What optional expedients did Checkersrallys utilize pursuant to the modification of the contractual terms of instruments, as set forth in ASC 848?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference a rate that is expected to be discontinued. The amendment applies only to contracts, hedging relationships, and other transactions that utilize a reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform - Scope, which clarified the scope and application of the original guidance. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform Deferral of the Sunset Date of Topic 848, which deferred the sunset date of Topic 848 to December 31, 2024. These ASUs were effective upon issuance, and the Company may elect to apply the amendments prospectively through December 31, 2024 as the transition of reference rates is completed.
On June 16, 2023, the Company modified the reference rate. These modifications replaced the previous LIBOR-based reference rate to SOFR-based rates. Pursuant to the modification of the contractual terms of these instruments, the Company utilized the optional expedients set forth in ASC 848. The modified debt is described in Note 10.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company modified its reference rate on June 16, 2023. These modifications involved replacing the previous LIBOR-based reference rate with SOFR-based rates. In doing so, Checkersrallys utilized the optional expedients set forth in ASC 848 pursuant to the modification of the contractual terms of these instruments. The modified debt is further described in Note 10 of the financial statements.
This means that Checkersrallys took advantage of certain allowances provided by accounting standards to simplify the process of changing its financial contracts. These expedients are designed to ease the transition when reference rates, like LIBOR, are discontinued and replaced with alternatives like SOFR. For a prospective franchisee, this indicates that Checkersrallys is actively managing its financial obligations and adapting to changes in the financial landscape.
While the FDD mentions the use of optional expedients under ASC 848, it does not specify exactly which expedients were used. A prospective franchisee might want to inquire further with Checkersrallys about the specific expedients they utilized and how these changes could potentially impact franchisees, especially concerning financing and lease agreements.