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Denny's Obtains New Credit

Zacks Equity Research

Denny’s Corporation (DENN) recently announced that it has received a $250 million senior bank credit facility, which includes a $60 million revolving credit and $190 million term loan. The new facility refinances Denny’s senior secured debt from September 2010 and amended in March 2011 that had a term loan of $250 million and a $60 million revolver.

The new credit facility will mature in 5 years and is at an interest rate lower than the prior credit. The refinancing is expected to save annualized interest expense of around $5 million, based on current interest rates.  

Besides paying down the company’s high-cost debt, the new credit facility will increase available fund and extend the maturity period of debt. The company believes that the new credit facility will strengthen its financial position.

The long-term debt, less current maturities of America’s largest full-service family restaurant chain as of December 28, 2011 was $193.3 million, down from $234.1 million at December 29, 2010.  The term loan will be paid off 10% per year on a quarterly basis with the outstanding balance payable upon maturity. Additionally, the company is open to an option to further reduce interest rates.

Denny’s expects to incur a one-time charge of approximately $8 million in the second quarter of 2012 due to its new bank facility. The charges will be shown as other non-operating expense and include the unamortized portion of deferred financing costs, original issue discount related to the prior facility, and the fees associated with the new facility.

Denny’s, which competes with Biglari Holdings Inc. (BH), AFC Enterprises Inc. (AFCE) and Krispy Kreme Doughnut Inc. (KKD), currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.

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