What was Aunt Millies Bakeries receiving under the 2022 interest rate swap agreements?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
e swap agreement that is designed to hedge the Company's risk against rising interest rates related to its floating rate debt obligations (Note 5). The notional amount of the agreement is reduced throughout the term of the agreement in proportion to the scheduled principal reductions of the related debt obligations being hedged. The initial notional amount of the agreement was $4,000,000 and expired November 30, 2023. The agreement required the Company to pay a fixed rate of 1.30% and receive 30 day LIBOR. In 2022, the Company entered into 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)
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to Aunt Millies Bakeries's 2025 Franchise Disclosure Document, in 2022, the company entered into interest rate swap agreements to hedge against rising interest rates related to its floating debt obligations. Under these agreements, Aunt Millies Bakeries was set to receive 30 day LIBOR. In exchange, the company agreed to pay fixed rates of 2.11%, 2.11%, and 2.81%, respectively, for agreements with initial notional amounts of $2,000,000, $4,000,000, and $4,000,000, all of which were set to expire on November 30, 2023.
These interest rate swap agreements were designed to mitigate the risk associated with fluctuating interest rates on the company's debt. By receiving a floating rate (30 day LIBOR) and paying a fixed rate, Aunt Millies Bakeries aimed to stabilize its interest expenses. However, it's important to note that these agreements were later amended or terminated in February 2023.
Prospective franchisees should understand that these types of financial instruments are used by Aunt Millies Bakeries to manage its own financial risks, which can indirectly affect the financial stability of the franchise system. While the specific details of these agreements may not directly impact franchisees, understanding how the franchisor manages its debt and interest rate exposure can provide insights into the overall financial health and risk management practices of the company.