LONG-TERM DEBT

6 Months Ended

Jun. 28, 2023

Debt Disclosure [Abstract]

Long-Term Debt

4. LONG-TERM DEBT

On July 27, 2022, the Company refinanced and terminated its credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, 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 provided for a $150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”). The 2018 Revolver was refinanced pursuant to a credit agreement (the “2022 Credit Agreement”) among EPL, as borrower, 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 “2022 Revolver”). In connection with the refinancing, the 2018 Credit Agreement was terminated.

The 2022 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 2022 Revolver and 2022 Credit Agreement will mature on July 27, 2027. The obligations under the 2022 Credit Agreement and related loan documents are guaranteed by Holdings and Intermediate. The obligations of Holdings, EPL and Intermediate under the 2022 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

The special dividend announced by the Company’s Board of Directors on October 11, 2022 was permitted under the terms of 2022 Revolver pursuant to both subclause (iii)(d) and (iii)(e) of the following sentence. Under the 2022 Revolver, Holdings is restricted from making 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 2022 Revolver. 

Borrowings under the 2022 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either the secured overnight financing rate (“SOFR”) 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) Term SOFR (as defined in the 2022 Credit Agreement) with a term of one-month SOFR plus 1.00%. For Term SOFR 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 2022 Revolver may be repaid and reborrowed. The interest rate range was 6.22% to 8.50% and 5.69% to 8.50% for the thirteen and twenty-six weeks ended June 28, 2023, under the 2022 Revolver, respectively, and 1.70% to 2.87% and 1.35% to 2.87% for the thirteen and twenty-six weeks ended June 29, 2022 under the 2018 Revolver, respectively.

The 2022 Credit Agreement contains certain financial covenants. The Company was in compliance with the financial covenants as of June 28, 2023.

At June 28, 2023, $9.8 million of letters of credit and $60.0 million in borrowings under the 2022 Revolver were outstanding. The Company had $80.2 million in borrowing availability under the 2022 Revolver at June 28, 2023.

Maturities

On July 27, 2022, the Company refinanced and terminated the 2018 Revolver pursuant to the 2022 Credit Agreement. During the twenty-six weeks ended June 28, 2023 the Company paid down $8.0 million on the 2022 Revolver. During the thirteen weeks ended June 28, 2023 the Company borrowed $2.0 million on the 2022 Revolver. No amounts were paid on the 2018 Revolver during the twenty-six weeks ended June 29, 2022. There are no required principal payments prior to maturity for the 2022 Revolver.

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 with a maturity date 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. 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.”

In connection with the Company’s entry into the 2022 Credit Agreement, it terminated the interest rate swap on July 28, 2022 which was previously used to hedge interest rate risk. Prior to the interest rate swap termination, the swap was a highly effective cash flow hedge. In settlement of this swap, the Company received approximately $0.6 million and derecognized the corresponding interest rate swap asset. The remaining amount in AOCI related to the hedging relationship was reclassified into earnings when the hedged forecasted transaction was reported in earnings.

As of June 28, 2023, there were no estimated net gains to be included in AOCI related to the Company’s cash flow hedge that would be reclassified into earnings, based on current Term SOFR interest rates.

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 28, 2023		June 29, 2022		June 28, 2023		June 29, 2022
Interest expense on hedged portion of debt	$	—	$	204	$	—	$	347
Interest (income) expense on interest rate swap		(85)		55		(170)		172
Interest (income) expense on debt and derivatives, net	$	(85)	$	259	$	(170)	$	519

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 28, 2023 and June 29, 2022 (in thousands):

	Thirteen Weeks Ended								Twenty-Six Weeks Ended
					(Gain) Loss Reclassified from								(Gain) Loss Reclassified from
	Net Gain Recognized in OCI				AOCI into Interest (Income) Expense				Net Gain Recognized in OCI				AOCI into Interest (Income) Expense
	June 28, 2023		June 29, 2022		June 28, 2023		June 29, 2022		June 28, 2023			June 29, 2022	June 28, 2023			June 29, 2022
Interest rate swap	$	—	$	347	$	(85)	$	55	$	—	$	931	$	(170)	$	172

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