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CKE Holdings drives $400 million ABS deal to successful finish

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The franchisor and operator of restaurants under the Carl’s Jr. and Hardee’s brands, CKE Holdings priced a $400 million transaction below pricing guidance that slightly increases the private-equity-held company’s leverage.

CKE’s third whole business securitization, the Series 2020-1 A-2 Notes were issued by Hardee’s Funding LLC and Carl’s Jr. Funding LLC and will be used primarily to refinance a 2018 deal. The securities priced Nov. 13 for a coupon of 4.00%, beneath the pricing guidance resting between 4.25% and 4.50%, according to Finsight. The new notes have a seven-year anticipated repayment date and a 30-year legal maturity.

Barclays acted as structuring lead, Bank of America Merrill Lynch and Morgan Stanley signed on as joint leads.

In a presale report, DBRS Morningstar notes that leverage in terms of ABS debt capacity divided by securitized net cash flow decreased to 5.4 times in the current deal compared to 5.6 times in the 2018 transaction.

Total leverage, however, is somewhat higher than competitors’ recent deals, according to S&P Global, which shows CKE’s at 6.8 times compared to Driven Brands’ 6.7 times and 6.5 times for its two transactions this year, Sonic’s 5.9 times, and 6.4 times for a Jersey Mike’s deal in 2019.

“Although on the higher end relative to its peers, this structure is not an outlier from a leverage perspective,” S&P Global says. “The anticipated repayment dates and the liquidity and deleveraging triggers are all comparable to those of other rated [quick service restaurant] transactions.”

The rating agencies note several issuer strengths. Though international performance has weakened since the start of the pandemic, the performance of CKE’s domestic locations has been stable, attributable partly to 98% of the stores having drive-throughs, according to S&P Global.

In addition, DBRS said in its presale report, nearly all the systems’ locations remained open during the pandemic, and while they experienced sales declines early on, sales have since recovered and “are trending higher compared to pre-COVID-19 levels.”

CKE’s financial sponsor is an affiliate of Roark Capital, which is a consumer-focused private equity fund that has completed successful securitizations for restaurant chains Sonic, Jimmy John’s, Arby’s, Driven Brands and FOCUS Brands, according to DBRS.

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