Item 1.01 Entry into a Material Definitive Agreement
Certain subsidiaries of Sonic Corp.
have completed a private securitization transaction to partially refinance their existing securitization debt. The
subsidiaries’ securitization transaction is designed to facilitate their operations and business activities and allow
the subsidiaries to issue additional series of notes in the future subject to certain conditions.
Fixed Rate Securitization Notes
. On
May 17, 2016, the subsidiaries issued $425 million of Fixed Rate Series 2016-1 Senior Secured Notes, Class A-2 (the “Fixed
Rate Notes”). The Fixed Rate Notes will have an expected life of seven years with an expected repayment date in May 2023 and
a legal final maturity in May 2046 and bear interest at 4.472% per annum, payable monthly. The Fixed Rate Notes are subject
to an upward adjustment in the rate of interest due of at least 5% per annum in the event the Fixed Rate Notes are not paid in
full by May 2023. The Fixed Rate Notes were issued under a Base Indenture dated May 20, 2011 (as amended by the
First
Supplement to the Base Indenture dated as of July 21, 2012 (the “First Supplement”), the Second Supplement to the Base
Indenture dated as of April 12, 2016 (the “Second Supplement”), and the Third Supplement to the Base Indenture dated
as of May 17, 2016 (the “Third Supplement”),
the “Base Indenture”) and the related Series 2016-1 Supplemental
Indenture dated May 17, 2016 (the “Supplemental Indenture”) among various subsidiaries of Sonic Corp., including Sonic
Capital LLC, Sonic Industries LLC, America’s Drive-In Brand Properties LLC, America’s Drive-In Restaurants LLC, SRI Real Estate
Holding LLC and SRI Real Estate Properties LLC, as Co-Issuers (the “Co-Issuers”) and Citibank, N.A., as Trustee and Securities
Intermediary. The First Supplement, Second Supplement, Third Supplement and Supplemental Indenture are attached hereto as Exhibits
99.1, 99.2, 99.3 and 99.4.
The Fixed Rate Notes were offered for sale
pursuant to the Purchase Agreement dated April 12, 2016 (the “Purchase Agreement”) among Sonic Capital LLC, Sonic Industries
LLC, America’s Drive-In Brand Properties LLC, America’s Drive-In Restaurants LLC, SRI Real Estate Holding LLC and SRI Real Estate
Properties LLC, each as Co-Issuer,
Sonic Franchising LLC, as Guarantor,
Sonic Industries Services
Inc., as Manager,
Sonic Corp., Sonic Restaurants, Inc., and
Guggenheim Securities, LLC, as Initial
Purchaser and as representative to the Initial Purchasers named therein. The Purchase Agreement is attached hereto as Exhibit 99.5.
Revolving Credit Facility
. On May
17, 2016, the Co-Issuers also completed a securitized financing facility of Series 2016-1 Variable Funding Senior Notes, Class
A-1 (the “Variable Funding Notes”), which allows for the issuance of up to $150 million of Variable Funding Notes and
certain other credit instruments, including letters of credit in support of various Sonic Corp. subsidiary obligations. The Variable
Funding Notes allow for drawings on a revolving basis and have been executed pursuant to a Class A-1 Note Purchase Agreement dated
April 12, 2016 but effective May 17, 2016 (the “Variable Funding Note Purchase Agreement”) among the Co-Issuers and Sonic
Industries Services Inc., as Manager, certain private conduit investors, committed note purchasers and funding agents, and
Coöperatieve
Rabobank, U.A., New York Branch
, as provider of letters of credit, swingline lender and Administrative Agent. The Variable
Funding Notes were issued under the Base Indenture and the Supplemental Indenture and are secured by the same collateral as the
Fixed Rate Notes. Interest on the Variable Funding Notes
will be payable at per annum rates equal
to a funding cost or index plus 2%. While the Co-Issuers do not anticipate drawing on the Variable Funding Notes at closing, the
Co-Issuers expect to have approximately $10.31 million in undrawn letters of credit issued under the Variable Funding Notes on
or shortly after closing. It is expected that additional amounts will be drawn under the Variable Funding Notes from time to time
as needed. There is a commitment fee on the unused portion of the Variable Funding Notes facility of 0.5%. The Variable Funding
Note Purchase Agreement is attached hereto as Exhibit 99.6.
Collateral Security
. The Co-Issuers
are existing special purpose indirect subsidiaries of Sonic Corp. that hold substantially all of Sonic’s franchising assets and
real estate. The Fixed Rate Notes and the Variable Funding Notes (collectively, the “Notes”) are secured by franchise
fees, royalty payments and lease payments, and the repayment of the Notes is expected to be made solely from the income derived
from the Co-Issuers’ assets. In addition, Sonic Franchising LLC, a Sonic Corp. subsidiary that acts as a franchisor (the “Guarantor”),
has guaranteed the obligations of the Co-Issuers under the Base Indenture and pledged substantially all of its assets to secure
those obligations. The pledge and collateral arrangements for all of the Co-Issuers are included in the Base Indenture and the
guarantee of Sonic Franchising LLC and the pledge and collateral arrangements securing the guarantee are included in a Guarantee
and Collateral Agreement made by the Guarantor in favor of the Trustee (the “Guarantee and Collateral Agreement”). The
Guarantee and Collateral Agreement was entered into on May 20, 2011.
Neither Sonic Corp., the ultimate parent
of each of the Co-Issuers and the Guarantor, nor any other subsidiary of Sonic, guarantees or in any way is liable for the obligations
of the Co-Issuers under the Base Indenture or of the Guarantor under the Guarantee and Collateral Agreement. Pursuant to the Parent
Company Support Agreement dated May 20, 2011 (the “Parent Company Support Agreement”), Sonic Corp. has, however, agreed
to cause the performance of certain obligations of its subsidiaries, principally related to managing the assets included as collateral
for the Notes and certain indemnity obligations relating to the transfer of the collateral assets to the Co-Issuers. The Parent
Company Support Agreement also contains a limitation on indebtedness that may be incurred by Sonic Corp. or its direct and indirect
subsidiaries, equal to 6.5 times EBITDA and/or the satisfaction of certain conditions.
Covenants/Restrictions
. The Notes
are subject to a series of covenants and restrictions customary for transactions of this type, including (i) a requirement that
the Co-Issuers prepare mortgages and related encumbrances with regard to real estate collateral to be granted upon the occurrence
of certain performance related events, including events of default, (ii) a required prepayment of the Notes in the event of certain
dispositions of real estate in circumstances where the proceeds are not reinvested in real estate within specified periods, (iii)
that the Co-Issuers maintain specified reserve accounts to be used to make required payments in respect of the Notes, (iv) that
certain debt service coverage ratios be met, the failure of which will result in early or rapid amortization of the outstanding
principal amounts due in respect of the Notes, (v) provisions relating to optional and mandatory prepayments, including mandatory
prepayments in the event of a stated Change of Control (as defined in the Supplemental Indenture) and the related payment of specified
amounts, including specified make whole payments, (vi) certain indemnification payments in the event, among other things, the transfers
of the assets pledged as collateral for the Notes are in stated ways defective or ineffective and (vii) covenants relating to recordkeeping,
access to information and similar matters. The Notes are also subject to
customary rapid amortization events provided
for in the Base Indenture, including events tied to failure to maintain stated debt service coverage ratios, Sonic Corp.’s aggregate
Company-owned Drive-In gross sales (as defined) falling below $2.25 billion on stated measurement dates, and certain manager termination
events. 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 to comply with covenants within certain time
frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective
and certain judgments.
Use of Proceeds
. The net proceeds
from the sale of the Notes will be used to repay the approximately $266 million in outstanding Series 2011-1 Class A-2 Fixed Rate
Senior Secured Notes and the $67 million in outstanding Series 2011-1 Class A-1 Variable Funding Senior Secured Notes, together
with related prepayment premium and transaction costs. The remaining net proceeds will be available for further investment into
the business and to return to shareholders via share repurchase or dividends.