Fri 08/13/2021 09:17 AM
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Relevant Items:
Carrols Restaurant Group’s Debt Documents
Carrols Restaurant Group’s Covenants Tear Sheet, Debt Document Summary

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Carrols Restaurant Group Inc. is one of the largest restaurant companies as well as the largest Burger King franchisee in the United States. As of July 4, 2021, the company operated, as franchisee, 1,027 Burger King restaurants in 23 states and 65 Popeyes restaurants in seven states.

On June 23, 2020, the company incurred $75 million of incremental term loans under its senior credit facility (increasing the aggregate outstanding term loan balance to $497 million), and on April 6, 2021, it upsized its revolver to $175 million (from $146 million).

On June 28, the company issued $300 million of 5.875% senior unsecured notes due 2029, the proceeds of which, together with part of the proceeds of a concurrent $46 million revolver draw, were used to fully repay the $74 million of outstanding incremental term loans and to repay $244 million of outstanding initial term loan borrowings under its senior credit facility, reflecting aggregate term loan prepayments of $318 million. After the June refinancing transactions, Carrols’ first lien net leverage ratio fell to 1.36x as of July 4, according to an earnings report filed on Thursday, from approximately 3.40x as of April 4.

Concurrently with the June notes issuance, the company entered into a seventh amendment to its term loan and revolving credit agreement, which, among other changes:

  • Increased incremental debt capacity and allowed additional flexibility for restricted payments, investments and prepayments;

  • Stipulated that the incremental increases obtained prior to the amendment date (including the $75 million incremental term loan and the $29 million revolver increase) were each incurred under the leverage-based prong of the credit agreement’s incremental basket;

  • Added a new provision permitting term loan assignments to affiliated lenders (subject to a 20% holdings cap); and

  • Added an agent clawback provision for erroneous payments.

In a release filed Thursday, the company announced a special cash dividend of 41 cents per share (or $25 million in the aggregate) on all issued and outstanding shares of its common stock, which will be paid on Oct. 5 to stockholders of record as of close of business on Aug. 25.

The company’s capital structure and leverage metrics as of July 4 are shown below:

Updated Covenant Conclusions


  • Liquidity and financial covenants - The company’s secured bank debt contains a 5.75x springing first lien net leverage covenant for the benefit of revolver lenders only, which is triggered if outstanding revolving exposure (excluding undrawn letters of credit less than $12 million and reimbursed or cash collateralized L/Cs) exceeds 35% of revolving commitments on the last day of any fiscal quarter. As of July 4, $46 million was outstanding under the revolver (approximately 26% of the $175 million of revolving commitments), so the financial covenant did not apply.As of July 4, the company’s liquidity was approximately $176 million, comprising $120 million of accessible revolver availability and $56 million of unrestricted balance sheet cash.

  • Debt and liens - Carrols’ term loan and revolving credit agreement, which is generally more restrictive of debt and liens than the unsecured notes, permits the company to incur $418 million of pari secured debt, consisting of $198 million under the fixed amount and voluntary prepayments prongs of its incremental debt basket (or the “Free and Clear Incremental Amount”), $200 million under a 3.00x first lien net leverage ratio debt basket and $20 million of general debt and liens.In addition to secured debt, the credit agreement permits the company to incur $134 million of unsecured debt, consisting of $114 million of unsecured ratio debt and $20 million of general debt.With respect to structurally senior debt, the unsecured notes indenture is actually more restrictive than the credit agreement and permits nonguarantors to incur only $55 million of structurally senior debt, consisting of $35 million under a general debt basket and $20 million of ratio debt.

  • Dividends and investments and prepayments - Carrols’ term loan and revolving credit agreement is also the more restrictive instrument with respect to dividends and investments. The credit agreement provides the company with $100 million of shared capacity, consisting of $50 million under the starter amount to the retained ECF builder basket and $50 million under a separate shared basket. The credit agreement also permits regular cash dividends of up to $5 million per annum and $2 million of general investments plus restricted payments and investments out of retained ECF. Because of its current leverage, Carrols cannot make leverage-based restricted payments, prepayments or investments and must rely instead on capacity under the builder basket and shared general baskets.

  • Prepayments, open market purchases of notes - Carrols is restricted from prepaying or repurchasing debt that is (a) unsecured, (b) junior lien or payment subordinated to the first lien credit facilities or (c) payment subordinated to the 2029 unsecured notes. Accordingly, any prepayment or repurchase of the 2029 unsecured notes would require the company to use restricted payment capacity.

--Julian Bulaon
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