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Aided by online sales growth, Wingstop plans $450M debt refinancing

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Dallas-based Wingstop Inc. (NASDAQ:WING) announced plans Thursday to issue new bonds backed by franchise revenues and royalty fees to refinance its existing debt, and potentially pay a dividend to shareholders of the primarily regional chicken-wings chain.

The company will sponsor $450 million in bonds through its Wingstop Funding LLC trust, in a whole-business securitization that will offer investors the cash flow and royalty fee income streams from its more than 1,436 restaurants (of which all but 30 are franchise-owned).

Wingstop Funding LLC 2020-1 will feature a $50 million in Class A-1 variable senior funding notes and $400 million in fixed-rate Class A-2 notes (with an anticipated December 2027 repayment date) to boost its securitized financing facility to $480 million, the company stated. The notes have preliminary BBB ratings from Kroll Bond Rating Agency, in line with recent WBS transactions involving Arby’s Funding LLC and Sonic Capital LLC.

The company’s second securitization will pay off approximately $317 million in outstanding senior term notes from the 2018 Series issued by Wingstop.

In addition to refinancing debt, Wingstop officials plan to use proceeds to supporting the company’s fast-track growth plans that also include diversifying out of its footprint in which half its store revenues are derived from just three states (Texas, California and Florida).

“We remain focused on executing against our growth strategies and our vision of becoming a top 10 global restaurant brand," said CEO Charlie Morrison in a news release.

In third-quarter revenues reported this week, Wingstop reported a 25.4% year-over-year growth in same-store quarterly sales, fed in large part by surging growth in its online-sales channel (up over 62% from third quarter 2019) as customers shifted to at-home food delivery and pick up options at the expense of quick-serve dining options.

Founded in 1994, Wingstop has long focused on carry-out for its primarily bone-in and boneless wings menu – a strategy that served the company well over the last eight months after the coronavirus outbreak hurt several quick-serve restaurant competitors that were more dependent on dine-in customers.

Systemwide sales were up 32.8% to $509.2 million for the quarter, and company-owned same-store sales increased 15.2% as the chain added 43 new stores over the prior three months. The company’s annual sales are approximately $1.7 billion, compared to $1.2 billion at the time of Wingstop’s first securitization.

Securitized net cash with approximately 91% of the revenues from domestic franchise royalties. Another 5% were from franchise fees and the rest of the revenues from international operations and company-owned store royalties.

Unlike some other WBS deals, Wingstop will include company-owned store revenue to the securitized net cash flow, which has increased to $89.6 million from $57.5 million two years ago, according to Kroll. The company has 282 franchisees and average franchisee owns approximately five units. The average original tenure of franchisees is about eight years.

The company has added approximately 200 new store locations since 2018. Part of Wingstop’s growth strategy involves leasing space in inexpensive B- and C-class real estate properties, usually involving low initial cash investments. That has fed the company’s compound annual growth of 24% since 2000.

Barclays is the sole structuring advisor and joint book-running manager.

For the new issuance, Wingstop Funding will provide investor protections including cash-trapping periods should the trust’s debt service coverage ratio fall below certain levels; as well as a rapid amortization feature if principal and interest DSCR should fall under 1.2x during any quarterly period.

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Whole business securitization ABS Coronavirus Esoteric ABS