Business Context and Reporting Period
Company: Restaurant Brands International Inc. (RBI)
Date: December 12, 2014
Event: Completion of the merger between Tim Hortons Inc. and Burger King Worldwide, Inc. to form RBI.
Structure: Tim Hortons and Burger King Worldwide are now indirect, wholly-owned subsidiaries of RBI and its subsidiary, Restaurant Brands International Limited Partnership. RBI common shares (NYSE: QSR; TSX: QSR) and Partnership exchangeable units (TSX: QSP) began trading on December 15, 2014.
Key Financial Metrics and Capital Structure
This filing details the financing structure established to consummate the merger. Specific operating metrics (revenue, profit, cash flow) are not provided in this 8-K.
- Term Loan Facility: $6.75 billion senior secured term loan (7-year maturity).
- Revolving Credit Facility: $500 million senior secured revolving credit (5-year maturity).
- Second Lien Notes: $2.25 billion aggregate principal amount of 6.00% Second Lien Senior Secured Notes due 2022.
- Berkshire Hathaway Investment: $3 billion purchase of Class A 9% cumulative compounding perpetual voting preferred shares and a warrant to purchase 1.75% of fully-diluted common shares.
- Debt Refinancing: Proceeds used to refinance existing indebtedness of Burger King and Tim Hortons, including the full redemption of Burger King's 9 7/8% Senior Notes due 2018 and 11% Senior Discount Notes due 2015.
Material Changes Versus Prior Period
The filing represents a fundamental change in corporate structure and capitalization rather than a period-over-period operating comparison.
- Corporate Identity: The entity formerly known as "9060669 Canada Inc." changed its name to Restaurant Brands International Inc. on December 8, 2014.
- Ownership: Tim Hortons shareholders received C$65.50 cash and 0.8025 RBI common shares per share (or alternative cash/share elections). Burger King shareholders received 0.99 RBI common shares and 0.01 Partnership exchangeable units per share (or alternative unit elections).
- Debt Obligations: Significant new debt obligations were incurred ($9 billion total in credit facilities and notes) to fund the transaction, replacing prior capital structures of the legacy companies.
Guidance, Outlook, Risks, and Contingencies
Management Commentary: The transaction was completed as planned, with funds released from escrow to finance the merger and refinance legacy debt. Berkshire Hathaway intends to exercise its warrant promptly.
Risks and Covenants:
- Leverage Ratio: The Credit Facilities require the Borrowers to not exceed a specified first lien senior secured leverage ratio if revolver usage exceeds 30% of commitments. Failure to comply could restrict borrowing or accelerate debt.
- Change of Control Offers: Tim Hortons commenced change of control offers to repurchase its outstanding notes at 101% of principal plus accrued interest due to the transaction and associated credit rating downgrades.
- Restrictive Covenants: New agreements limit the ability to incur additional indebtedness, make investments, pay dividends, or engage in mergers without lender consent.
Investor Verification Checklist
- Verify the exact exchange ratios and cash consideration received by legacy Tim Hortons and Burger King shareholders.
- Confirm the interest rate margins and amortization schedules for the $6.75 billion Term Loan and $500 million Revolver.
- Review the terms of the $3 billion Berkshire Hathaway preferred shares, specifically the 9% cumulative compounding dividend and transfer restrictions.
- Assess the impact of the new leverage ratio covenants on future capital flexibility.
- Monitor the status of the change of control tender offers for Tim Hortons' outstanding notes.