Note 6 - Long-term Debt and Capital Leases
 6 Months Ended
Nov. 29, 2016
Notes to Financial Statements  
Debt and Capital Leases Disclosures [Text Block]
6.
Long - Term Debt and Capital Leases
 
Long - term debt and
capital lease obligations consist of the following (in thousands):
 
 
 
November 29
, 2016
 
 
May 31
, 2016
 
Senior unsecured notes
 
$
212,546
 
 
$
212,546
 
Unamortized discount
 
 
(
1,577
)
 
 
(1,771
)
Unamortized debt issuance costs
 
 
(
2,666
)
 
 
(2,995
)
Senior unsecured notes less unamortized discount and
 
 
 
 
 
 
 
 
 
debt issuance costs
 
 
208,303
 
 
 
207,780
 
Senior credit facility
 
 
–
 
 
 
–
 
Mortgage loan obligations
 
 
14,762
 
 
 
15,745
 
Unamortized premium - mortgage loan obligations
 
 
19
 
 
 
75
 
Unamortized debt issuance costs - mortgage loan obligations
 
 
(
42
)
 
 
(74
)
Capital lease obligations
 
 
196
 
 
 
211
 
   Total long-term debt and capital leases
 
 
223,238
 
 
 
223,737
 
Less current maturities
 
 
13,629
 
 
 
9,934
 
   Long-term debt and capital leases, less current maturities
 
$
2
09,609
 
 
$
213,803
 
 
On
May
14,
2012,
we entered into an indenture (the “Indenture”) among Ruby Tuesday, Inc., certain subsidiaries of the Company as guarantors and Wells Fargo Bank, National Association as trustee, governing the Company
’s
$250.0
million - aggregate principal amount of
7.625%
senior notes due
2020
(the “Senior Notes”). The Senior Notes were issued at a discount of
$3.7
million, which is being amortized to interest expense, net using the effective interest method over the
eight
- year term of the notes.
 
The Senior Notes are guaranteed on a senior unsecured basis by our existing and future domestic restricted subsidiaries, subject to certain exceptions. They rank equal in right of payment with our existing and future senior indebtedness and senior in right of payment to any of our future subordinated indebtedness. The Senior Notes are
effectively subordinated to all of our secured debt, including borrowings outstanding under our revolving credit facility, to the extent of the value of the assets securing such debt and structurally subordinated to all of the liabilities of our existing and future subsidiaries that do not guarantee the Senior Notes.
 
Interest on the Senior Notes is calculated at
7.625%
per annum, payable semiannually on each
May
15
and
November
15
to holders of record on the
May
1
or
November
1
immediately preceding the interest payment date.
Accrued interest on the Senior Notes and our other long - term debt and capital lease obligations was
$0.9
million and
$1.0
million as of
November
29,
2016
and
May
31,
2016,
respectively, and is included in Accrued liabilities – Rent and other in our Condensed Consolidated Balance Sheets.
 
We
may
redeem the Senior Notes, in whole or in part, at the redemption prices specified in the Indenture plus accrued and unpaid interest. There is
no
sinking fund for the Senior Notes, which mature on
May
15,
2020
.
 
The Indenture contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries to (i) incur or guarantee additional indebtedness; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make certain investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of their assets; (vi) enter into transactions with affiliates;
and (vii) sell or transfer certain assets. These covenants are subject to a number of important exceptions and qualifications, as described in the Indenture, and certain covenants will not apply at any time when the Senior Notes are rated investment grade by the Rating Agencies, as defined in the Indenture. The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately.
 
On
December
3,
2013,
we entered into a
four
- year revolving credit agreement (the “Senior Credit Facility”) under which we
may
borrow up to
$50.0
million with the option, subject to certain conditions, to increase the facility by up to
$35.0
million. The terms of the Senior Credit Facility provide for a
$25.0
million sublimit for the issuance of standby letters of credit.
 
Under the terms of the Senior Credit Facility, interest rates charged on borrowings can
vary depending on the interest rate option we choose to utilize. Our options for the rate are a Base Rate or LIBOR plus an applicable margin, provided that the rate shall not be less than
zero.
The Base Rate is defined as the highest of the issuing bank’s prime rate, the Federal Funds rate plus
0.50%,
or the Adjusted LIBO rate (as defined in the Senior Credit Facility) plus
1.0%.
The applicable margin for the LIBOR - based option is a percentage ranging from
2.50%
to
3.50%
and for the Base Rate option is a percentage ranging from
1.50%
to
2.50%.
We pay commitment fees quarterly ranging from
0.40%
to
0.75%
on the unused portion of the Senior Credit Facility.
 
As security for the Senior Credit Facility, we granted the lenders liens and security interests in substantially all of the shares of capital stock of the Company and each of our present and future subsidiaries, substantially all of the personal property of the Company and each of our present and future subsidiaries, and the real property, improvements, and fixtures of
49
Ruby Tuesday restaurants. The real property, improvements, and fixtures of the
49
restaurants pledged as collateral appraised at
$101.4
million at the time of the transaction and have a
November
29,
2016
net book value of
$78.9
million.
 
The Senior Credit Facility contains a number of customary affirmative and negative covenants that, among other things, limit or restrict our ability to incur liens, engage in mergers or other fundamental changes, make acquisitions, investments, loans and advances, pay dividends or other distributions, sell or otherwise dispose of certain
assets, engage in certain transactions with affiliates, enter into burdensome agreements or certain hedging agreements, amend organizational documents, change accounting practices, incur additional indebtedness and prepay other indebtedness.
 
Under the terms of the Senior Credit Facility we are allowed, under certain circumstances, to repurchase up to
$20.0
million of the S
enior Notes in any fiscal year. We did
not
repurchase any Senior Notes during the
26
weeks ended
November
29,
2016.
 
Under the Senior Credit Facility, we are required to comply with financial covenants relating to the maintenance of a maximum leverage ratio and a minimum fixed charge coverage ratio. The terms of the Senior Credit Facility require us to maintain a maximum leverage ratio of no more than
4.30
to
1.0
and a minimum fixed charge coverage ratio of
1.65
to
1.0
for the quarter ended
November
29,
2016.
For the remainder of fiscal year
2017,
the Senior Credit Facility requires us to maintain a maximum leverage ratio of
4.30
to
1.0
for our
third
fiscal quarter and
4.25
to
1.0
for our
fourth
fiscal quarter, and requires us to maintain a minimum fixed charge coverage ratio of
1.65
to
1.0
for our
third
fiscal quarter and
1.70
to
1.0
for our
fourth
fiscal quarter.
 
As of
November
29,
2016,
we did not attain   the minimum fixed charge coverage ratio as required under the terms of the Senior Credit Facility. While we obtained a waiver of this covenant violation through
January
31,
2017
from our lenders, we believe, without certain   modifications, that it is possible at some   point during the next
twelve
months   that we will again be in violation of   the minimum fixed charge coverage ratio covenant. Among other things, the waiver under the Senior Credit Facility restricts our ability to make certain acquisitions and investments, and reduces the amount we
may
borrow pursuant to the revolving loan   commitment under the Senior Credit Facility from
$50.0
million  
(including a
$25.0
million sublimit for standby letters of credit), to
$16.1
million through
January
31,
2017.
Aside from the previously disclosed
$11.1
million of letters of credit outstanding as of
November
29,
2016,
we had
no
borrowings   under the Senior Credit Facility.
 
As of the date of this filing, we are in discussion with our lenders to amend the
Senior Credit Facility.   These amendments are anticipated to include adjustments to both the maximum leverage and minimum fixed charge coverage ratios. There are no assurances that our lenders will provide any future waivers of covenant violations or agree to these, or any future, amendments of our Senior Credit Facility.
 
The Senior Credit Facility terminates no later than
December
3,
2017.
    Upon the occurrence of an event of default, the lenders
may
terminate the loan commitments, accelerate all loans and exercise any of their rights under the Senior Credit Facility and any ancillary loan documents.
 
On
December
3,
2013,
in connection with our entry into the Senior Credit Facility, the Company and certain of its subsidiaries entered into loan modification agreements (the “Loan Modification Agreements”) with certain mortgage lenders to, among other things, provide waivers and consents under certain of our mortgage loan obligations to enter into the Senior Credit Facility. The Loan Modification Agreements also amended certain financial reporting requirements under the specified loans   and modified and/or provided for certain financial covenants for the specified loans, including the maximum leverage ratio and the minimum fixed charge coverage ratio.
 
Additionally, as of
November
29,
2016,
we did not attain the minimum fixed charge coverage ratio required under the terms of the mortgage loan obligations. While we obtained a waiver of this covenant violation through January 31, 2017 from our lenders, we believe, without certain modifications, that it is possible at some point during the next twelve months that we will again be in violation of the minimum fixed charge coverage ratio covenant under our mortgage loan obligations. Accordingly, we classified all of our mortgage loan obligations within current maturities of long-term debt in our Condensed Consolidated Balance Sheet at November 29, 2016. Among other things, the waiver under the mortgage loan obligations restricts our ability to make certain acquisitions and investments.   There are no assurances that our lenders will provide any future waivers of covenant violations or agree to those, or any  
future amendments of our mortgage loan obligations.
 
Our $
14.8
million in mortgage loan obligations as of
November
29,
2016
consists of various loans acquired upon franchise acquisitions. These loans, which mature between
January
2017
and
October
2021
,
have balances which range from
$0.6
million to
$6.7
million and interest rates of
7.60%
to
10.17%.
Included in our current maturities of long - term debt as of
November
29,
2016
is
$9.3
million related to
two
mortgage loan obligations that have balloon payments due during the
third
quarter of fiscal year
2017
and
$4.0
million of mortgage loan obligations that are not payable within
twelve
months of the balance sheet date. We anticipate that the amendment currently being discussed with the lenders of our mortgage loan obligations will permit   the reclassification of the
$4.0
million of mortgage loan debt back to long - term debt. Many of the properties acquired from franchisees collateralize the loans outstanding.