Wendy's 2012 Annual Report Download - page 88

THE WENDY’S COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—CONTINUED
(In Thousands Except Per Share Amounts)
facility expires not later than May 15, 2017. An unused commitment fee of 50 basis points per annum is payable
quarterly on the average unused amount of the revolving credit facility until the maturity date. As of
December 30, 2012, there were no amounts outstanding under the revolving credit facility, except for $20,348 of
letters of credit issued in the normal course of business.
The interest rate on the Term Loan and amounts borrowed under the revolving credit facility is based on the
Eurodollar Rate as defined in the Credit Agreement (but not less than 1.25%), plus 3.50%, or a Base Rate, as
defined in the Credit Agreement 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 4.75% as of December 30, 2012.
Wendy’s incurred $15,566 in costs related to the Credit Agreement, which are being amortized to “Interest
expense” through the maturity of the Term Loan utilizing the effective interest rate method.
Proceeds from the Term Loan were used (1) to repay all amounts outstanding under the 2010 Term Loan, (2) to
redeem the Wendy’s Restaurants 10.00% Senior Notes due 2016 (the “Senior Notes”) in the amounts of
$440,775 aggregate principal at a redemption price of 107.5% of the principal amount in July 2012 and to
purchase $124,225 aggregate principal at a purchase price of 108.125% of the principal amount in May 2012,
both plus accrued and unpaid interest and (3) to pay substantially all of the Credit Agreement fees and expenses.
As a result of the transactions described above, the Company incurred a loss on the early extinguishment of debt
as follows:
Year Ended
2012
Premium payment to redeem/purchase Senior Notes ................................ $43,151
Unaccreted discount on Senior Notes ........................................... 9,272
Deferred costs associated with the Senior Notes .................................... 12,433
Unaccreted discount on 2010 Term Loan ........................................ 1,695
Deferred costs associated with the 2010 Term Loan ................................. 8,525
Loss on early extinguishment of debt ........................................ $75,076
The affirmative and negative covenants in the Credit Agreement include, among others, preservation of corporate
existence; payment of taxes; maintenance of insurance; and limitations on: indebtedness (including guarantee
obligations of other indebtedness); liens; mergers, consolidations, liquidations and dissolutions; sales of assets;
dividends and other payments in respect of capital stock; investments; payments of certain indebtedness;
transactions with affiliates; changes in fiscal year; negative pledge clauses and clauses restricting subsidiary
distributions; and material changes in lines of business. The financial covenants contained in the Credit
Agreement are (1) a consolidated interest coverage ratio and (2) a consolidated senior secured leverage ratio.
Wendy’s was in compliance with the covenants of the Credit Agreement as of December 30, 2012 including the
consolidated interest coverage ratio, our most restrictive financial covenant, which requires that we maintain a
minimum consolidated interest coverage ratio of 3.00. The covenants generally do not restrict The Wendy’s
Company or any of The Wendy’s Company’s subsidiaries that are not subsidiaries of Wendy’s.
(b) Wendy’s 6.20% senior notes were reduced to fair value in connection with the Wendy’s merger based on
outstanding principal of $225,000 and an effective interest rate of 7.0%. The fair value adjustment is being accreted
and the related charge included in “Interest expense” until the notes mature. The carrying value of the Wendy’s
senior notes is adjusted to reflect the fair value of interest rate swaps associated with this debt. As of December 30,
2012 and January 1, 2012, this adjustment increased the carrying value of the 6.20% senior notes by $8,169 and
$11,695, respectively. These notes are unsecured and are redeemable prior to maturity at our option. The Wendy’s
senior notes contain covenants that restrict the incurrence of indebtedness secured by liens and certain capitalized
lease transactions. Wendy’s was in compliance with these covenants as of December 30, 2012.
(c) Wendy’s 7% debentures are unsecured and were reduced to fair value in connection with the Wendy’s merger
based on their outstanding principal of $100,000 and an effective interest rate of 8.6%. The fair value adjustment
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