Item 1.01 Entry into a Material Definitive Agreement






Credit Agreement Amendment

On May 29, 2020 (the "Amendment Effective Date"), Red Robin Gourmet Burgers, Inc. (the "Company"), Red Robin International, Inc. (the "Borrower"), and certain of their subsidiaries entered into the First Amendment to Credit Agreement and Waiver (the "Amendment") with certain lenders party thereto and Wells Fargo Bank, National Association, as administrative agent. The Amendment amends the Company's Amended and Restated Credit Agreement (the "Credit Facility") to, among other things:

· increase the pricing under the Credit Facility for (a) the period from the


   Amendment Effective Date through the first interest determination date
   occurring after the fiscal quarter ending on or about April 18, 2021 to LIBOR
   (subject to a 1.00% floor) plus 3.25% and (b) periods thereafter to the amounts
   set forth in a grid included in the Amendment (to which a 1.00% LIBOR floor
   shall apply);

· waive the existing events of default under Credit Facility related to the


   Borrower's failure to comply with the financial covenants as of the fiscal
   quarter ending on or about April 19, 2020;

· suspend the application of (a) the lease adjusted leverage ratio financial


   covenant (the "Leverage Ratio Covenant") and (b) the fixed charge coverage
   ratio financial covenant (the "FCCR Covenant"), in each case, for the fiscal
   quarter ending on or about July 12, 2020;

· if the Company issues new equity (or convertible debt) generating net cash


   proceeds of at least $25,000,000 (the "Minimum Capital Event"), (a) suspend the
   application of the Leverage Ratio Covenant and FCCR Covenant, in each case, for
   the fiscal quarters ending on or about October 4, 2020 and December 27, 2020
   and (b) increase the maximum leverage permitted for purposes of the Leverage
   Ratio Covenant for each of the first three fiscal quarters ending in 2021;

· for the fiscal quarters ending on or about April 18, 2021, July 11, 2021, and

October 3, 2021, provide that (a) the Leverage Ratio Covenant will be
   calculated using a seasonally adjusted annualized consolidated EBITDA for the
   applicable period since the beginning of fiscal year 2021 and (b) the FCCR
   Covenant will be calculated only for the applicable period since the beginning
   of fiscal year 2021;

· add a minimum liquidity covenant, measured as of the last day of each fiscal


   month, that applies during the period commencing on the Amendment Effective
   Date through March 21, 2021;

· subject to limited exceptions, prohibit certain capital expenditures,


   restricted payments, acquisitions, and other investments until the later of (a)
   the Company's delivery of a compliance certificate for the fiscal quarter
   ending on or about July 11, 2021 demonstrating compliance with the financial
   covenants then in effect and (b) the Company satisfying an agreed ratio under
   its Leverage Ratio Covenant for the most recently ended fiscal quarter or
   fiscal year, as applicable;

· add an anti-cash hoarding provision requiring revolver repayments (but with no


   associated permanent reduction in the revolver) to the extent that the
   Company's consolidated cash on hand exceeds $30,000,000 as of the end of any
   fiscal month;

· revise the conditions precedent to revolver borrowings so that certain effects


   of COVID-19 are excluded for purposes of certain representations and warranties
   that must be true and correct as conditions to revolving borrowings;

· require mandatory prepayments from net cash proceeds of equity (or convertible


   debt) issuances that exceed amounts set forth in the Amendment; and

· provide for certain additional financial reporting requirements under the


   Credit Facility.

As conditions to the Amendment, the Company (a) repaid revolving loans, so that the amount of the Company's consolidated cash on hand did not exceed $30,000,000 as of the Amendment Effective Date and (b) paid certain customary amendment fees to the lenders under the Credit Facility consenting to the Amendment and certain other customary fees.





                                       2

The description above is a summary of the Amendment and is qualified in its entirety by the complete text of the agreement, which is attached to this report as Exhibit 10.1 and is incorporated herein by reference.

ITEM 2.02 Results of Operations and Financial Condition

On May 29, 2020, the Company issued a press release providing a business update, describing selected preliminary unaudited financial results for the fiscal first quarter of 2020, and announcing entry into the Amendment. A copy of this press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information in this Item 2.02, including the information set forth in Exhibit 99.1, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an


           Off- Balance Sheet Arrangement of a Registrant

The discussion of the Amendment to Credit Facility set forth under Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference in this Item 2.03.




Item 8.01     Other Events

Filing Relief - First Quarter 2020 Quarterly Report on Form 10-Q

The Company will be relying on the Securities and Exchange Commission's order (Release No. 34-88318) under Section 36 of the Exchange Act granting exemptions from specified provisions of the Exchange Act and certain rules thereunder, as superseded by a subsequent order (Release No. 34-88465) issued on March 25, 2020 (collectively, the "Order") to delay filing its Quarterly Report on Form 10-Q for the quarterly period ended April 19, 2020 (the "Quarterly Report") that is due May 29, 2020, due to circumstances related to the novel coronavirus (COVID-19).

We have experienced significant disruptions to our business due to the COVID-19 pandemic and related mandated social distancing and shelter-in-place orders, resulting in previously disclosed temporary closures of 35 Company-owned restaurants across our portfolio and remaining locations shifted to an off-premise only operating model.

The considerable effect of the COVID-19 pandemic has triggered the need to perform additional impairment assessments of our property and equipment, goodwill, and other intangible assets. Due to the effect of the COVID-19 pandemic, we are currently anticipating recognizing a material goodwill impairment up to the full carrying amount totaling approximately $95 million, and long lived asset impairment losses of approximately $10 million to $20 million in our Quarterly Report. Further, the March 19, 2020 passage of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") created an opportunity for the Company to carry back net operating losses, which in turn require us to analyze our realization of deferred tax assets related to our job tax credits. We anticipate recognizing a material valuation allowance on our deferred tax assets related to our job tax credits; however, we anticipate recognizing the full carryforward balance for cash tax purposes. These items represent a substantial undertaking due to the need to develop and analyze several best estimates and assumptions, compounded by the additional difficulty in forecasting operations during the COVID-19 pandemic, including future guest traffic, sales and operating results, discount and royalty rates, and volatility factors.





                                       3

Due to the reporting impacts and disruption to our business of COVID-19, the Company will be unable to complete the analyses described above in time to file its Quarterly Report by the original filing deadline. Accordingly, we are relying on the Order to postpone the filing of our Quarterly Report to provide us with additional time to finalize these assessments and related disclosure. The Company expects to file its Quarterly Report no later than 45 days after the original deadline of May 29, 2020.





Financial Update

The Company expects to recognize or has recognized the following material changes to the consolidated financial statements during its first fiscal quarter of 2020. There have been no changes to the related accounting policies as disclosed in Part II, Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K filed with the SEC on February 25, 2020.

Goodwill

The Company determined the sustained decrease in our stock price coupled with the closure of our dining rooms and significant decline to the equity value of our peers and overall U.S. stock market represented a goodwill impairment triggering event. We are finalizing a quantitative analysis as of our first quarter ended April 19, 2020 to determine if impairment to our goodwill existed for our one reporting unit. We used a blended approach in calculating fair value of our one reporting unit including the income approach, market approach, and market capitalization approach. This analysis could lead to a material impairment up to the full carrying amount of goodwill totaling approximately $95 million. The goodwill impairment will be measured as the amount by which the carrying amount of a reporting unit, including goodwill, exceeds its fair value.





Restaurant Assets

The Company determined the triggering event described above also represented a long-lived asset impairment triggering event. The Company is anticipating recognizing between $10 million and $20 million of impairment related to restaurant assets during the sixteen weeks ended April 19, 2020 resulting from the continuing and projected future results of Company-owned restaurants. Recoverability of restaurant assets, including restaurant sites, leasehold improvements, information technology systems, right-of-use assets, amortizable intangible assets, and other fixed assets, to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant level. Each restaurant's past and present operating performance is being reviewed in combination with projected future results through projected undiscounted cash flows that includes management's expectation of future financial impacts from COVID-19. If the assets are determined to be impaired through comparison of the assets carrying value to its undiscounted cash flows, the Company will compare the carrying amount of each restaurant's assets to its fair value as estimated by management to calculate the impairment amount. The fair value of restaurant assets is generally determined using a discounted cash flow projection model, which is based on significant inputs not observed in the market and represents a level 3 fair value measurement. In certain cases, management will use other market information, when available, to estimate the fair value of a restaurant's assets. The restaurant asset impairment charges will represent the excess of the carrying amount over the estimated fair value of the restaurant assets calculated using a discounted cash flow projection model. Additional restaurant asset impairment may be required to be recognized in future periods if the COVID-19 pandemic continues to negatively impact our business.





                                       4





Rent

In response to the impact of COVID-19 on our operations, beginning April 1, 2020 the Company has not made full lease payments under its existing lease agreements for our restaurants and restaurant support center. During the suspension of payments, the Company continued to recognize expenses and liabilities for lease obligations and corresponding right-of-use assets on the balance sheet in accordance with ASC Topic 842.

We have engaged in ongoing constructive discussions with landlords regarding the potential restructuring of lease payments and rent concessions. To the extent we qualify, we will elect to recognize any contractual rent concessions reached in the future as a variable credit to rent expense as opposed to a lease modification consistent with the relief issued by the Financial Accounting Standards Board titled ASC Topic 842 and ASC Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. Contractual rent concessions expected to be agreed to cannot be reasonably determined at this time based on the status of discussions with our landlords.





Legal Proceedings

On July 14, 2017, a current hourly employee filed a class action lawsuit alleging that the Company failed to provide required meal breaks and rest periods and failed to reimburse business expenses, among other claims. The case is styled Manuel Vigueras v. Red Robin International, Inc. and is currently pending before the United States District Court in Santa Ana, California. In a related action, on September 21, 2017, a companion case, styled Genny Vasquez v. Red Robin International, Inc. was filed and is currently pending in California Superior Court in Santa Ana, California and involves claims under the California Private Attorneys' General Act ("PAGA") that partially overlap in the claims made in the Vigueras matter. In the first quarter of 2020, the Company reached a tentative settlement agreement resolving all claims and the cost of class administration in both cases for an aggregate $8.5 million. The Company is in the process of finalizing the settlement agreement, which will then be submitted to the court for approval. Court approval is required before any settlement agreement between the parties becomes final. An additional $4.5 million was accrued to reach the $8.5 million settlement amount during its first fiscal quarter of 2020.

Valuation Allowance on Deferred Tax Assets

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the future reversals of existing deferred tax liabilities and projected future taxable income, including whether future originating deductible temporary differences are likely to be realized.

The March 19, 2020 passage of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") created an opportunity for the Company to carry back 2019 and 2020 projected net operating losses ("NOL's"). As a result of these projected NOL carrybacks, $30 million to $40 million of previously utilized FICA tip tax credits could be reinstated. Given the reinstatement of the FICA tip tax credits, in combination with our existing FICA credit deferred tax asset, we are currently evaluating whether we would be required to recognize a valuation allowance against these FICA tip tax credits which could result in the recognition of a material valuation allowance up to our full carryforward.





                                       5

Financial Condition Update and Going Concern

Under ASC 205-40, Presentation of Financial Statements - Going Concern, the Company is required to assess whether substantial doubt is raised in that conditions or events indicate that it is probable the Company will be unable to meet its obligations when they come due within one year from the financial statement issuance date. The assessment also includes the Company's consideration of any management plans to alleviate such substantial doubt. The conditions related to the COVID-19 pandemic have had a material adverse impact on the Company's revenues, profitability, and cash flows.

Pursuant to the terms of the Amendment to the Company's Credit Facility described above, the lenders thereto agreed, among other things, to waive the existing events of default under the Credit Facility related to the Borrower's failure to comply with the financial covenants as of the end of the fiscal quarter ended on or about April 19, 2020. In addition, the lenders agreed to (a) suspend the application of the Leverage Ratio Covenant and the FCCR Covenant, in each case, for the fiscal quarters ending on or about October 4, 2020 and December 27, 2020 and (b) increase the maximum leverage permitted for purposes of the Leverage Ratio Covenant for each of the fiscal quarters ending in 2021; provided that the Company issues new equity generating net cash proceeds of at least $25,000,000.

The Company is actively evaluating options for raising equity capital in order to satisfy the requirements of the Amendment. If the Company is unable to raise . . .

Item 9.01 Financial Statements and Exhibits

(d) Exhibits. The following exhibits are filed and furnished with this report.

Exhibit No. Description



   10.1       First Amendment to Credit Agreement and Waiver, dated as of May
            29, 2020, by and among Red Robin International, Inc., Red Robin
            Gourmet Burgers, Inc., the Guarantors, the Lenders party thereto and
            Wells Fargo Bank, National Association, as administration agent.
   99.1       Red Robin Gourmet Burgers, Inc. Press Release dated May 29,
            2020.




                                       8

© Edgar Online, source Glimpses