What was the purpose of the Series 2024-1 Refinancing transaction completed by the Co-Issuers for Hardees in April 2024?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
Covenants and Restrictions
The Senior Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) required actions to protect the security interest in certain collateral upon the occurrence of certain performance-related events, (ii) application of certain disposition proceeds as note prepayments, subject to certain exceptions, (iii) maintenance of specified reserve accounts, (iv) maintenance of certain debt service coverage ratios, (v) mandatory prepayments with indemnification payments for defective or ineffective collateral, and (vi) covenants relating to record keeping, access to information and similar matters. If certain covenants or restrictions are not satisfied or complied with, the Senior Notes are subject to accelerated repayment events and events of default. Although management does not anticipate an event of default, if any such event occurred and was not cured within any applicable cure period, the unpaid amounts outstanding could become immediately due and payable.
Refinancing Transaction
In April 2024, the Co-Issuers completed a refinancing transaction (the "Series 2024-1 Refinancing") under which the Co-Issuers issued the Series 2024-1 Class A-2 Notes. A portion of the net proceeds fro
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, the Series 2024-1 Refinancing transaction was completed in April 2024. The purpose of this transaction was to issue Series 2024-1 Class A-2 Notes, with a portion of the net proceeds being used to repay in full the Co-Issuer's outstanding Series 2018-1 Class A-2-II Notes, including covering transaction costs. This refinancing resulted in Hardees recording a loss on early extinguishment of debt amounting to $1,283 during fiscal year 2025. This loss was due to writing off the unamortized deferred financing costs associated with the Series 2018-1 Class A-2-II Notes and is reported under other income, net, in the Consolidated Statements of Operations.
In simpler terms, Hardees refinanced some of its debt by taking out new loans (Series 2024-1 Class A-2 Notes) to pay off older loans (Series 2018-1 Class A-2-II Notes). This is a common financial strategy that companies use to potentially secure better interest rates, extend the repayment period, or simplify their debt structure. However, in this case, Hardees incurred a loss of $1,283 due to costs associated with ending the old debt agreement early.
For a prospective franchisee, this information indicates that Hardees actively manages its debt and financial obligations. While the refinancing resulted in a recorded loss, it doesn't necessarily reflect negatively on the company's overall financial health. Refinancing can be a strategic move to optimize long-term financial performance. However, franchisees should consider this within the broader context of Hardees's financial statements and business strategy to fully understand its implications.
Furthermore, in connection with the Series 2024-1 Refinancing and the amendment of the Series 2018-1 Variable Funding Notes, Hardees incurred debt issuance costs of $7,860, which were capitalized and allocated between the Series 2024-1 Class A-2 Notes and the Series 2018-1 Variable Funding Notes. These deferred financing costs will be amortized to interest expense within the Consolidated Statements of Operations using the effective interest method over the expected term of the Series 2024-1 Class A-2 Notes of seven years and five years for the Series 2018-1 Variable Funding Notes.