AFC Enterprises Inc. (AFCE), the franchisor and operator of Popeyes, the world’s second-largest quick-service chicken concept based on number of units, announced yesterday, the completion of a $100 million credit agreement. The agreement was signed on December 23, with JPMorgan ChaseBank, North America, acting as an administrative agent, and certain other lenders. A first priority security interest in almost all the assets of the company secured the credit facility.
The new credit facility will mature in 5 years and is at an interest rate lower than the prior credit. The quarterly principal payments will be $1.25 million for the first two years, $1.5 million for the third and fourth years and $4.5 million for the fifth year.
The new credit facility carries a rate of interest rate of 2.8% as determined using the LIBO Rate plus a spread of 250 basis points. The spread above the LIBO Rate can adjust from 225 to 325 basis points depending on the company’s total indebtedness. On the other hand, the company’s weighted average interest rate for all outstanding debt balance under its previous credit facility was approximately 7.2%, as of October 3, 2010.
AFC Enterprises ended the third quarter of 2010 with cash balance of $11.8 million and long-term debt of $66.4 million. A term loan of $40 million and a $60 million of revolver under the new facility along with available cash will be used to pay down approximately $63 million of the outstanding principal debt balance, under its previous credit facility. Earlier, in 2005, AFC Enterprises entered into a bank credit facility, which consists of a term loan and a $48.0 million revolving credit facility. According to management, the covenants under the 2010 credit facility make the company financially more flexible as compared to its prior facility.
Besides paying down the company’s high-cost debt, the new credit facility will increase available fund and extend the maturity period of debt. Additionally, the company intends to use its available cash balance to fund its core business as well as share repurchase program in 2011. AFC Enterprises is expected to recognize approximately $0.6 million of interest charges and defer approximately $1.0 million of fees associated with the refinancing in the fourth quarter of 2010.
Some of the peers of AFC Enterprises that have obtained credit facilities this month are Cheesecake Factory Inc. (CAKE) and Morton’s Restaurant Group Inc. (MRT). Cheesecake Factory and Morton’s Restaurant Group announced receipts of a respective $200 million and $70 million credit facility, respectively.
AFC Enterprises currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. As of October 3, 2010, Popeyes had 1,949 operating restaurants in the United States, Guam, Puerto Rico, the Cayman Islands and 26 foreign countries.
AFC ENTERPRISES (AFCE): Free Stock Analysis Report
CHEESECAKE FACT (CAKE): Free Stock Analysis Report
MORTONS RESTRNT (MRT): Free Stock Analysis Report
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