Denny's Corp., America's largest full-service family restaurant chain, has tacked on a $40 million term loan to its credit facility, increasing the size of the deal to $165 million. The loan's proceeds went toward paying down some of the drawn debt on the company's existing $125 million revolver, said Ken Jones, v.p. and treasurer. "The purpose of the term loan is to boost our liquidity," he explained, noting that the move helped increase availability on the revolver. After the term loan was put in place, there were outstanding letters of credit of $38 million and outstanding revolver advances of $22 million. As of late last month, net availability on the credit was $65 million. "In addition to [increased] liquidity, we also received some flexibility to repurchase some of our bonds," Jones added.
The add-on loan will mature in December 2004, staying in line with the maturity of the pre-existing revolver, Jones explained. The revolver's credit agreement will remain generally unchanged and the term loan lenders will share the same security package as the revolver lenders. But the term loan will be subordinated in right of payment to the revolver. "We did not want to dilute our revolver lenders' collateral position," Jones said. There are six members in total to the entire facility. J.P. Morgan leads the deal, while Wells Fargo Foothill is a syndication agent, Jones added.
The loan bears interest at a fixed rate of 11% per annum, while the revolver is priced at LIBOR plus 5%. "We are a highly leveraged company and that's why we are priced at LIBOR plus 5% and 11%...It reflects our current credit profile," Jones explained. He said Denny's agreed to a short maturity on the credit when the revolver was originally refinanced in December 2002 because the deal was more of a transition type of facility. Denny's had planned to replace the deal with a longer-term credit, as it expected to improve its credit position later on. "We are exploring our alternatives right now. Sometime mid-next year we will have to address the expiring facility," Jones said, adding that the refinancing could be either a bank facility, other asset-based financing or a high-yield deal. Denny's total debt is about $587 million, he added.