Restaurant Brands’ Firehouse purchase pushes net leverage up 0.3x

By Devika Patel

Knoxville, Tenn., Feb. 15 – Restaurant Brands International Inc. saw net leverage rise only about three tenths of a point, quarter-over-quarter, after taking on debt to help fund a $1 billion all-cash acquisition last quarter, which management says had minimal impact on the balance sheet.

On Dec. 13, the company increased its senior secured term loan A facility to $1.25 billion to finance the acquisition of Firehouse Restaurant Group Inc. and extended the maturity date of that facility and its senior secured revolving credit facility to Dec. 13, 2026 from Oct. 7, 2024.

On Nov. 15, 2021, Restaurant Brands announced it would acquire Firehouse for $1 billion in an all-cash transaction that would be funded through a combination of cash on hand and debt. The acquisition settled in mid-December.

“In December, we increased our term loan A facility by over $500 million and extended the maturity of our term loan A and revolver to 2026,” chief financial officer Matthew Dunnigan said on the company’s fourth quarter and year ended Dec. 31, 2021 earnings conference call on Tuesday.

“The proceeds, along with cash on hand, supported our $1 billion acquisition of Firehouse Subs,” he said.

The acquisition lifted net leverage by about 0.3x quarter-over-quarter,

“The transaction had a minimal impact on our balance sheet, only increasing net leverage by about 0.3x from Q3, and we ended the year with a strong liquidity position of $2 billion, including $1 billion of cash on hand,” Dunnigan said.

“Our strong cash flow and flexible balance sheet has allowed us to execute across all elements of our capital allocation priorities, which starts first and foremost with investing in the business,” he said.

Restaurant Brands generated $435 million in free cash flow during the fourth quarter and over $1.6 billion for the year.

Adjusted EBITDA was $584 million for the year ended Dec. 31, 2021, compared to $501 million for the year ended Dec. 31, 2020.

Cash and cash equivalents were $1,087,000,000 as of Dec. 31, 2021, compared to $1.56 billion as of Dec. 31, 2020.

Long-term debt, net of current portion, was $12,916,000,000 as of Dec. 31, 2021, compared to $12,397,000,000 as of Dec. 31, 2020.

Current portion of long-term debt and finance leases was $96 million as of Dec. 31, 2021, compared to $111 million as of Dec. 31, 2020.

As of Dec. 31, 2020, total debt was $13.5 billion and net debt, or total debt less cash and cash equivalents of $1.1 billion, was $12.4 billion.

Net leverage at year-end was 5.5x.

In the Dec. 13 bank facility amendment, subsidiaries 1011778 B.C. Unlimited Liability Co. and New Red Finance, Inc. entered into an incremental facility and an amendment to the credit agreement dated Oct. 27, 2014 with JPMorgan Chase Bank, NA as administrative agent.

The amendment extended the maturity date of the revolver to Dec. 13, 2026 from Oct. 7, 2024 and increased the existing term loan A facility to $1.25 billion from the $717 million outstanding just prior to the amendment. The term loan A also terminates on Dec. 13, 2026.

Proceeds of the increase in the term loan were used along with cash on hand to complete the Firehouse acquisition.

The amendment also amended the interest rate to be based on adjusted term SOFR, which is calculated at term SOFR plus a 10 basis points CSA with a 0% floor. The credit spread for the loans is unchanged.

Further, some changes were made to some negative covenants to provide increased flexibility.

Restaurant Brands is a Toronto-based quick service restaurant company.

© 2015 Prospect News.
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