Improved business performance and an upgrade by Moody's Investors Service and Standard & Poor's let Denny's cut 100 basis points off its debt when it refinanced in December. The Spartanburg, S.C.-based restaurant chain entered into a new $350 million credit facility with Bank of America to refinance a prior deal from 2004. "It was a good deal at the time," Alex Lewis, treasurer, said of the '04 deal. But as the company's performance improved, it decided to take advantage of the good market conditions.
The new deal comprises a $50 million revolver including a $10 million revolving letter of credit, a $260 million term loan and a $40 million synthetic letter of credit. The revolver is priced at LIBOR plus 2 1/2% and the term loan is LIBOR plus 2 1/4%. Denny's previous credit, led by B of A and UBS, consisted of a four-year, $75 million revolver; a five-year, $225 million first-lien term loan and a six-year, $120 million second-lien term loan. The first lien was priced at LIBOR plus 3 1/4% and the second was priced at LIBOR plus 5 1/8%. Lewis declined to comment on why UBS wasn't involved in the new credit.
Since the 2004 deal, Denny's same store sales and operating income have increased every quarter except for one and it has been working on deleveraging. Lewis said the company's current debt to EBITDA leverage is around four times. Moody's and S&P noted the improved performance and upgraded the company from a B2/B to a B1/B+, Lewis said. "The markets and banks anticipated that something was going to happen," he said in regards to Denny's debt.
Lewis explained the company shopped around when it came to the refinancing. "We talked to other banks, but ultimately decided to go with B of A due to the relationship and favorable terms they offered," Lewis said. He declined to name other banks that had been considered. He said Denny's was very happy with the 2004 deal and B of A is a good bank to deal with in the retail industry.