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Note 5 - Debt

12 Months Ended

Mar. 03, 2013

NOTE 5. DEBT

Debt consists of the following at March 3, 2013 and February 26, 2012:

	2013		2012
Equipment loan, interest at 13.27% fixed through 2014, collateralized by equipment at two restaurants		104,000		156,000

Term note with maturity date of December 9, 2016 with interest of 30 day LIBOR rate plus 7.25%, minimum interest rate of 9%, interest only payments through November 2012		8,112,000		8,250,000
		8,216,000		8,406,000
Less long term debt		7,338,000		8,220,000
Long term debt, current portion	$	878,000	$	186,000

The combined aggregate amounts of scheduled future maturities for all long term debt as of March 3, 2013 is as follows:

2014		878,000
2015		880,000
2016		825,000
2017		5,633,000
	$	8,216,000

The Company paid interest relating to long-term debt of approximately $926,000 and $1,837,000 in fiscal 2013 and 2012, respectively.

As of December 9, 2011 the Company completed the refinancing of substantially all of its debt. The Company’s completion of the refinancing eliminated 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 2013, the Company had no charges for the prepayment of debt. 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 29 operating restaurants.

At March 3, 2013 the Company’s term loan credit agreement requires the maintenance of a consolidated debt service coverage ratio (“DSCR”) of 1.80 to 1 or greater regarding all of the Company’s debt. Debt service coverage ratios are calculated by dividing the cash flow before taxes and debt service (“EBITDA”) for the previous 12 months by the debt service payable for the same period. The Company’s term loan also requires a consolidated debt to EBITDA (“Leverage”) ratio of 2.50 or less, minimum EBITDA of $3.0 million, maximum of $4.0 million in annual capital expenditures and minimum unencumbered cash of $1.5 million. The ratios are computed quarterly. At the end of fiscal 2013, the Company had a DSCR of 4.22 and a Leverage ratio of 1.9, being in compliance with all of the required ratios.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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