How might increases in interest rates affect Bojangles' net income?

According to Bojangles's 2025 Franchise Disclosure Document, increases in interest rates could negatively impact the company's net income. This is primarily due to Bojangles's use of variable funding notes with floating interest rates. As stated in the FDD, the company is exposed to changes in the level of interest rates and to changes in the relationship or spread between interest rates for our floating rate debt. The company's floating rate debt will require payments based on a variable interest rate index such as SOFR. Therefore, increases in interest rates may reduce the company's net income by increasing the cost of the company's debt.

Bojangles utilizes variable funding notes, and specifically the 2024-1 Variable Funding Notes, which allow them to borrow up to $50,000 for senior secured revolving facility loans, swingline loans, and letters of credit. As of December 29, 2024, Bojangles had a standby letter of credit outstanding under these notes amounting to $9,576. Because the interest rates on these notes are variable, any increase in prevailing interest rates would directly translate to higher interest expenses for Bojangles. This, in turn, would reduce the company's net income, as more of its revenue would be allocated to servicing its debt.

This sensitivity to interest rate fluctuations is a common risk for companies with significant floating rate debt. While the FDD mentions that interest rate risk is influenced by various factors beyond Bojangles's control, such as U.S. monetary and tax policies and international economic factors, it does not detail any specific strategies Bojangles might employ to hedge against these risks. Prospective franchisees should inquire about Bojangles's risk management strategies related to interest rate fluctuations to better understand how the company plans to mitigate potential negative impacts on profitability.