Note 5 - Debt

12 Months Ended

Feb. 26, 2012

Debt Disclosure [Text Block]

NOTE 5.  DEBT

Debt consists of the following at February 26, 2012 and February 27, 2011:

	2012		2011
Mortgage debt, interest at 8.3-10.6%, through 2019, collateralized by 42 restaurants in 2011 having a net book value at February 27, 2011 of $15,707,000 (1)	$	-	$	14,627,000
Equipment loan, interest at 13.27% fixed through 2014, collateralized by equipment at two restaurants		156,000		200,000
Mortgage debt, variable interest of 3.95% at February 27, 2011, amortization to 2028 with a term to 2013 collateralized by 13 restaurants in 2011 having a net book value at February 27, 2011 of $5,862,000 (1)		-		7,898,000
Equipment loan, variable interest of 4.7% at February 27, 2011, amortization to 2018 with a term to 2013 collateralized by the equipment at 17 restaurants (1)		-		2,108,000
Equipment loan, variable interest rate of 5.05% at February 27, 2011, amortization to 2018 with a term to 2013 collateralized by the equipment at 10 restaurants (1)		-		2,200,000
Equipment loan from franchisor for proprietary equipment, paid off October 2011		-		16,000
Term note with maturity date of December 9, 2016 with interest of 30 day LIBOR plus 7.25%, minimum interest rate of 9%, interest only payments through November 2012		8,250,000		-
		8,406,000		27,049,000
Less long term debt		8,220,000		-
Long term debt, current portion	$	186,000	$	27,049,000

(1) Paid in full during fiscal 2012 in connection with debt restructuring (see below)

The combined aggregate amounts of scheduled future maturities for all long-term debt as of February 26, 2012 is as follows:

2013		186,000
2014		878,000
2015		880,000
2016		825,000
2017		5,637,000
Later years		-
	$	8,406,000

The Company paid interest relating to long-term debt of approximately $1,837,000 and $2,295,000 in fiscal 2012 and 2011, respectively.

As of December 9, 2011 the Company completed the refinancing of substantially all of its debt. The Company’s completion of the refinancing eliminates the forbearance agreements that had been in effect with lenders due to non-compliance with financial debt covenants during 2011 and 2012.  Also, prior to the refinancing, the Company was not making full principal and interest payments as scheduled on much of its debt which brought certain cross default provisions into consideration which were then eliminated with the refinancing.  The replacement financing involved the sale and leaseback of 29 restaurant properties for approximately $22,000,000 and a new term loan in the amount of approximately $8,250,000.  The term loan has a floating interest rate based on 30 day LIBOR with a minimum rate of 9.0% and has a five year term with a 10 year amortization and principal payments beginning in the thirteenth month of the term.  The financing also required the consent of KFC Corporation, the Company’s primary franchisor and the entry, by the Company into a definitive remodel agreement with KFC Corporation.

During fiscal 2012, the Company incurred $405,000 of prepayment charges and the write-off of deferred financing costs relating to the early payment of debt to facilitate the disposal of closed restaurant locations and the sale/leaseback of 30 operating restaurants.  During fiscal 2011, the Company incurred $138,000 of prepayment charges and the write-off of deferred financing costs relating to the early payment of debt to facilitate the disposal of a closed restaurant location and the sale/leaseback of two operating restaurants.

At February 26, 2012 the Company’s term loan agreement requires the maintenance of a consolidated fixed charge coverage ratio of 1.15 to 1 regarding all of the Company’s debt.  Fixed charge coverage ratios are calculated by dividing the cash flow before taxes, rent and debt service (“EBITDAR”) for the previous 12 months by the debt service and rent due in the coming 12 months.  The Company’s term loan also requires a consolidated debt to EBITDA ratio of 2.75 or less, minimum EBITDA of $2.7 million and minimum unencumbered cash of $1.5 million.  The ratios are computed quarterly.  At the end of fiscal 2012, the Company was in compliance with all of the required ratios.