When did Aunt Millies Bakeries enter into four additional interest rate swap agreements?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
In February 2023, the Company entered into four additional interest rate swap agreements that are also designated to hedge the Company's risk against rising interest rates related to its floating debt obligations (Note 5) with terms noted below. The agreements required the Company to pay a fixed rate and receive a one month SOFR term.
In February 2023, the Company discontinued hedge accounting as the previous interest rate swap agreements entered into in 2022 and 2021 were amended or terminated and the interest rates swaps entered into in 2023 were not effective in offsetting changes in cash flows of the floating rate debt obligations. The Company carries the derivative at fair value in the consolidated financial statements, recognizing changes in fair value in current period income in the consolidated statements of income.
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to Aunt Millies Bakeries's 2025 Franchise Disclosure Document, the company entered into four additional interest rate swap agreements in February 2023. These agreements were designed to hedge the company's risk against rising interest rates related to its floating debt obligations. The agreements required Aunt Millies Bakeries to pay a fixed rate and receive a one-month SOFR term.
These interest rate swaps are a financial tool used by Aunt Millies Bakeries to manage its exposure to fluctuations in interest rates. By entering into these agreements, the company aims to stabilize its borrowing costs, making its financial planning more predictable. However, it's important to note that in February 2023, Aunt Millies Bakeries discontinued hedge accounting because the previous interest rate swap agreements entered into in 2022 and 2021 were amended or terminated, and the interest rate swaps entered into in 2023 were not effective in offsetting changes in cash flows of the floating rate debt obligations.
This change in accounting treatment means that Aunt Millies Bakeries carries the derivative at fair value on its consolidated financial statements, recognizing changes in fair value in current period income. Prospective franchisees should be aware of these financial strategies, as they can impact the overall financial health and stability of the company. Understanding how Aunt Millies Bakeries manages its debt and interest rate risk can provide valuable insights into the company's financial management practices.