8-K: Twin Hospitality Completes $416.7 Million Refinancing, Restructures for Potential Public Listing

Twin Hospitality I, LLC has completed a $416.7 million refinancing of its credit facility, restructuring its Twin Peaks and Smokey Bones brands under a new holding company in anticipation of a potential public listing.

Summary

• Twin Hospitality I, LLC has successfully refinanced its credit facility, issuing $416.7 million in new Series 2024-1 fixed rate notes across four tranches.
• The new notes have a weighted average interest rate of 9.5% per annum and are secured by substantially all assets of the Issuer and its subsidiaries.
• The refinancing involved the restructuring of the Twin Peaks and Smokey Bones brands under a new holding company, Twin Hospitality Group Inc.
• The new financing repaid in full the notes previously issued under the Base Indenture, dated as of October 1, 2021, and all related supplements.
• The notes were offered and sold to qualified institutional buyers through Jefferies LLC, as the initial purchaser, pursuant to exemptions from registration under the Securities Act of 1933.
• The legal final maturity of the notes is October 26, 2054, but it is anticipated that, unless earlier prepaid, the notes will be repaid on October 25, 2027.
• If the Issuer has not repaid or refinanced the Notes by the Anticipated Repayment Date, additional interest equal to 5.0% per annum will accrue on each tranche of Notes.
• The TWNP Indenture requires that, upon a Qualified Equity Offering of Twin Hospitality, 75% of the net proceeds of such offering must be used to repay the Notes until an aggregate of $75,000,000 has been repaid in that manner.
• If at least $25,000,000 of the proceeds of Qualified Equity Offerings are not used to prepay the Notes on or prior to each of April 25, 2025, July 25, 2025 or October 27, 2025, or at least $75,000,000 of proceeds of Qualified Equity Offerings are not used to prepay the Notes on or prior to January 26, 2026, then a Cash Flow Sweeping Event would occur upon which 50% of certain excess cash flows from operations will be used towards amortization of the three most senior tranches of Notes.

Sentiment

Score: 7

Explanation: The document is generally positive, outlining a successful refinancing and restructuring. However, the long-term nature of the debt and the potential for accelerated repayment due to certain events introduce some risk.

Positives

• The refinancing provides Twin Hospitality with a new capital structure.
• The new notes have a fixed interest rate, providing certainty for the Issuer.
• The new financing repaid in full the notes previously issued under the Prior Indenture.
• The new notes are secured by substantially all assets of the Issuer and its subsidiaries.

Negatives

• The notes have a legal final maturity of October 26, 2054, which is a long-term obligation.
• If the Issuer has not repaid or refinanced the Notes by the Anticipated Repayment Date, additional interest equal to 5.0% per annum will accrue on each tranche of Notes.
• The notes are subject to customary rapid amortization events, which could accelerate repayment.

Risks

• The notes are subject to customary rapid amortization events, including events tied to failure of the Securitization Entities and Manager to maintain the stated debt service coverage ratio and leverage ratios, the sum of systemwide sales for all restaurants being below certain levels on certain measurement dates, certain Manager termination events, certain events of default and the failure to repay or refinance the Notes on the anticipated repayment dates.
• The notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the Notes, failure of the Securitization Entities to maintain the stated debt service coverage ratio, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties and certain judgments.

Future Outlook

The document outlines the restructuring of the Twin Peaks and Smokey Bones brands under a new holding company, Twin Hospitality Group Inc., in anticipation of a potential public listing.

Industry Context

This announcement reflects a trend in the restaurant industry where companies are restructuring their finances and operations to prepare for potential public listings or to optimize their capital structure.

Comparison to Industry Standards

• The use of securitization and asset-backed financing is a common practice in the restaurant industry, particularly for established brands with predictable cash flows.
• The weighted average interest rate of 9.5% per annum is within the range of rates seen in similar transactions, but the specific rate will depend on the credit quality of the issuer and the market conditions at the time of issuance.
• The requirement to use 75% of the net proceeds of a Qualified Equity Offering to repay the Notes is a common feature in such transactions, designed to reduce the debt burden and improve the credit profile of the issuer.
• The cash flow sweeping mechanism is a common feature in securitization transactions, designed to protect the noteholders in the event of a decline in the financial performance of the issuer.

Stakeholder Impact

• Shareholders of FAT Brands will be impacted by the restructuring and potential spin-off of Twin Hospitality.
• Noteholders of the new notes will be impacted by the terms of the new financing, including the interest rate, maturity date, and prepayment provisions.
• Employees of Twin Peaks and Smokey Bones may be impacted by the restructuring and potential public listing.
• Franchisees of Twin Peaks and Smokey Bones may be impacted by the restructuring and any changes to the franchise agreements.

Next Steps

• Twin Hospitality will continue to operate under its new structure.
• The company will monitor its financial performance to ensure compliance with the covenants of the new notes.
• Twin Hospitality will continue to prepare for a potential public listing.
• The company will monitor the market for opportunities to refinance the notes.

Key Dates

Keywords

refinancing, securitization, fixed rate notes, asset-backed, Twin Hospitality, Twin Peaks, Smokey Bones, credit facility, public listing, debt, capital structure, amortization, Qualified Equity Offering