued at $14.5 million, was paid in 2008 to holders of record of
Wendy’s/Arby’s then outstanding Class A common stock and Class B common stock.
In March 2008, in response to unanticipated credit and liquidity events in the first quarter of 2008, DFR
announced that it was repositioning its investment portfolio to focus on agency-only residential mortgage-backed
securities and away from its principal investing segment to its asset management segment with its fee-based revenue
streams. In addition, it stated that during the first quarter of 2008, its portfolio was adversely impacted by
deterioration of the global credit markets and, as a result, it sold $2.8 billion of its agency and $1.3 billion of its
AAA-rated non-agency mortgage backed securities and reduced the net notional amount of interest rate swaps used to
hedge a portion of its mortgage-backed securities by $4.2 billion, all at a net after-tax loss of $294.3 million to DFR.
Based on these events described above and their negative effect on the market price of DFR common stock,
Wendy’s/Arby’s concluded that the fair value and, therefore, the carrying value of its investment in the DFR common
shares was impaired. As a result, as of March 11, 2008 Wendy’s/Arby’s recorded an other than temporary loss, which
is included in “Other than temporary losses on investments,” for the year ended December 28, 2008 of
$68.1 million. As a result of the subsequent distribution of the DFR common stock, the income tax loss that resulted
from the decline in value of $68.1 million was not deductible for income tax purposes and no income tax benefit was
recorded related to this loss.
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