(Bloomberg) -- TGI Fridays is working with Guggenheim Partners to explore ways to address its debt as the restaurant chain contends with weakening sales, according to people with knowledge of the matter.
Among the options, the company has considered a new private loan that would refinance its $375 million asset-backed bonds, said the people who asked not to be identified discussing a private matter. The bonds were structured as a whole-business securitization, a type of transaction in which a company effectively pledges all its assets in exchange for cheap financing.
Guggenheim and TGI Fridays declined to comment.
Some other companies that previously borrowed money using their assets as collateral have either restructured or refinanced their debt over the past year. Operator of coin-counting kiosks Coinstar LLC restructured about $1 billion of asset-backed debt last year after facing a cash crunch that deepened in 2020.
Centerline Logistics Corp., a company that refuels ships and provides other marine transport services, hired Cantor Fitzgerald to refinance about $400 million of asset-backed securities, Bloomberg reported.
The underlying assets pledged for a whole-business securitization may not always have a clear maturity date — unlike bonds backed by auto loans — and valuing such property may not be straightforward. Because of that long asset life, such transactions often have final maturities that are years in the future. They also have deadlines by which the company must either refinance or agree to reset the interest rate, known as anticipated repayment dates.
TGI Fridays faces one such deadline this April, according to an S&P Global Ratings statement.
The company's sales dipped during the pandemic, triggering a situation known as "rapid amortization," where available cash flow from the securitized assets — in this case, from franchised restaurants — goes toward repaying principal. The bonds remain in rapid amortization, S&P said in a February note, downgrading the debt to B- from B. The ratings agency said that the company's system-wide sales for 2023 weakened compared to 2022.
The downgrade came shortly after the bar and grill franchise announced it was closing 36 underperforming locations across the US. TGI Fridays also said it was selling eight corporate-owned restaurants in the Northeast to its former CEO Ray Blanchette, according to a January press statement. Blanchette resigned last May.
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