Thu 07/01/2021 13:49 PM
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UPDATE 1: 1:49 p.m. ET 7/1/2021: This morning, Fiesta Restaurant Group announced that it had agreed to sell all of the outstanding equity of Taco Cabana Inc. to an affiliate of Yadav Enterprises - a restaurant franchisee company that operates more than 300 locations throughout the United States under a variety of brands, including Jack in the Box, Denny’s and TGI Friday’s - for a cash purchase price of $85 million. The transaction is expected to close in the third quarter of 2021. Continue reading for our Americas Covenants team's analysis of the Fiesta Restaurant Group direct term loan and Request a Trial for access to the linked debt documents, tear sheets, and summaries as well as our coverage of thousands of other stressed/distressed debt situations.

According to the release, proceeds from the sale will be used to fully repay the company’s approximately $74.6 million outstanding term loan borrowings under the company’s senior direct lending facility with Fortress Credit Corp., which will also receive a 3.0% (or $2.2 million) prepayment premium in connection with the transaction. The term loans were incurred by the company on Nov. 23, 2020, and bear interest at L+775 bps, subject to a 100 bps LIBOR floor.

With respect to liquidity, the release states that the company’s cash balance as of June 27, 2021, was $67.6 million, a portion of which will be used for investments to “accelerate Pollo Tropical's growth.” The release also states that “the Company's Board of Directors will be evaluating additional strategies for increasing shareholder value including potential future stock repurchases.” The direct lending facility with Fortress also provides for a $10 million revolver, which was undrawn as of April 4; it is unclear from public disclosures whether the revolver will remain in place after the sale.

For the fiscal year ended Jan. 3, 2021, Taco Cabana generated total revenue of $239.4 million and adjusted EBITDA of $8.5 million, according to the release.

Original Story 1:58 p.m. UTC on Dec. 10, 2020

Fiesta Restaurant Group’s New $85M Direct Lending Facility With Fortress Provides Greater Covenant Relief, Flexibility Relative to Old Syndicated Revolver

Relevant Items:
Fiesta Restaurant Group’s Debt Documents
Fiesta Restaurant Group’s Debt Document Summary

As previously reported by Reorg, on Nov. 28, Fiesta Restaurant Group, which owns, operates and franchises Pollo Tropical and Taco Cabana restaurants, entered into a new $85 million secured direct lending facility (consisting of a $75 million term loan and a $10 million revolver) with Fortress Credit Corp. as agent. The new direct lending facility replaces the company’s old syndicated revolver, which - following operational disruptions related to the Covid-19 pandemic that have affected the entire industry - was amended in July to provide covenant relief in exchange for certain concessions to lenders, including a minimum liquidity requirement starting at $40 million.

Fiesta Restaurant Group’s capital structure and historical debt and leverage metrics as of Sept. 27, pro forma for the Nov. 28 refinancing, are shown below.


Many public restaurant companies that obtained covenant relief in the wake of the pandemic - including BJ’s Restaurants, Bloomin’ Brands, Brinker International, Cheesecake Factory, Cracker Barrel, Denny’s, Noodles & Co., Red Robin and Shake Shack - will see that relief expire in the coming months and may need to seek extended relief. Some companies, like Dave & Buster’s, have obtained extensions by amending their existing syndicated facilities; others, like Fiesta Restaurant Group, have obtained that relief by replacing their existing facilities, including with direct lending facilities, which have become increasingly popular among public companies.

Below we provide a side-by-side comparison of some of the key terms of Fiesta Restaurant Group’s new facility against those of the old revolver. We find that in return for more favorable payment terms, Fiesta Restaurant Group’s new direct lending facility provides the company with considerably more flexibility, including extended covenant suspension through Jan. 2, 2022, no coverage-based maintenance covenants or limits on capital expenditures, and increased transaction capacity for new debt, restricted payments and investments.



As reflected in the above tables, the new facility provides Fiesta Restaurant Group with additional flexibility by (a) eliminating the FCCR covenant and the limit on capital expenditures, (b) reducing the minimum liquidity threshold to $20 million (net of delinquent payables), (c) suspending the leverage covenant until Jan. 3, 2022 (compared with April 4, 2021, under the old facility), and (d) permitting modest capacity for new debt, restricted payments and investments. Notably, breach of the minimum liquidity covenant before Jan. 3, 2022, does not by itself constitute an event of default but instead an early trigger of the leverage covenant.

In exchange for this flexibility, the facility provides lenders with improved economics compared with the revolver, including a hard prepayment premium starting at 3% and tightened equity cure provisions, which require 100% of any equity cure proceeds to be used to prepay the term loans subject to the prepayment premium.
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