Notes Payable and Long-Term Debt

6 Months Ended

Mar. 28, 2023

Debt Disclosure [Abstract]

Notes Payable and Long-Term Debt

Note 9.  Notes Payable and Long-Term Debt

Cadence Credit Facility

The Company maintained a credit agreement with Cadence Bank (“Cadence”) pursuant to which, as amended, Cadence agreed to loan the Company up to $8,000,000, which as of March 28, 2023 had a maturity date of April 30, 2023 (the “Prior Cadence Credit Facility”). The Prior Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. As of March 28, 2023, any borrowings under the Prior Cadence Credit Facility, as amended, bear interest at a variable rate based upon the Company’s election of (i) 2.5% plus the base rate, which is the highest of the (a) Federal Funds Rate plus 0.5%, (b) the Cadence bank publicly announced prime rate, and (c) LIBOR plus 1.0%, or (ii) LIBOR, with a 0.250% floor, plus 3.5%. Interest is due at the end of each calendar quarter if the Company selects to pay interest based on the base rate and at the end of each LIBOR period if it selects to pay interest based on LIBOR. The Cadence Credit Facility includes provisions for the Administrative Agent of the facility to amend the facility to replace LIBOR with an alternate benchmark rate, which may be (but is not required to be) SOFR, at such point in time when appliable LIBOR rates are no longer available or no longer reliable.

On January 24, 2023, the Company and Cadence amended the Prior Cadence Credit Facility to extend its expiration date to April 30, 2023, to provide consent for the Company’s acquisition of certain non-controlling interests in Bad Daddy’s limited liability company partnerships, and to provide pro-forma credit for a portion of the full-year EBITDA, as that term is defined in the Prior Cadence Credit Facility previously attributed to the non-controlling partners in those limited liability company partnerships.

During the fiscal quarter ended March 28, 2023, the weighted average interest rate applicable to borrowings under the Prior Cadence Credit Facility was 7.6%.

The Prior Cadence Credit Facility contained certain affirmative and negative covenants and events of default that the Company considers customary for an agreement of this type, including covenants setting a maximum leverage ratio of 5.15:1, a minimum pre-distribution fixed charge coverage ratio of 1.25:1, a minimum post-distribution fixed charge coverage ratio of 1.10:1 and minimum liquidity of $2.0 million. As of March 28, 2023, the Company was in compliance with all financial covenants under the Prior Cadence Credit Facility.

As a result of entering into the Prior Cadence Credit Facility and the various amendments, the Company paid loan origination costs including professional fees of approximately $308,500 and is amortizing these costs over the term of the credit agreement. The remaining amount to be amortized as of March 28, 2023 is $9,000. The obligations under the Prior Cadence Credit Facility were collateralized by a first-priority lien on substantially all of the Company’s assets.

Prior to entered into the Company’s new credit facility as described below, there were no outstanding borrowings against the Prior Cadence Credit Facility. Availability of the Prior Cadence Credit Facility for borrowings was reduced by the outstanding face value of any letters of credit issued under the facility. Prior to entering into the Company’s new credit facility as described below, there were no outstanding letters of credit issued under the facility.

On April 20, 2023, subsequent to the end of the fiscal quarter ended March 28, 2023, the Company and each of its wholly-owned subsidiaries, as guarantors (the “Subsidiary Guarantors”), entered into an Amended and Restated Credit Agreement (the “Senior Credit Facility”) with Cadence  Bank, as administrative agent and sole lender (“Cadence”). The Senior Credit Facility provides for an $8.0 million senior revolving loan (the “Revolver”) and amends and restates the Prior Cadence Credit Facility in its entirety.

Proceeds from the Senior Credit Facility, if and when drawn, will be used (i) to fund new restaurant development, (ii) to finance the buyout of non-controlling joint venture partners in certain restaurants, (iii) to finance the redemption, purchase or other acquisition of equity interests in the Company and (iv) for working capital and other general corporate purposes.

The Revolver will be available until April 20, 2028. The loans may from time to time consist of a mixture of SOFR Rate Loans and Base Rate Loans with differing interest rates based upon varying additions to the Federal Funds Rate, the Cadence prime rate or Term SOFR. The Senior Credit Facility also carries an upfront fee of 0.25% of the aggregate principal amount of the Revolver commitment and a commitment fee of 0.25% per annum on the unused portion of the Revolver commitment.

The Senior Credit Facility includes customary affirmative and negative covenants and events of default. The Senior Credit Facility also requires the Company to maintain various financial condition ratios, including minimum liquidity, an amended maximum leverage ratio and an amended minimum fixed charge coverage ratio. In addition, to the extent the aggregate outstandings under the Revolver exceed $4.0 million, the Company is required to meet a new specified leverage ratio, on a pro forma basis, before making further borrowings as well as certain restricted payments, investments and growth capital expenditures.