Applebee's Funding and IHOP Funding are preparing to raise $1 billion in asset-backed bonds, in a whole business securitization, backed by franchise agreements and related streams of revenue like royalties and franchise leases.
Dine Brands Global manages restaurants under the Applebee's and International House of Pancakes brands, and as of Q1 2025, its restaurant network operated 3,522 locations across the country. Virtually all of them, 98%, were franchised, according to Kroll Bond Rating Agency.
The current deal will sell notes through two tranches, classes A1 and A2. KBRA finds that the notes have an anticipated repayment date of June 2030, and a final maturity date of June 2055, KBRA said. The company assigned BBB to both classes of notes.
Franchise royalty and fees account for about 79.7% of revenue to be securitized, while company restaurant royalties, profit from products, financing operations, local area licenses and other income streams will make up the remaining 20%, according to KBRA.
KBRA notes that Applebee's and IHOP funding has a transaction leverage, its total debt capacity divided by the securitization cashflow, of 5.2x. The deal will pay interest on a quarterly basis, and the class A1 VFN notes have a renewal date of June 2030, KBRA said.
Guggenheim Securities is the sole structuring advisor and sole bookrunning manager.
The deal includes several capital structure features that preserve cashflow. The senior notes, for one, have an interest reserve account in place that covers three months of class A note interest payments.
A cash-trapping feature will deposit excess cash flow into a reserve account if, on any quarterly payment date, the debt service coverage ratio (DSCR) is less than 1.75x or less than 1.50x, at a rate of 50% or 100%, the rating agency said.
Also, if on any quarterly payment date the combined Applebee's/IHOP systemwide sales fall below $5 billion or $4 billion, then 50% of excess cashflow or 100% of excess cashflow will be deposited into the cash trap reserve account.
Also, a rapid amortization event requires that if the DSCR is less than 1.20x, on any quarterly payment date, or if the combined Applebee's/IHOP systemwide sales is less than $3.25 billion, the notes will enter a rapid amortization event. All collections, plus amounts in the cash trap reserve account will be used to pay off senior expenses.
