© 2020 Arizent. All rights reserved.

Dine Brands returns with $1.73B Applebee's/IHOP whole-biz refinancing

Register now

Dine Brands Global is sponsoring a $1.73 billion whole-business securitization of casual dining operations of its Applebee’s and IHOP restaurant brands.

Dine Brands plans to use the proceeds to pay off notes from earlier franchise-fee ABS transactions, including all the outstanding debt from its debut $1.4 billion transactions in 2014.

According to S&P Global ratings, Applebee’s Funding LLC/IHOP Funding LLC Series 2019-1 will consist of $225 million in variable-funding notes and $1.5 billion in long-term asset-backed notes to pay down $1.284 billion of outstanding Series 2014-1 debt issued by the master trust, as well as up to $225 million in VFNs from the trust's Series 2018-1 issuance.

(Only $1.3 billion in notes has been formally proposed for the new series, but another $200 million in bonds are expected to be issued at closing and the VFNs fully drawn, according to S&P.)

The Series 2019-1 note payments will be made through the contribution of all royalties, fees, franchise lease payments and sales, plus intellectual property receivables from 3,652 Applebee’s Neighborhood Grill + Bar and International House of Pancakes franchise locations. (Dine Brands franchises about 98% of all Applebee’s/IHOP locations.)

The Applebee’s/IHOP notes are all BBB rated by S&P. The $225 million in Class A-1 notes and $650 million in Class A-2-I notes have anticipated five-year maturities, while the Class A-2-II notes will be due June 2026.

The new transaction follows up Dine Brand's last whole-biz deal from August 2018, when its trust issued the $1.57 billion Series 2018-1 notes. That was the first whole-biz securitization for Applebee’s/IHOP since the Dine Brand (formerly DineEquity Inc.) $1.4 billion debut 2014 issuance from the shelf.

Improved performance

The 2019-1 Series is being issued after more than year of improved systemwide sales performance for the two store brands, following declines in 2016 and 2017.

Both brands have had positive same-store growth in sales in 2018 and the first quarter of 2019.

The improvement at Applebee’s resulted from closing 175 underperforming stores the past two years, a “pruning” also aided by more product promotions, remodeling efforts at more than 92% of existing locations, menu improvements and optimized takeout options, according to S&P.

Applebee’s same-store sales were up 5% to $4.2 billion in 2018, as well as 5% in the first quarter of 2019 year-over-year. Royalty fees averaged 4% in 2018, an increase from 3.4% the year prior.

According to 2017 figures (the latest available industrywide), Applebee’s has been the largest U.S. casual dining chain for a decade in terms of systemwide sales.

IHOP holds that distinction in the family dining category, and increased systemwide sales to $3.2 billion last year, a 1.5% growth from 2017 (franchisee royalty rates were flat at 4.4%). Its first-quarter sales were up 1.1% from the first three months of 2018, as well.

IHOP restaurants have also undergone a revamp, with 939 locations having been “extensively” renovated since late 2015. The company has launched a mobile app and also introduced small-format IHOP store locations for airports, casinos, travel centers and universities.

Both brands are highly concentrated in large franchise groups. About 50% of Applebee’s stores and 31% of IHOP stores are operated by only five franchisees each; only 33 franchisee groups operate all of Applebee’s locations while 294 groups control U.S. IHOP locations.

The declining results in 2016 and 2017 prompted a review of the Series 2014-1 notes in late 2017, but S&P had affirmed the original BBB ratings of the series’ two classes of notes because of the stable debt-service coverage ratio for the older whole-biz deal. It had declined to 4.82x from its 2016 peak of 5.4x, but was “comfortably” above the a 1.75x DSCR level that would have triggered a partial cash trapping event, S&P reported in October 2017.

The store count between Applebee's and IHOP is evenly divided between the brands – 1,697 IHOP restaurants and 1,689 Applebee’s locations.

Credit Suisse and Barclays were the lead bookrunners on the new series issuance, with Barclays serving as the sole structuring agent.

Applebee’s/IHOP is the third whole-biz transaction of the year, and the second in the quick-serve dining category. Dunkin Brands Group sponsored an upsized $1.7 billion offering in March, a deal which priced at par with a coupon range of 3.787%-4.352% for three classes of notes, also rated BBB by S&P.

Also in March, Driven Brands sold $300 million in notes backed by the fee and license revenue of its various auto maintenance and lube center locations.

For reprint and licensing requests for this article, click here.
Whole business securitization Credit Suisse Barclays
MORE FROM ASSET SECURITIZATION REPORT