NOTE 9 — LONG-TERM DEBT

Long-term debt as of January 31, 2012 and 2011 consisted of the following:


	Successor
	2012			2011
Borrowings under senior secured revolving credit facility	$	—		$	—
Senior secured second lien notes due 2018 (Notes)⁽¹⁾		523,252			589,011
Other long-term debt		389			1,005

Long-term debt		523,641			590,016
Less current portion		(3	)		(29	)

Long-term debt, less current portion	$	523,638		$	589,987

(1)	As of January 31, 2012 and 2011, the outstanding principal amount of the Notes of $532,122 and $600,000, respectively, is presented net of the unamortized discount on the Notes of $8,870 and $10,989, respectively.

The aggregate maturities of our long-term debt, excluding the effects of the discount accretion on the Notes, are as follows:


Fiscal:
2013	$	3
2014		4
2015		4
2016		4
2017		5
Thereafter		532,491

	$	532,511

Senior Secured Credit Facility

On July 12, 2010, we entered into the Credit Facility, which provides for senior secured revolving facility loans, swingline loans and letters of credit, in an aggregate amount of up to $100,000. 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%. Our Credit Facility requires us to pay a commitment fee of 0.75% per annum for unused commitments. The Credit Facility matures on July 12, 2015, at which time all outstanding revolving facility loans and accrued and unpaid interest must be repaid. As of January 31, 2012, we had no outstanding loan borrowings, $30,913 of outstanding letters of credit, and remaining availability of $69,087 under our Credit Facility.

Our obligations under the Credit Facility are unconditionally guaranteed by Parent, prior to an initial public offering of our stock, and our existing and future wholly-owned domestic subsidiaries. In addition, all obligations are secured by (1) our common stock, prior to an initial public offering of such common stock, and (2) substantially all of our material owned assets and the material owned assets of the subsidiary guarantors.

Pursuant to the terms of our Credit Facility, during each fiscal year our capital expenditures cannot exceed the sum of (1) the greater of (i) $100,000 and (ii) 8.5% of our consolidated gross total tangible assets as of the end of such fiscal year plus, without duplication, (2) 10% of certain assets acquired in permitted acquisitions during such fiscal year (the "Acquired Assets Amount") and, (3) 5% of the Acquired Assets Amount for the preceding fiscal year, calculated on a cumulative basis. In addition, the annual base amount of permitted capital expenditures may be increased by an amount equal to any cumulative credit (as defined in the Credit Facility) which we elect to apply for this purpose and may be carried-back and/or carried-forward subject to the terms set forth in the Credit Facility.

The terms of our Credit Facility also include financial performance covenants, which include a maximum secured leverage ratio and a specified minimum interest coverage ratio. As of January 31, 2012, our financial performance covenants did not limit our ability to draw on the remaining availability of $69,087 under our Credit Facility.

The Credit Facility also contains covenants that restrict our ability and the ability of our subsidiaries to: incur additional indebtedness; pay dividends on our capital stock or redeem, repurchase or retire our capital stock or indebtedness; make investments, loans, advances and acquisitions; create restrictions on the payment of dividends or other amounts to us from our subsidiaries; sell assets, including capital stock of our subsidiaries; consolidate or merge; create liens; enter into sale and leaseback transactions; amend, modify or permit the amendment or modification of any senior secured second lien note documents; engage in certain transactions with our affiliates; issue capital stock; create subsidiaries; and change the business conducted by us or our subsidiaries.

Senior Secured Second Lien Notes

In connection with the Merger, on July 12, 2010, we issued $600,000 aggregate principal amount of senior secured second lien notes in a private placement to qualified institutional buyers, which Notes were exchanged in December 2010 for substantially identical Notes that were registered with the United States Securities and Exchange Commission ("SEC"). The Notes bear interest at a rate of 11.375% per annum, payable semi-annually in arrears on January 15 and July 15. The Notes were issued with an original issue discount of 1.915%, or $11,490, and are recorded as long-term debt, net of original issue discount, in our Consolidated Balance Sheets as of January 31, 2012 and January 31, 2011. The original issue discount and deferred financing costs associated with the issuance of the Notes are amortized to interest expense over the term of the Notes. The Notes mature on July 15, 2018.

Each of our wholly-owned domestic subsidiaries that guarantee indebtedness under the Credit Facility also guarantee 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 their respective subsidiaries by dividend or loan.

Our obligations and the obligations of the guarantors are secured by a second-priority lien on the assets that secure our and our subsidiary guarantors' obligations under our Credit Facility, subject to certain exceptions and permitted liens.

The indenture governing the Notes contains restrictive covenants that limit our and our guarantor subsidiaries' ability to, among other things: incur or guarantee additional debt or issue certain preferred equity; pay dividends, make capital stock distributions or other restricted payments; make certain investments; sell certain assets; create or incur liens on certain assets to secure debt; consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; enter into certain transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries. Additionally, the indenture contains certain reporting covenants, which requires us to provide all such information required to be filed with the SEC in accordance with the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), as a non-accelerated filer, even if we are not specifically required to comply with such sections of the Exchange Act. Failure to comply with these covenants constitutes a default and may lead to the acceleration of the principal amount and accrued but unpaid interest on the Notes.

We may redeem the Notes prior to the maturity date based upon the following conditions: (1) prior to July 15, 2013, we may redeem up to 35% of the aggregate principal amount of the Notes with the proceeds of certain equity offerings at a redemption price of 111.375% of the aggregate principal amount of the Notes plus accrued and unpaid interest, (2) during each of the 12-month periods beginning July 15, 2012 and July 15, 2013, we may redeem up to $60,000 of the aggregate principal amount of the Notes at a redemption price of 103% of the aggregate principal amount of the Notes plus accrued and unpaid interest, (3) on or after July 15, 2014, we may redeem all or any portion of the Notes during the 12-month periods commencing July 15, 2014, July 15, 2015, July 15, 2016 and July 15, 2017 and thereafter at a redemption price of 105.688%, 102.844%, 101.422% and 100%, respectively, of the aggregate principal amount of the Notes plus accrued and unpaid interest, and (4) prior to July 15, 2014, we may redeem all or any portion of the Notes at a price equal to 100% of the aggregate principal amount of the Notes plus a make-whole premium and accrued and unpaid interest. Upon a change in control, the Note holders each have the right to require us to redeem their Notes at a redemption price of 101% of the aggregate principal amount of the Notes plus accrued and unpaid interest.

During fiscal 2012, we extinguished through redemptions (in accordance with the terms of the indenture governing the Notes) and an open market purchase a total of $67,878 of the principal amount of the Notes for cash payments of $69,685, plus $1,264 of accrued and unpaid interest. As a result of these transactions, we recognized a loss of $4,188 on the early extinguishment of the Notes during fiscal 2012. Subsequent to the redemptions and purchase of the Notes, and as of January 31, 2012, the principal amount of the Notes outstanding was $532,122.

In accordance with the indenture governing the Notes, we may be required to make offers to repurchase our Notes with a portion of the net proceeds received from sale-leaseback transactions. Pursuant to these requirements, on December 1, 2011, we commenced a tender offer to purchase up to $27,871 of the principal amount of our Notes ("Tender Offer") at a redemption price of 103%. The Tender Offer expired on December 29, 2011, with no Notes tendered.

Repayment of Debt and Interest Rate Swap Agreements

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. In connection with the Merger, the deferred financing costs related to the Predecessor Facility were removed from our Consolidated Balance Sheet through acquisition accounting. All outstanding letters of credit under the Predecessor Facility were terminated on July 12, 2010.

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 twenty-four weeks ended July 12, 2010 and fiscal 2010, we recorded interest expense of $3,113 and $6,803, respectively, under these interest rate swap agreements to adjust their carrying value to fair value. During the Predecessor twenty-four weeks ended July 12, 2010 and fiscal 2010, we paid $3,750 and $8,912, respectively, for net settlements under our interest rate swap agreements.

Interest Expense

Interest expense consisted of the following:


	Successor				Predecessor
	Fiscal 2012		Twenty-Nine Weeks Ended January 31, 2011		Twenty-Four Weeks Ended July 12, 2010		Fiscal 2010
Senior secured revolving credit facility	$	—	$	—	$	—	$	—
Senior secured second lien notes		65,131		37,710		—		—
Predecessor senior credit facility		—		—		2,338		5,174
Amortization of deferred financing costs and discount on notes		3,961		2,089		488		1,016
Interest rate swap agreements		—		—		3,113		6,803
Capital lease obligations		4,755		3,039		2,318		5,380
Financing method sale-leaseback transactions⁽¹⁾		1,917		—		—		—
Letter of credit fees and other		1,602		843		360		881

Total interest expense	$	77,366	$	43,681	$	8,617	$	19,254

(1)	See Note 11.

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. Parent paid the September 15, 2011 and March 15, 2012 interest payment entirely in PIK Interest. Parent will also pay the September 15, 2012 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 Consolidated Financial Statements.

During fiscal 2012, CKE purchased $9,948 principal amount of Parent Notes ("Purchased Parent Notes") for $8,362, which represents a weighted average price of 84.06% of the principal amount of the Purchased Parent Notes. For accounting purposes, we have recorded our investment in Parent Notes, which remain outstanding, as a reduction of stockholder's equity in the accompanying Consolidated Balance Sheet as of January 31, 2012. As a result of this accounting presentation, we do not expect to recognize interest or investment income associated with our investment in Parent Notes in our Consolidated Statements of Operations during the holding period.

As of January 31, 2012, the principal amount of Parent's total long-term debt on a stand-alone basis was $211,313, which includes the September 15, 2011 interest payment of $11,313 that was added to the principal amount of the Parent Notes on September 15, 2011. The principal amount of Parent's long-term debt on a stand-alone basis has not been reduced by the $9,948 principal amount of the Purchased Parent Notes since the Purchased Parent Notes remain outstanding. As of January 31, 2012, the carrying amount of Parent's total long-term debt on a stand-alone basis, including the current portion and the Purchased Parent Notes, was $207,889, which is presented net of the unamortized portion of the original issue discount of $3,424.