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Arby's orders up first whole-biz securitization since 2016

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Arby’s is making a return trip to the asset-backed market, sponsoring a $975 million franchise-fee securitization that represents the sandwich chain’s first whole-business transaction in four years.

Proceeds from the bond sale will repay existing debt on the franchisor’s previous ABS deals, as well as paying debt for Jimmy John’s, another quick-serve restaurant (QSR) chain that is also owned by Arby’s indirect parent company Inspire Brands, the d/b/a of Roark Capital-sponsored Mavericks Inc.

Roark Capital has frequently tapped the whole-business ABS market to finance operations for its various franchise businesses in the QSR, consumer and automotive retail sectors, including Jimmy John's, Driven Brands (including Maaco and Meineke service centers), CKE Restaurants, Sonic, Massage Envy and FOCUS Brands.

The Arby’s Funding Series 2020-1 will be a master-trust issuance from Arby’s securitization vehicle first established in a $685 million ABS deal in 2015, and last utilized for a $150 million variable-funding note a year later.

The new transaction will include another $150 million Class A-1 variable funding note that will be undrawn at close, as well as an $825 million Class A-2 bond tranche of seven-year notes.

According to ratings agency presale reports, the issued A-2 term notes (with the interest-rate to be determined) will be used to repay the outstanding notes on the 2015-1 Class A-2 notes that still total $608 million, with a reported coupon of 4.97%.

Excess proceeds will also pay down any drawn amounts from the 2015 and 2016 VFN tranches, which have between $50 million and $150 million undrawn.

Both new tranches have preliminary BBB- ratings from S&P Global Ratings and BBB ratings from Kroll Bond Rating Agency.

Although the deal will boost Arby’s overall debt to 6.5x leverage, the company has had nine consecutive years of sold same-store sales growth, according to S&P and Kroll and 3% compound annual growth in systemwide sales since 1995.

The coronavirus outbreak has slowed sales and revenues for some franchise operators such as TGI Friday’s and Applebee’s/IHOP, but Arby’s has exhibited “strong performance” during the COVID-19 pandemic stress by catering to take-out customers purchasing its signature roast-beef sandwiches and curly fries.

“The large percentage of sales from take-out and drive-thrus has been a main driver in the system's recovery from the social distancing measures due to the COVID-19 pandemic,” stated S&P’s report.

Arby’s operates more than 3,500 restaurants in 48 states and in six foreign countries, but the securitization will only be funded through the revenues generated by franchisee-owned locations that make up 66% of its total number of stores.

Inspire Brands is one of the largest restaurant companies in the U.S. In addition to Arby’s and Jimmy John’s, the company owns Buffalo Wild Wings, Sonic and Rusty Taco.

Barclays is the sole structuring adviser and sole book-running manager.

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Whole business securitization Roark Capital