Red Robin refinances after transferring 108 restaurants

Red Robin completed its refinancing on October 2, following August transfers of 108 restaurants to franchise operators.

The new facility provides $115 million in capacity: a $90 million term loan and a $25 million revolving line. It matures October 2, 2031. Red Robin International is the borrower; the parent and certain subsidiaries guarantee the obligations. The $115 million is lending capacity, rather than a reported October debt balance.

Chief executive Dave Pace described refranchising as the first step toward refinancing under Red Robin's First Choice plan. He said the replacement facility supports investment in restaurants, the guest experience and franchise partners.

Three buyers take over operations#

The previously announced agreements produced these completed transfers:

Prices are subject to customary adjustments. Red Robin International sold restaurant assets and entered long-term franchise agreements with the buyers, which assumed certain related liabilities. The transferred locations continue as Red Robin restaurants under franchise ownership.

Red Robin describes Op Burgers as an Alexandrite Management portfolio company. Evergreen was formed to acquire and operate its Washington and western Idaho restaurants, with support functions including accounting, human resources, payroll, purchasing and real estate, according to the company.

Completed sales generated approximately $89.4 million in gross proceeds. As of October 5, Red Robin still expected to transfer eight more Op Burgers restaurants by fiscal year-end for about $6.6 million. The September filing tied that closing to liquor-license transfers.

The financial position before the sales#

Before those sales, Red Robin had $167.2 million of borrowings on July 12, entirely term debt, according to its second-quarter filing. Its revolver was undrawn, and the old facility was due September 3, 2027.

For the 12 weeks ended July 12, comparable company-restaurant revenue rose 1.3% from a year earlier, with average check up 1.5% and traffic down 0.2%, according to the August earnings release. This covers restaurants open at least 18 months at the period’s start and excludes deferred loyalty revenue.

Restaurant-level operating profit margin, a non-GAAP measure, improved to 14.7% from 14.5%. Red Robin attributed this primarily to higher checks and efficiency initiatives offsetting inflation. Companywide operating income fell to $6.2 million from $9.8 million.

Restaurant revenue becomes franchise income#

Refranchising produces sale proceeds and changes recurring income. Red Robin explained in its quarterly filing that restaurant revenue would give way to royalties and advertising-fund contributions based on franchisee sales. Corporate overhead might not decline proportionately as the company operates fewer restaurants.

A September pro forma illustration applies that change to historical results. Its unaudited income statements assume all 116 restaurant transfers, including the eight still pending, occurred on December 30, 2024. This is an illustration, not a forecast.

For the 28 weeks ended July 12, the model removes about $218 million of restaurant revenue and the related food, labor, occupancy and other operating costs. It adds $12.7 million of franchise revenue, based on historical sales and contract terms. General and administrative expense stays at $40.7 million. The illustration changes historical operating income of $11.7 million to a $6.5 million operating loss.

The model assumes the entire $96 million combined purchase price repays debt because transaction costs and net proceeds were not finalized. That September assumption does not establish October debt. Its lease adjustments leave possible guarantees of franchisees' leases unmeasured pending the company's evaluation.

How rent enters the borrowing terms#

Initial interest pricing is the Secured Overnight Financing Rate, or SOFR, plus 3.25 percentage points. The margin is added to the benchmark; 3.25% is not the full borrowing rate. Red Robin's announcement gives a subsequent margin range of 2.75 to 3.50 points, depending on leverage.

The credit agreement measures lease-adjusted leverage by adding eight times defined cash rent to debt, then dividing by EBITDAR: earnings before interest, taxes, depreciation, amortization and rent. Contract adjustments and specified historical figures apply. Rent includes operating-lease amounts paid or payable, with exclusions such as common-area maintenance and rental taxes.

The pricing grid charges a 2.75-point SOFR margin below 4.5 times lease-adjusted leverage, rising to 3.50 points at 5.5 times or higher. Changes follow delivery of financial statements.

A separate coverage test starts with defined EBITDAR, deducts maintenance capital spending and specified cash shareholder payouts, and compares the result with debt service, cash rent and specified cash income taxes. Debt service includes cash interest and scheduled principal payments.

The October filing confirms that old borrowings, accrued interest and fees were paid off in connection with the new borrowing. The replacement debt is secured by substantially all assets of the borrower and guarantors.

Term-loan principal repayments are scheduled quarterly, totaling 5% of original principal annually for the first two years, 7.5% for the next two and 10% thereafter. The revolver has no scheduled amortization.

Scheduled term payments begin December 31, 2026; remaining principal is due at maturity.