What could happen to Benihana's indebtedness if Benihana defaults under its covenants and such default is not cured or waived?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
We may not be able to comply with certain debt covenants on our debt.
Our credit agreement requires us to achieve specified financial and operating results and maintain compliance with specified financial ratios. Our ability to comply with these provisions may be affected by events beyond our control, including the effects on our business of COVID-19 and related government actions and consumer behavior. If we were to default under our covenants and such default were not cured or waived, our indebtedness could become immediately due and payable. If we breach these covenants and fail to comply with the credit agreement, and the lenders accelerate the amounts outstanding, our business and results of operations would be adversely affected.
In addition, our ability to borrow under our revolving credit facility depends on several factors, including compliance with specified leverage incurrence ratios. If we are not able to borrow under our revolving credit facility to bridge losses we incur while our operations are affected by the COVID-19 pandemic, and if alternative financing is not available to us on acceptable terms or at all, our business and results of operations would be adversely affected.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, Benihana's credit agreement requires the company to achieve specific financial and operating results and maintain compliance with certain financial ratios. These requirements can be affected by events beyond Benihana's control, potentially including events such as COVID-19, related government actions, and consumer behavior.
If Benihana defaults under these covenants and the default is not resolved or waived, the company's indebtedness could become immediately due and payable. If Benihana breaches these covenants and fails to comply with the credit agreement, lenders could accelerate the outstanding amounts, which would adversely affect Benihana's business and results of operations.
Additionally, Benihana's ability to borrow under its revolving credit facility is contingent on several factors, including compliance with specified leverage incurrence ratios. If Benihana cannot borrow under its revolving credit facility to cover losses incurred due to events like the COVID-19 pandemic, and if alternative financing is not available on acceptable terms or at all, Benihana's business and results of operations could be negatively impacted.