Anaheim, Calif.-based CKE Restaurants is closing a new $100 million credit facility at the end of January, a drastic reduction from the almost $500 million facility closed in 1997. Debt was incurred to finance the acquisition of the Hardee's food chain by Carl's, a part of the franchise, said Dennis Lacey, CKE's executive v.p. and cfo. "Hardee's was somewhat troubled, but they [Carl's] felt they could turn it around. But Hardee's continued to bleed and there were violations of the bank debt and noncompliance," he added. Covenants were waived so CKE was never in default, but to reduce leverage stores were sold including Hardee's and other restaurants, he said.
At the height of the borrowing, there were almost 20 lenders in the group, Lacey said. Only one year ago lenders were owed approximately $250 million. Now there are five banks committing a total of $100 million. BNP Paribas, First Bank and Trust, Wells Fargo Bank, Fleet National Bank and U.S. Bank were the core lenders previously, so when the new facility was required, these banks were approached. There was no formal bidding process, he noted. "We did it with those that already knew us," he said. The loan is for two years, but can be extended to five years.
The last facility was $120 million and is set to mature in February, Lacey commented. He declined to give spreads on the new or old loans, but said, "pricing is improved from our own perspective. The company is doing better and core lenders have recognized this by granting a club deal." There is also $200 million in senior notes due 2009 and $159 million in convertible debentures. Despite concerns that the restaurant industry faces challenging times ahead, Lacey said the quick service restaurant sector is doing well. Efforts are still being made to turn Hardee's around, he added.