Indebtedness And Interest Expense

6 Months Ended

Aug. 15, 2011

Indebtedness And Interest Expense

Indebtedness And Interest Expense

NOTE 7 — INDEBTEDNESS AND INTEREST EXPENSE

Successor

Our Credit Facility provides for senior secured revolving facility loans, swingline loans and letters of credit in an aggregate amount of up to $100,000. As of August 15, 2011, we had no outstanding loan borrowings, $31,913 of outstanding letters of credit and remaining availability of $68,087 on our Credit Facility. The Credit Facility bears interest at a rate equal to, at our option, either: (1) the higher of Morgan Stanley's "prime rate" plus 2.75% or the federal funds rate, as defined in our Credit Facility, plus 3.25%, or (2) the London Interbank Offered Rate ("LIBOR") plus 3.75%.

The terms of our Credit Facility include financial performance covenants, which include a maximum secured leverage ratio and a specified minimum interest coverage ratio. As of August 15, 2011, our financial performance covenants did not limit our ability to draw on the remaining availability of $68,087 under our Credit Facility.

On July 15, 2011, we redeemed $40,000 of the principal amount of our Notes at a price equal to 103% of the principal amount of the Notes pursuant to the terms of the indenture governing the Notes. During the Successor twelve and twenty-eight weeks ended August 15, 2011, we recognized a loss of $2,641 on the early extinguishment of the Notes. Subsequent to the redemption, and as of August 15, 2011, the remaining aggregate principal amount of the Notes was $560,000. As of August 15, 2011, the carrying value of the Notes was $550,231, which is presented net of the remaining unamortized portion of the original issue discount of $9,769 in our accompanying unaudited Condensed Consolidated Balance Sheet. The Notes bear interest at a rate of 11.375% per annum, payable semi-annually in arrears on January 15 and July 15.

Each of our wholly-owned domestic subsidiaries that guarantees indebtedness under the Credit Facility also guarantees the performance and punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all our obligations under the Notes. Separate financial statements and other disclosures of each of the guarantors are not presented because CKE Restaurants, Inc. is a holding company with no material independent assets or operations, the guarantor subsidiaries are, directly or indirectly, wholly-owned subsidiaries of CKE Restaurants, Inc. and such guarantees are full, unconditional and joint and several. The aggregate assets, liabilities, earnings and equity of the guarantor subsidiaries are substantially equivalent to the assets, liabilities, earnings and equity of CKE Restaurants, Inc. on a consolidated basis. The one non-guarantor subsidiary of the parent company is minor. There are no significant restrictions on the ability of CKE Restaurants, Inc. or any of the guarantors to obtain funds from its respective subsidiaries by dividend or loan.

Predecessor

In connection with the Merger, we repaid at closing the total principal outstanding balance of the term loan portion of our senior credit facility ("Predecessor Facility") of $236,487 and the total outstanding borrowings on the revolving portion of our Predecessor Facility of $34,000, as well as all incurred and unpaid interest on our Predecessor Facility.

Additionally, in connection with the Merger, we settled and paid in full all obligations related to our fixed rate interest rate swap agreements, which totaled $14,844. During the Predecessor eight and twenty-four weeks ended July 12, 2010, we recorded interest expense of $1,743 and $3,113, respectively, under these interest rate swap agreements to adjust their carrying value to fair value. During the Predecessor eight and twenty-four weeks ended July 12, 2010, we paid $767 and $3,750, respectively, for net settlements under our interest rate swap agreements, excluding the settlement at closing of the Merger.

Interest expense

Interest expense consisted of the following:

	Successor						Predecessor
	Twelve Weeks Ended August 15, 2011		Twenty-Eight Weeks Ended August 15, 2011		Four Weeks Ended August  9, 2010		Eight Weeks Ended July 12, 2010		Twenty-Four Weeks  Ended July 12, 2010
Senior secured revolving credit facility	$	—	$	—	$	—	$	—	$	—
Senior secured second lien notes		15,358		36,474		5,195		—		—
Predecessor senior credit facility		—		—		—		797		2,338
Amortization of debt issuance costs and discount on notes		925		2,169		278		155		488
Interest rate swap agreements		—		—		—		1,743		3,113
Capital lease obligations		1,117		2,579		434		782		2,318
Financing method sale-leaseback transactions(1)		101		101		—		—		—
Letter of credit fees and other		315		888		73		115		360
	$	17,816	$	42,211	$	5,980	$	3,592	$	8,617

(1) See Note 8.

As of August 15, 2011 and January 31, 2011, accrued interest was $5,601 and $3,147, respectively, which is included in other current liabilities in our accompanying unaudited Condensed Consolidated Balance Sheets.

CKE Holdings, Inc. Senior Unsecured PIK Toggle Notes

On March 14, 2011, CKE Holdings, Inc. issued $200,000 aggregate principal amount of senior unsecured PIK toggle notes due March 14, 2016 (the "Parent Notes"). The Parent Notes were issued with an original issue discount of 1.885%, or $3,770. The interest on the Parent Notes can be paid (1) entirely in cash, at a rate of 10.50% ("Cash Interest"), (2) entirely by increasing the principal amount of the note or by issuing new notes for the entire amount of the interest payment, at a rate per annum equal to the cash interest rate of 10.50% plus 0.75% ("PIK Interest") or (3) with a 25%/75%, 50%/50% or 75%/25% combination of Cash Interest and PIK Interest. Pursuant to the indenture governing the Parent Notes, Parent paid the September 15, 2011 interest payment entirely in PIK Interest. Parent will also pay the March 15, 2012 interest payment entirely in PIK Interest. We have not guaranteed the Parent Notes, nor have we pledged any of our assets or stock as collateral for the Parent Notes. As a result, we have not reflected the Parent Notes in our unaudited Condensed Consolidated Financial Statements.