NASHVILLE Tenn. O’Charley’s Inc., operator or franchisor of 371 restaurants under the O’Charley’s, Ninety Nine Restaurant and Stoney River Legendary Steaks brands, said Friday it had amended its revolving credit facility to improve the company’s financial flexibility.
The new terms increased the casual-dining company’s cost of capital and reduced the total amount of the facility from $100 million to $90 million.
O’Charley’s agreed with its administrative agent, Wachovia Bank, and its group of lenders to change three of the four lending covenants, including an increase to the maximum adjusted leverage ratio and reductions to the minimum fixed charge ratio and the maximum senior leverage ratio. In addition, pricing for the facility was increased from 75 basis points over LIBOR, or the London Interbank Offered Rate, to 300 basis points over LIBOR for drawn balances. Undrawn balances were charged 25 basis points over LIBOR and now are charged 62.5 basis points.
O’Charley’s also agreed to use both a portion of its cash flow and proceeds from potential sale-leaseback transactions to reduce its drawn balances under the facility, which stand at $34 million, and about $13 million in letters of credit.
“Although we currently project that we will remain in compliance with the covenants in our existing facility, given current conditions in the general economy and the casual-dining industry, and the resulting uncertainty about future performance, we felt it prudent to ensure that we maintained our financial flexibility,” said Gregory L. Burns, chairman and chief executive.
O’Charley’s, like many casual-dining restaurant companies, has struggled against negative same-store sales and reduced profits. The sector has been the hardest hit by consumer belt-tightening. Companies that have recorded weaker financial results and that have booked large levels of debt have been forced to restructure their credit facilities and typically have had to agree to an increased cost of capital and other stipulations. Landry’s Restaurants Inc. and Perkins & Marie Callender’s Inc. both had to come to terms with lenders in the past year.
In October, O’Charley’s reported a wider year-to-year loss for its third quarter, discontinued its quarterly dividend payment and suspended earnings guidance for the rest of the fiscal year.