Papa John's Pizza
New Coverage/Issuer Covenant Card: Papa John’s International
Tue 07/20/2021 12:17 PM
Relevant Items:
Papa John’s Debt Document Summary, Covenants Tear Sheet
Papa John’s Debt Documents
Papa John’s International Inc. operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the Papa John’s trademark. As of March 28, there were 5,468 Papa John’s restaurants (589 company-owned and 4,879 franchised) operating in 50 countries and territories. Continue reading for our Americas Covenants team's Papa John's International covenants analysis 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.
On May 11, the company entered into a share repurchase agreement with certain affiliates of Starboard Value LP, which provided for the company’s repurchase of 78,387 shares of the Series B convertible preferred stock from Starboard and the conversion of Starboard’s remaining 171,613 shares of Series B convertible preferred stock into 3,458,360 shares of Papa John’s common stock. According to a May 12 disclosure, the company agreed to pay Starboard approximately $183.9 million in connection with the transactions.
The company is the borrower under a secured bank debt facility consisting of a $400 million revolver and a $400 million term loan (the “PJI Facility”), which are each guaranteed by the Borrower’s wholly owned material domestic subsidiaries and will mature in August 2022. The company’s marketing affiliate, Papa John’s Marketing Fund, also has a $20 million revolving line of credit (the “PJMF Revolver”), which will mature in September of this year.
Papa John’s capital structure and select financial metrics as of March 28 are shown below:
Financial maintenance covenants; liquidity: The company’s credit agreement contains a total leverage covenant tested at 4.25x through Dec. 26 of this year and then at 4.0x thereafter. The credit agreement also contains a 2.5x interest coverage covenant, which is calculated as the ratio of (a) the sum of adjusted EBITDA and net rent expense (net of sublease income received in cash) to (b) the sum of interest expense and net rent expense. For the period ended March 28, the company reported a total leverage ratio of 2.0x and an interest coverage ratio of 4.5x, which would have satisfied both financial covenants under the company’s credit agreement.
The company’s liquidity as of March 28 was approximately $510 million, comprising $171 million of balance sheet cash and $339 million of company-reported revolving availability.
Debt and liens: The company’s credit agreement provides $320 million of secured debt capacity, consisting of $300 million of incremental capacity and $20 million of general liens. Although the credit agreement permits ratio debt up to 4.25x total leverage (or approximately $419 million of additional debt), that debt must be unsecured and can only be incurred by a loan party (and therefore cannot be used to incur structurally senior debt). Up to $70 million of structurally senior debt may be incurred, consisting of $43 million under a general debt basket and $27 million under a foreign subsidiary debt basket.
Restricted payments; investments: The credit agreement contains leverage-based restricted payment and investment baskets tested at 3.75x and 4.25x pro forma total leverage, respectively, which were both accessible by the company as of March 28. In addition to these baskets, the credit agreement permits $90 million of transfers outside of the credit group, including $30 million of dividends per fiscal year, $40 million of loans/advances to franchisees, and $20 million of general investments.
Note that because the concept of “unrestricted subsidiaries” is absent from the credit agreement, any transferee of an intercompany investment would be subject to the credit agreement’s restrictive covenants.
Prepayments: The credit agreement does not contain a negative covenant that restricts prepayments of other debt, and prepayments of other debt are not covered by the restricted payments covenant. As of March 28, the company’s only other debt outside of the PJI Facility consisted of $23 million of finance leases and $20 million of undrawn revolving commitments under the PJMF Revolver.
Asset sales: The credit agreement’s asset sale sweep does not apply unless the company’s pro forma total leverage ratio exceeds 4.25x. Because company-reported total leverage was 2.0x as of March 28, the asset sale sweep did not apply.
--Julian Bulaon
Papa John’s Debt Document Summary, Covenants Tear Sheet
Papa John’s Debt Documents
Papa John’s International Inc. operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the Papa John’s trademark. As of March 28, there were 5,468 Papa John’s restaurants (589 company-owned and 4,879 franchised) operating in 50 countries and territories. Continue reading for our Americas Covenants team's Papa John's International covenants analysis 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.
On May 11, the company entered into a share repurchase agreement with certain affiliates of Starboard Value LP, which provided for the company’s repurchase of 78,387 shares of the Series B convertible preferred stock from Starboard and the conversion of Starboard’s remaining 171,613 shares of Series B convertible preferred stock into 3,458,360 shares of Papa John’s common stock. According to a May 12 disclosure, the company agreed to pay Starboard approximately $183.9 million in connection with the transactions.
The company is the borrower under a secured bank debt facility consisting of a $400 million revolver and a $400 million term loan (the “PJI Facility”), which are each guaranteed by the Borrower’s wholly owned material domestic subsidiaries and will mature in August 2022. The company’s marketing affiliate, Papa John’s Marketing Fund, also has a $20 million revolving line of credit (the “PJMF Revolver”), which will mature in September of this year.
Papa John’s capital structure and select financial metrics as of March 28 are shown below:
Covenant Conclusions
Financial maintenance covenants; liquidity: The company’s credit agreement contains a total leverage covenant tested at 4.25x through Dec. 26 of this year and then at 4.0x thereafter. The credit agreement also contains a 2.5x interest coverage covenant, which is calculated as the ratio of (a) the sum of adjusted EBITDA and net rent expense (net of sublease income received in cash) to (b) the sum of interest expense and net rent expense. For the period ended March 28, the company reported a total leverage ratio of 2.0x and an interest coverage ratio of 4.5x, which would have satisfied both financial covenants under the company’s credit agreement.
The company’s liquidity as of March 28 was approximately $510 million, comprising $171 million of balance sheet cash and $339 million of company-reported revolving availability.
Debt and liens: The company’s credit agreement provides $320 million of secured debt capacity, consisting of $300 million of incremental capacity and $20 million of general liens. Although the credit agreement permits ratio debt up to 4.25x total leverage (or approximately $419 million of additional debt), that debt must be unsecured and can only be incurred by a loan party (and therefore cannot be used to incur structurally senior debt). Up to $70 million of structurally senior debt may be incurred, consisting of $43 million under a general debt basket and $27 million under a foreign subsidiary debt basket.
Restricted payments; investments: The credit agreement contains leverage-based restricted payment and investment baskets tested at 3.75x and 4.25x pro forma total leverage, respectively, which were both accessible by the company as of March 28. In addition to these baskets, the credit agreement permits $90 million of transfers outside of the credit group, including $30 million of dividends per fiscal year, $40 million of loans/advances to franchisees, and $20 million of general investments.
Note that because the concept of “unrestricted subsidiaries” is absent from the credit agreement, any transferee of an intercompany investment would be subject to the credit agreement’s restrictive covenants.
Prepayments: The credit agreement does not contain a negative covenant that restricts prepayments of other debt, and prepayments of other debt are not covered by the restricted payments covenant. As of March 28, the company’s only other debt outside of the PJI Facility consisted of $23 million of finance leases and $20 million of undrawn revolving commitments under the PJMF Revolver.
Asset sales: The credit agreement’s asset sale sweep does not apply unless the company’s pro forma total leverage ratio exceeds 4.25x. Because company-reported total leverage was 2.0x as of March 28, the asset sale sweep did not apply.
--Julian Bulaon
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