Notes Payable and Long-Term Debt

6 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Notes Payable and Long-Term Debt

Note 7. Notes Payable and Long-Term Debt

Cadence Credit Facility

The Company maintains a credit agreement with Cadence Bank (“Cadence”) pursuant to which, as amended, Cadence agreed to loan the Company up to $17,000,000 with a maturity date of December 31, 2021 (the “Cadence Credit Facility”). On February 21, 2019, the Cadence Credit Facility was amended, in connection with the repurchase of minority interests related to three Bad Daddy’s restaurants, to retroactively attribute EBITDA previously attributed to non-controlling interests to the Company for purposes of certain financial covenants. On December 9, 2019, the Cadence Credit Facility was amended in connection with the separation of the Company’s former CEO, to amend the definition of “Consolidated EBITDA” for the purposes of financial covenants, to require certain installment payments, and to permit the company to make “Restricted Payments” (as defined in the Cadence Credit Facility) in the form of repurchases or redemptions of certain equity interests of the Company from former directors and officers of the Company in an aggregate amount not to exceed $100,000. As amended by the various amendments, the Cadence Credit Facility accrues commitment fees on the daily unused balance of the facility at a rate of 0.25%. All borrowings under the 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. As of March 31, 2020, the weighted average interest rate applicable to borrowings under the Cadence Credit Facility was 4.531%.

As a result of entering into the Cadence Credit Facility and various amendments, the Company has paid loan origination costs including professional fees of approximately $292,000 since the inception of the credit facility and is amortizing these costs over the term of the credit agreement.

The obligations under the Cadence Credit Facility are collateralized by a first-priority lien on substantially all of the Company’s assets.

As of March 31, 2020, the outstanding balance on borrowings against the facility was $16,750,000. Availability of the Cadence Credit Facility for borrowings is reduced by the outstanding face value of any letters of credit issued under the facility. As of March 31, 2020, the outstanding face value of such letters of credit was $157,500.

Principal payments on the Cadence Credit Facility are required beginning on March 31, 2020 in $250,000 installments on the last business day each of March, June, September, and December in each calendar year. The total loan commitment is permanently reduced by the corresponding amount of each such repayment on such date. New borrowings are permitted up to the amount of the loan commitment. The note matures and is due in its entirety on December 31, 2021.

The Cadence Credit Facility, as amended, contains 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 5.35:1, a minimum fixed charge coverage ratio of 1.25:1 and minimum liquidity of $2,000,000. As of March 31, 2020, the Company was in compliance with the minimum fixed charge coverage ratio and liquidity covenants under the Cadence Credit Facility but was not in compliance with the maximum leverage ratio covenant.

On April 14, 2020, Good Times Restaurants Inc. (the “Borrower”) and each of its wholly-owned subsidiaries, as guarantors, entered into a Consent and Forbearance Agreement effective March 31, 2020 (the “Forbearance Agreement”) with respect to the Cadence Credit Facility. The Borrower informed Cadence that certain events of default may occur as a result of Borrower’s failure to comply with certain financial covenants for the fiscal quarter ended on or about March 31, 2020 (collectively, the “Potential Events of Default”). Pursuant to the terms of the Forbearance Agreement, during the Forbearance Period (as defined below), Cadence agreed to forbear from exercising any available rights and remedies under the Cadence Credit Facility to the extent such rights and remedies arise exclusively as a result of the Potential Events of Default. Further, Cadence agreed that it will consent to the Borrower’s request to defer the principal payment (the “Payment Deferral”) on the loans due on March 31, 2020 until the Maturity Date (as defined in the Cadence Credit Facility).

The forbearance period (the “Forbearance Period”) will expire on the earliest to occur of (a) any default or event of default other than the Potential Events of Default, (b) the breach by the Borrower or any guarantor of any covenant or provisions of the Forbearance Agreement; and (c) 11:59 p.m. (Eastern time) on June 30, 2020.

Although Cadence is forbearing from exercising certain remedies and rights through June 30, 2020 pursuant to the Forbearance Agreement, the Company expects further forbearance will be required at the expiration of the Forbearance Period due to the negative financial impacts of COVID-19. While the Company believes that it will be able to successfully negotiate further forbearance terms with Cadence at that time, no assurances can be made. As such, consistent with ASC 470, the Company has classified the entire outstanding balance on the Cadence Credit Facility as current.