Long-Term Debt

9 Months Ended

Sep. 23, 2020

Debt Disclosure [Abstract]

Long-Term Debt

4. LONG-TERM DEBT

On July 13, 2018, the Company refinanced a credit agreement with Bank of America, N.A., initially entered into on December 11, 2014 (the “2014 Revolver”), pursuant to a credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, and the Company and Intermediate, as guarantors, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provides for a $150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”). The 2018 Revolver includes a sub limit of $15.0 million for letters of credit and a sub limit of $15.0 million for swingline loans. The 2018 Revolver and 2018 Credit Agreement will mature on July 13, 2023. The obligations under the 2018 Credit Agreement and related loan documents are guaranteed by the Company and Intermediate. The obligations of the Company, EPL and Intermediate under the 2018 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million per year to repurchase or redeem qualified equity interests of Holdings held by past or present officers, directors, or employees (or their estates) of the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2018 Revolver.

Borrowings under the 2018 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either LIBOR or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the federal funds rate plus 0.50%, (b) the published Bank of America prime rate, or (c) LIBOR plus 1.00%. For LIBOR loans, the margin is in the range of 1.25% to 2.25%, and for base rate loans the margin is in a range of 0.25% to 1.25%. Borrowings under the 2018 Revolver may be repaid and reborrowed. The interest rate range was 1.67% to 1.68% and 1.67% to 3.29% for

the thirteen and thirty-nine weeks ended September 23, 2020, respectively, and 3.65% to 3.90% and 3.65% to 6.00% for the thirteen and thirty-nine weeks ended September 25, 2019, respectively.

The 2018 Credit Agreement contains certain financial covenants. The Company was in compliance with the financial covenants as of September 23, 2020. However, depending on the severity and longevity of the COVID-19 pandemic, the Company’s financial performance and liquidity could be further impacted and could impact the Company’s ability to comply with certain financial covenants required in the 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

At September 23, 2020, $8.4 million of letters of credit and $83.8 million in borrowings under the 2018 Revolver were outstanding. The Company had $57.8 million in borrowing availability under the 2018 Revolver at September 23, 2020.

Maturities

During the thirteen weeks ended September 23, 2020, the Company elected to pay down $55.0 million on its 2018 Revolver. During the thirty-nine weeks ended September 23, 2020, the Company paid down $13.2 million, net of borrowings of $52.5 million on its 2018 Revolver. During the thirteen and thirty-nine weeks ended September 25, 2019, the Company borrowed $16.0 million and $27.0 million, respectively, net of pay downs of $15.0 million during the thirty-nine week period, on the Company’s 2018 Revolver, primarily to fund settlement payments. There are no required principal payments prior to maturity for the 2018 Revolver. See “Subsequent Events” in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” for information regarding a $28.0 million pre-payment on the 2018 Revolver subsequent to September 23, 2020.

Interest Rate Swap

During the year ended December 25, 2019, the Company entered into a variable-to-fixed interest rate swap agreement with a notional amount of $40.0 million that matures in June 2023. The objective of the interest rate swap was to reduce the Company’s exposure to interest rate risk for a portion of its variable-rate interest payments on its borrowings under the 2018 Revolver. Under the terms of the swap agreement, the variable LIBOR-based component of interest payments was converted to a fixed rate of 1.31%, plus applicable margin, which is currently 1.5%. The interest rate swap was designated as a cash flow hedge, as the changes in the future cash flows of the swap were expected to offset changes in expected future interest payments on the related variable-rate debt, in accordance with ASC 815 “Derivatives and Hedging.”

The changes in the fair value of the interest rate swap are not included in earnings, but are included in other comprehensive (loss) income (“OCI”). These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on the variable rate borrowings.

For the thirteen and thirty-nine weeks ended September 23, 2020, the swap was a highly effective cash flow hedge.

As of September 23, 2020, the estimated net loss included in AOCI related to the Company’s cash flow hedge that will be reclassified into earnings in the next 12 months is $0.5 million, based on current LIBOR interest rates.

The following table shows the financial statement line item and amount of the Company’s cash flow hedge accounting on the condensed consolidated balance sheets (in thousands):

	September 23, 2020				December 25, 2019
	Notional		Fair value		Notional		Fair value
Other assets - Interest rate swap		—		—	$	40,000	$	360
Other liabilities - Interest rate swap	$	40,000	$	1,328		—		—

The following table summarizes the effect of the Company’s cash flow hedge accounting on the condensed consolidated statements of income (in thousands):

	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	September 23, 2020		September 25, 2019		September 23, 2020		September 25, 2019
Interest expense on hedged portion of debt	$	169		122	$	810		122
Interest expense (income) on interest rate swap		114		(29)		156		(29)
Interest expense on debt and derivatives, net	$	283	$	93	$	966	$	93

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen and thirty-nine weeks ended September 23, 2020 and September 25, 2019 (in thousands):

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
				Loss (Gain) Reclassified from						Loss (Gain) Reclassified from
	Net (Loss) Gain Recognized in OCI			AOCI into Interest expense			Net (Loss) Gain Recognized in OCI			AOCI into Interest expense
	September 23, 2020		September 25, 2019	September 23, 2020		September 25, 2019	September 23, 2020		September 25, 2019	September 23, 2020		September 25, 2019
Interest rate swap	$	(36)	171	$	114	(29)	$	(1,791)	171	$	156	(29)

See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” for information about the fair value of the Company’s derivative asset.