Note 6 - Long-term Debt and Capital Leases

12 Months Ended

Jun. 02, 2015

Disclosure Text Block Supplement [Abstract]

Debt and Capital Leases Disclosures [Text Block]

6. Long-Term Debt and Capital Leases

Long-term debt and capital lease obligations consist of the following (in thousands):

	2015			2014
Senior unsecured notes	$	215,000		$	215,000
Unamortized discount		(2,162	)		(2,503	)
Senior unsecured notes less unamortized discount		212,838			212,497
Revolving credit facility		–			–
Mortgage loan obligations		31,607			45,252
Unamortized premium on mortgage loan obligations		383			741
Capital lease obligations		206			201
		245,034			258,691
Less current maturities		10,861			4,816
	$	234,173		$	253,875

Estimated annual maturities of long-term debt and capital lease obligations at June 2, 2015 are as follows (in thousands):

2016	$	10,975	*
2017		11,875
2018		2,570
2019		2,617
2020		217,153
Subsequent years		1,623
	$	246,813

* As further discussed in Note 16 to the Consolidated Financial Statements, we prepaid and retired $8.3 million of our mortgage loan obligations subsequent to June 2, 2015.

On May 14, 2012, we entered into an indenture (the “Indenture”) among the Company, certain subsidiaries of the Company as guarantors and Wells Fargo Bank, National Association as trustee, governing the Company’s $250.0 million aggregate principal amount of 7.625% senior notes due 2020 (the “Senior Notes”). The Senior Notes were issued at a discount of $3.7 million, which is being amortized using the effective interest method over the eight-year term of the notes.

The Senior Notes are guaranteed on a senior unsecured basis by our existing and future domestic restricted subsidiaries, subject to certain exceptions. They rank equal in right of payment with our existing and future senior indebtedness and senior in right of payment to any of our future subordinated indebtedness. The Senior Notes are effectively subordinated to all of our secured debt, including borrowings outstanding under our revolving credit facility, to the extent of the value of the assets securing such debt and structurally subordinated to all of the liabilities of our existing and future subsidiaries that do not guarantee the Senior Notes.

Interest on the Senior Notes is calculated at 7.625% per annum, payable semiannually on each May 15 and November 15 to holders of record on the May 1 or November 1 immediately preceding the interest payment date. Accrued interest on the Senior Notes and our other long-term debt and capital lease obligations is included in Accrued liabilities – Rent and other in our Consolidated Balance Sheets. The Senior Notes mature on May 15, 2020.

At any time prior to May 15, 2016, we may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus an applicable “make-whole” premium and accrued and unpaid interest. At any time on or after May 15, 2016, we may redeem the Senior Notes, in whole or in part, at the redemption prices specified in the Indenture plus accrued and unpaid interest. We may redeem up to 35% of the Senior Notes from the proceeds of certain equity offerings. There is no sinking fund for the Senior Notes.

The Indenture contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries to (i) incur or guarantee additional indebtedness; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make certain investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of their assets; (vi) enter into transactions with affiliates; and (vii) sell or transfer certain assets. The Indenture also restricts the declaration and payment of a dividend or other distribution on, and/or repurchase by RTI in respect of, its outstanding common stock at any time and from time to time. These covenants are subject to a number of important exceptions and qualifications, as described in the Indenture, and certain covenants will not apply at any time when the Senior Notes are rated investment grade by the Rating Agencies, as defined in the Indenture. The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately.

On December 3, 2013, we entered into the four-year revolving credit agreement (the “Senior Credit Facility”) under which we may borrow up to $50.0 million with the option, subject to certain conditions, to increase the facility by up to $35.0 million. The Senior Credit Facility, which was obtained to provide access to capital for general corporate purposes, replaced a previous five-year $200.0 million credit facility that was set to expire in December 2015. The terms of the Senior Credit Facility provide for a $25.0 million sublimit for the issuance of standby letters of credit. In connection with entering into the Senior Credit Facility, included within Interest expense, net and Loss on extinguishment of debt in our Consolidated Statements of Operations and Comprehensive Loss for the year ended June 3, 2014 are charges of $0.7 million relating to the write-off of the pro rata portion of unamortized debt issuance costs associated with our previous credit facility.

Under the terms of the Senior Credit Facility, interest rates charged on borrowings can vary depending on the interest rate option we choose to utilize. Our options for the rate are a Base Rate or LIBOR plus an applicable margin, provided that the rate shall not be less than zero. The Base Rate is defined as the highest of the issuing bank’s prime rate, the Federal Funds rate plus 0.50%, or the Adjusted LIBO rate (as defined in the Senior Credit Facility) plus 1.0%. The applicable margin for the LIBOR rate-based option is a percentage ranging from 2.50% to 3.50% and for the Base Rate option is a percentage ranging from 1.50% to 2.50%. We pay commitment fees quarterly ranging from 0.40% to 0.75% on the unused portion of the Senior Credit Facility.

As security for the Senior Credit Facility, we granted the lenders liens and security interests in substantially all of the shares of capital stock of the Company and each of our present and future subsidiaries, substantially all of the personal property of the Company and each of our present and future subsidiaries, and the real property, improvements, and fixtures of 49 Ruby Tuesday restaurants. The real property, improvements, and fixtures of the 49 restaurants pledged as collateral appraised at $101.4 million at the time of the transaction and have a June 2, 2015 net book value of $79.2 million.

We had no borrowings outstanding under the Senior Credit Facility at June 2, 2015. After consideration of letters of credit outstanding, we had $37.5 million available under the Senior Credit Facility as of June 2, 2015.

The Senior Credit Facility contains a number of customary affirmative and negative covenants that, among other things, limit or restrict our ability to incur liens, engage in mergers or other fundamental changes, make acquisitions, investments, loans and advances, pay dividends or other distributions, sell or otherwise dispose of certain assets, engage in certain transactions with affiliates, enter into burdensome agreements or certain hedging agreements, amend organizational documents, change accounting practices, incur additional indebtedness and prepay other indebtedness. Under the terms of the Senior Credit Facility we are allowed, under certain circumstances, to repurchase up to $20.0 million of the Senior Notes in any fiscal year. We did not repurchase any Senior Notes during the year ended June 2, 2015. During the year ended June 3, 2014, we repurchased $20.0 million of the Senior Notes for $20.0 million plus $0.2 million of accrued interest. We realized losses of $0.7 million on these transactions. The balance on the Senior Notes was $215.0 million at June 2, 2015.

Under the Senior Credit Facility, we are required to comply with financial covenants relating to the maintenance of a maximum leverage ratio and a minimum fixed charge coverage ratio. The terms of the Senior Credit Facility require us to maintain a maximum leverage ratio of no more than 4.75 to 1.0 and a minimum fixed charge coverage ratio of 1.4 to 1.0 for the quarter ended June 2, 2015. The minimum required ratios fluctuate thereafter as provided in the Senior Credit Facility.

The Senior Credit Facility terminates no later than December 3, 2017.  Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the Senior Credit Facility and any ancillary loan documents.

On December 3, 2013, in connection with our entry into the Senior Credit Facility, the Company and certain of its subsidiaries entered into loan modification agreements (the “Loan Modification Agreements”) with certain mortgage lenders to, among other things, provide waivers and consents under certain of our mortgage loan obligations to enter into the Senior Credit Facility. The Loan Modification Agreements also, among other things, amend certain financial reporting requirements under the specified loans and modify and/or provide for certain financial covenants for the specified loans, including the maximum funded debt covenant and the minimum consolidated fixed charge coverage ratio.

We were in compliance with our maximum funded debt covenant and our minimum consolidated fixed charge coverage ratio as of June 2, 2015.

Our $31.6 million in mortgage loan obligations as of June 2, 2015 consists of various loans acquired upon franchise acquisitions. These loans, which mature between January 2017 and July 2022, have balances which range from $0.3 million to $7.3 million and interest rates of 7.60% to 10.17%. Many of the properties acquired from franchisees collateralize the loans outstanding.

During fiscal year 2015, we prepaid and retired ten mortgage loan obligations with an aggregate balance of $9.0 million using cash on hand. In connection with the retirement of these obligations, we paid $1.0 million in prepayment premiums and an insignificant amount of accrued interest. Additionally, as further discussed in Note 16 to the Consolidated Financial Statements, on July 9, 2015, we prepaid and retired an additional ten mortgage loan obligations with an aggregate balance of $8.3 million as of June 2, 2015. The prepayment of this debt eliminated one mortgage lender and allowed for the release of 26 properties which had served as collateral.