Wendy's 2011 Annual Report Download - page 37

Credit Agreement
In May 2010, Wendy’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 Credit Agreement contains provisions for an
uncommitted increase of up to $300.0 million principal amount in the aggregate in the Credit Facility and/or Term
Loan subject to the satisfaction of certain conditions. The Credit Facility includes a sub-facility for the issuance of up
to $70.0 million of letters of credit. The obligations under the Credit Agreement are secured by substantially all of the
non-real estate assets of Wendy’s Restaurants and its domestic subsidiaries (other than certain unrestricted
subsidiaries), the stock of its domestic subsidiaries (other than certain unrestricted subsidiaries), 65% of the stock of
certain of its foreign subsidiaries, and mortgages on certain restaurant properties.
The Term Loan was issued at 99.5% of the principal amount, which represented an original issue discount of
0.5% and resulted in net proceeds of $497.5 million. The $2.5 million discount is being accreted and the related
charge included in “Interest expense” through the maturity of the Term Loan. The Term Loan will mature in May
2017 and requires quarterly principal installments, which commenced on September 30, 2010, equal to 1% per
annum of the initial principal amount outstanding, with the balance payable on the maturity date. In addition, the
Term Loan requires prepayments of principal amounts resulting from certain events and excess cash flow on an
annual basis from Wendy’s Restaurants as defined under the Term Loan. An excess cash flow payment for fiscal 2010
of $24.9 million was paid in the first quarter of 2011. An excess cash flow payment was not required for fiscal 2011.
In addition, Wendy’s Restaurants was not required to utilize any portion of the proceeds from the sale of Arby’s
described above in “Executive Overview—Sale of Arby’s” as a Term Loan prepayment.
The Credit Facility expires not later than May 24, 2015. An unused commitment fee of 50 basis points per
annum is payable quarterly on the average unused amount of the Credit Facility until the maturity date.
The interest rate on the Term Loan is based on the Eurodollar Rate as defined in the Credit Agreement (but
not less than 1.50%), plus 3.50%, or a Base Rate, as defined in the Credit Agreement (but not less than 2.50%), plus
2.50%. Since the inception of the Term Loan, we have elected to use the Eurodollar Rate, which resulted in an
interest rate on the Term Loan of 5.00% as of January 1, 2012.
The Companies incurred approximately $16.4 million in costs related to the Credit Agreement, which is being
amortized to “Interest expense” over the Term Loan’s term utilizing the effective interest rate method.
Proceeds from the Term Loan were used to (1) repay approximately $253.8 million of existing indebtedness,
including fees and interest, under the then existing Wendy’s Restaurants amended senior secured term loan, which
replaced the prior Arby’s credit agreement in March 2009 and which was scheduled to be due in 2012, (2) redeem the
Wendy’s 6.25% senior notes scheduled to be due in 2011, and (3) pay fees and expenses related to the Credit
Agreement.
The Companies recognized a loss on early extinguishment of debt of $26.2 million in the second quarter of
2010 related to the repayment of debt 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 merger with Wendy’s), and
(3) $5.7 million for the write-off of deferred costs associated with the repayment of the prior senior secured term loan.
Related Party Transactions
Supply Chain Relationship Agreement
During the 2009 fourth quarter, Wendy’s entered into a purchasing co-op relationship agreement (the
“Wendy’s Co-op”) with its franchisees to establish QSCC. QSCC manages food and related product purchases and
distribution services for the Wendy’s system in the U.S. and Canada. Through QSCC, Wendy’s and Wendy’s
franchisees purchase food, proprietary paper and operating supplies under national contracts with pricing based upon
total system volume.
QSCC’s supply chain management facilitates continuity of supply and provides consolidated purchasing
efficiencies while monitoring and seeking to minimize possible obsolete inventory throughout the Wendy’s supply
chain in the U.S. and Canada. Prior to 2010, the system’s purchasing function was performed and paid for by
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