Long-Term Debt

6 Months Ended

Jun. 29, 2022

Debt Disclosure [Abstract]

Long-Term Debt

4. LONG-TERM DEBT

The Company, as a guarantor, is a party to a credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, Intermediate, as a guarantor, 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 Holdings and Intermediate. The obligations of Holdings, 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 1.70% to 2.87% and 1.35% to 2.87% for the thirteen and twenty-six weeks ended June 29, 2022, respectively, and 1.35% to 1.36% and 1.35% to 1.65% for the thirteen and twenty-six weeks ended June 30, 2021.

The 2018 Credit Agreement contains certain financial covenants. The Company was in compliance with the financial covenants as of June 29, 2022.

At June 29, 2022, $10.0 million of letters of credit and $40.0 million in borrowings under the 2018 Revolver were outstanding. The Company had $100.0 million in borrowing availability under the 2018 Revolver at June 29, 2022.

On July 27, 2022, the 2018 Revolver was refinanced pursuant to a new 2022 Credit Agreement among EPL, as borrower, the Company and Intermediate, as guarantors, the lenders and other parties party thereto and Bank of America, N.A., as administrative agent, swingline lender and letters of credit issuer, which provides for a $150.0 million five-year senior secured revolving facility. In connection with the refinancing, the 2018 Credit Agreement was terminated. On July 29, 2022, the Company made a $20.0 million payment to the 2022 Revolver and the outstanding balance as of August 4, 2022 was $20.0 million. For more information regarding the 2022 Credit Agreement, see Note 1, “Subsequent Events ― 2022 Credit Agreement.”

Maturities

No amounts were paid on the 2018 Revolver during the thirteen and twenty-six weeks ended June 29, 2022. During the thirteen and twenty-six weeks ended June 30, 2021, the Company paid down $13.8 million and $22.8 million on the 2018 Revolver, respectively. On July 27, 2022, the Company refinanced and terminated the 2018 Revolver pursuant to the 2022 Credit Agreement.

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 was 1.5% for the twenty-six weeks ended June 29, 2022. 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 Accounting Standards Codification (“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 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.

Subsequent to the quartet-end, in connection with the Company’s entry into the 2022 Credit Agreement, it terminated the interest rate swap previously used to hedge interest rate risk. In settlement of this swap, the Company received approximately $0.6 million. The remaining amount in AOCI related to the hedging relationship will be reclassified into earnings when the hedged forecasted transaction is reported in earnings.

For the twenty-six weeks ended June 29, 2022, the swap was a highly effective cash flow hedge.

As of June 29, 2022, the estimated net losses included in AOCI related to the Company’s cash flow hedge that will be reclassified into earnings in the next 12 months is $0.1 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):

	June 29, 2022				December 29, 2021
	Notional		Fair value		Notional		Fair value
Other assets - Interest rate swap	$	40,000	$	706		—		—
Other liabilities - Interest rate swap	$	—	$	—	$	40,000	$	396

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				Twenty-Six Weeks Ended
	June 29, 2022		June 30, 2021		June 29, 2022		June 30, 2021
Interest expense on hedged portion of debt	$	204	$	136	$	347		336
Interest expense on interest rate swap		55		119		172		234
Interest expense on debt and derivatives, net	$	259	$	255	$	519	$	570

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen and twenty-six weeks ended June 29, 2022 and June 30, 2021 (in thousands):

	Thirteen Weeks Ended								Twenty-Six Weeks Ended
					Loss Reclassified from								Loss Reclassified from
	Net Gain (Loss) Recognized in OCI				AOCI into Interest expense				Net Gain Recognized in OCI				AOCI into Interest expense
	June 29, 2022		June 30, 2021		June 29, 2022		June 30, 2021		June 29, 2022			June 30, 2021	June 29, 2022			June 30, 2021
Interest rate swap	$	347	$	(2)	$	55	$	119	$	931	$	76	$	172	$	234

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