8-K: Good Times Restaurants Amends Credit Amid Closures

Good Times Restaurants Inc. secured lender consent to close two Bad Daddy's restaurants and amended its credit agreement with Cadence Bank.

Summary

• Good Times Restaurants Inc. (GTIM) and its subsidiaries entered into a Third Amendment to their Credit Agreement with Cadence Bank on September 30, 2025.
• The amendment provides Cadence Bank's consent for the closure of two Bad Daddy's restaurants located in Roswell, Georgia, and Broomfield, Colorado.
• The closures, referred to as '2025 Dispositions,' were not permitted under the original Credit Agreement's Disposition clause.
• Key financial covenants and definitions within the Credit Agreement were amended, including Applicable Rate, Consolidated EBITDA, Consolidated Fixed Charge Coverage Ratio, Consolidated Leverage Ratio, and Restricted Payments.
• A 'Restricted Period' has been established, commencing September 30, 2025, and continuing until the fiscal quarter ending December 29, 2026, during which no Restricted Payments are permitted.
• The company will incur lease termination fees for the 2025 Dispositions, with up to $250,000 in expenses allowed to be added back to Consolidated EBITDA between September 30, 2025, and September 29, 2026.
• Consolidated EBITDA will also include deemed additions related to the 2025 Dispositions: $280,000 for Q3 2025, $210,000 for Q4 2025, $140,000 for Q1 2026, and $70,000 for Q2 2026.

Sentiment

Score: 3

Explanation: The sentiment is negative due to restaurant closures, which indicate operational difficulties, and the need for significant credit agreement amendments, including stricter controls on future payments and higher interest rates. While lender consent provides a path forward, it comes with increased financial scrutiny and limitations.

Positives

• Secured lender consent for restaurant closures, avoiding a potential default under the original credit agreement.
• Amended financial covenants provide increased flexibility, particularly an elevated Consolidated Leverage Ratio limit of 5.65 to 1.00 for the next three fiscal quarters, which may ease immediate financial pressure.
• The ability to add back certain non-cash impairment, store closure expenses, and lease termination fees to Consolidated EBITDA provides a more favorable calculation for covenant compliance.

Negatives

• The closure of two Bad Daddy's restaurants indicates underperforming assets and potential operational challenges.
• The need for lender consent for these closures suggests the company was not in a position to execute them unilaterally under the existing credit terms, implying financial constraints.
• The imposition of a 'Restricted Period' during which no Restricted Payments (such as dividends or share repurchases) are allowed signals a focus on debt reduction and financial stabilization over shareholder returns.
• The increased Applicable Rate for the next four fiscal quarters (3.25% for SOFR, 2.25% for Base Rate Loans) will result in higher interest expenses.

Risks

• Ongoing operational challenges leading to restaurant closures could impact future profitability and growth.
• Failure to comply with the amended financial covenants, particularly the Consolidated Leverage Ratio, could trigger an event of default.
• The 'Restricted Period' on payments could negatively impact shareholder sentiment and stock valuation.
• The company is involved in legal proceedings, 'White Winstons appeal and prosecuting Good Timess appeal,' with up to $1,000,000 in related expenses allowed to be added back to Consolidated EBITDA, indicating potential legal liabilities or costs.

Future Outlook

The company faces a 'Restricted Period' until the fiscal quarter ending December 29, 2026, during which it must demonstrate compliance with financial covenants and absence of default to resume certain financial activities like Restricted Payments. The amended covenants provide temporary relief on the Consolidated Leverage Ratio, but it reverts to a stricter level by June 30, 2026, indicating an expectation for improved financial health and reduced leverage in the medium term.

Management Comments

• Ryan M. Zink, Chief Executive Officer, President, and Secretary, signed the amendment on behalf of Good Times Restaurants Inc. and its subsidiaries, indicating management's agreement and commitment to the revised terms.

Industry Context

The restaurant industry is highly competitive and sensitive to economic fluctuations, consumer spending habits, and operational efficiency. The closure of two Bad Daddy's locations by Good Times Restaurants Inc. reflects ongoing challenges some casual dining concepts face, potentially due to market saturation, increased operating costs, or underperforming specific locations. The need to amend credit agreements and seek lender consent for such actions is common for companies navigating periods of financial strain or strategic restructuring within the sector.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• The company is involved in legal proceedings styled as 'White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. v. Good Times Restaurants, Inc.', related to White Winston's appeal and Good Times' appeal. Cash charges and expenses for legal fees and/or settlement costs related to this matter, up to an aggregate amount of $1,000,000, are allowed to be added back to Consolidated EBITDA if incurred prior to the end of the fiscal quarter ending March 26, 2024.

Stakeholder Impact

• **Shareholders:** Face a 'Restricted Period' where no Restricted Payments (e.g., dividends, share repurchases) are permitted, potentially impacting shareholder returns and stock valuation. The closures and covenant changes could lead to negative share price movement.
• **Employees:** Employees at the two closed Bad Daddy's restaurants in Roswell, GA, and Broomfield, CO, will be impacted by job losses.
• **Creditors (Cadence Bank):** The amendment provides Cadence Bank with increased control and stricter financial covenants, aiming to protect its investment by ensuring the company prioritizes debt repayment and financial stability.
• **Customers:** Customers in Roswell, GA, and Broomfield, CO, will lose access to the Bad Daddy's Burger Bar locations.

Next Steps

• Operate under the amended Credit Agreement terms, including adherence to the new financial covenants.
• Manage the 'Restricted Period' by avoiding Restricted Payments until compliance with financial statements and absence of default are evidenced for the fiscal quarter ending December 29, 2026.
• Continue to manage the legal proceedings related to the White Winston appeal, with associated expenses capped at $1,000,000 for EBITDA calculation purposes.

Key Dates

Recommendation

The closure of two restaurants, coupled with the necessity to amend a credit agreement to gain lender consent for these actions, signals significant operational and financial distress. The imposition of a 'Restricted Period' prohibiting shareholder distributions and the increase in the Applicable Rate for borrowing indicate a challenging outlook. While the amended covenants provide temporary relief, the underlying issues leading to closures and the stricter financial oversight suggest continued headwinds and potential for further negative developments, making the stock a 'sell' for a seasoned investor.

Keywords

Restaurant Closures, Credit Agreement Amendment, Financial Covenants, Bad Daddy's Burger Bar, Good Times Restaurants, SEC Filing, Corporate Governance, Leverage Ratio, EBITDA, Restricted Payments