What is the maximum interest rate Checkers can pay in kind on the New Money Loans?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
kers Topco,
(Tabular Dollars in Thousands, Except Share and per Share Data)
LLC ("Topco"), the secured creditors of Holdings and Burger BossCo acquired all of the equity of Topco, and the equity of Burger BossCo owned by BossCo Holdings was repurchased by Burger BossCo for a nominal amount.
As part of the Out-of-Court Restructuring, each First Lien Lender was provided with the right to elect to provide up to its pro rata share of commitments to make $25 million in "First-Out Delayed Draw Term Loans" ("New Money Loans") under that certain Credit Agreement, dated as of June 16, 2023 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement" and such commitments, the "New Money Commitments"), by and among Holdings, CDI, Burger BossCo, the persons party thereto from time to time as "Lenders" thereunder, and Jefferies Finance LLC, as the administrative agent and the collateral agent for such Lenders. The New Money Loans accrue interest at a floating rate, which can be, at the Company's option, (x) an alternative base rate plus 6.00% per annum or (y) the Adjusted Term Secured Overnight Financing Rate plus 7.00% per annum plus a credit adjustment spread. The Company has the option to pay interest on the New Money Loans that has accrued at a rate equal to 4.00% per annum in kind, rather than in cash. The New Money Loans mature on June 16, 2027. Additionally, the Company is required to make recurring quarterly principal payments on the New Money Loans in the amount equivalent to 0.25% of the original principal amount which may increase upon additional borrowings. The remainder of the principal amount is due upon maturity. Upon each principal repayment, the Company is required to pay a contractual premium, equal to (i) prior to the first anniversary, a ma
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company has the option to pay interest on the New Money Loans in kind, rather than in cash, at a rate equal to 4.00% per annum. This means that instead of paying the interest in cash, Checkers can choose to add the interest amount to the principal of the loan, effectively increasing the loan amount.
For a prospective Checkers franchisee, this detail is relevant because it reflects the financial strategies and flexibility available to the company in managing its debt. The New Money Loans, which mature on June 16, 2027, accrue interest at a floating rate based on either an alternative base rate plus 6.00% per annum or the Adjusted Term Secured Overnight Financing Rate plus 7.00% per annum plus a credit adjustment spread. The ability to pay a portion of the interest in kind provides Checkers with a tool to manage its cash flow, especially during periods when cash may be needed for other operational or investment purposes.
However, it's important to note that while paying interest in kind can ease short-term cash flow challenges, it also increases the overall debt and future interest obligations. Franchisees should consider this aspect as part of their broader assessment of Checkers' financial health and stability. Understanding how Checkers manages its debt and utilizes financial instruments like the New Money Loans can offer insights into the company's financial management practices and its potential impact on the franchise system.