Luby’s will use proceeds from asset sale to reduce its debt balance

By Devika Patel

Knoxville, Tenn., Jan. 28 – Luby’s, Inc. plans to use the cash drawn under a recent refinancing to pay interest expenses and will also use the proceeds from an in-progress asset sale to lower its debt.

“We refinanced our debt, closing on the $60 million worth of refinancing on Dec. 13, 2018, which at the same time put almost $20 million in cash on the balance sheet,” president and chief executive officer Christopher J. Pappas said on the company’s first quarter ended Dec. 19, 2018 earnings conference call on Monday.

The refinancing was completed in December.

“Just prior to the end of our first fiscal quarter, Dec. 19, 2018, we completed our debt refinancing,” senior vice president, treasurer and chief financial officer K. Scott Gray said on the call.

“This funding provides the company the necessary liquidity as we execute on our turnaround plans to enhance our operating performance,” Gray said.

The new debt has three components.

“The new debt agreement, with MSD Partners, is comprised of three elements: a $60 million five-year term loan, a $10 million delayed-draw term loan and a $10 million revolving credit facility,” Gray said.

“The $60 million term loan closed on Dec. 13, which was a refinancing of our existing outstanding ... around $40 million outstanding,” Gray said.

The company gained $19.8 million of cash on the balance sheet from the restructuring and will use this for interest expense.

“As a result of that draw at the close, we had $19.8 million of cash on the balance sheet, subsequent to the close, on Dec. 19, 2018,” Gray said.

“Of this cash balance, $11.1 million is classified as restricted cash that is earmarked for interest expense payments as well as other cash balance commitments,” Gray said.

The company intends to reduce its debt with the proceeds from a planned asset sale.

“It is our intent and desire to reduce the debt balance as soon as we can,” Gray said.

“We have our asset sale planned.

“We’re 60% complete with that plan and we plan to utilize the sale of those properties to lower the debt,” Gray said.

Cash and cash equivalents were $8,665,000 as of Dec. 19, 2018, compared to $3,722,000 as of Aug. 29, 2018.

Adjusted EBITDA was $1.2 million, down $800,000 from the first quarter of 2017.

On Dec. 13, Luby’s obtained a new senior secured credit agreement with MSD Partners, LP, consisting of a $60 million five-year term loan, a $10 million delayed-draw term loan available for nine months after closing and a $10 million revolving credit facility.

The loans have a variable interest rate with scheduled amortization of $10 million in the first two years and $15 million in the third and fourth year.

The loans are secured by a first lien on company assets.

Proceeds were used first to repay the outstanding $39.4 million of borrowings and accrued interest on Luby’s credit agreement with its previous bank lenders. Remaining proceeds were used to establish reserves for other commitments and for general corporate purposes.

After the closing, the company had $60 million of term debt and cash on the balance sheet of about $17.8 million.

Luby’s is a Houston-based operator of restaurants.

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