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Coinstar cashing in on franchise growth to issue more whole-biz ABS

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Coinstar has been expanding its network of coin-counting kiosks at retailers and grocery stores overseas, and it's looking to cash out some of that growth to fund another dividend payment to a parent firm controlled by Apollo Global Management.

The company is selling another $100 million of bonds backed by franchise fees and intellectual property just a little over a year after its initial whole business securitization in May 2017.

The single tranche of 2018-1 series notes will be issued from the same master trust as the 2017 offering and carry the same BBB ratings from Kroll Bond Rating Agency and Morningstar Credit Ratings and have the same expected repayment date, April 2023.

The big difference is the collateral.

The company expanded its footprint into Germany, adding 274 kiosk locations. It also raised the fee charged to consumers in U.S. retail establishments to 11.9% from 10.9% on coin-to-cash voucher transactions, resulting in a sizable increase to transaction revenue and net cash flow, according to Kroll.

Competition in the U.S. has also been reduced as Wells Fargo and BMO (US) have stopped providing coin-counting services.

The news isn't all good, however. Southeastern Grocers, parent of Winn Dixie and BiLo, and Coinstar’s sixth-largest retailer, representing approximately 3% of coin volume and approximately 600 kiosks filed for bankruptcy in March.

Since its filing, SEG has divested underperforming stores through closure and sale while continuing to operate the remaining locations. A portion of those divested locations have been sold to operators that are Coinstar’s existing retail partners; kiosks at those locations will continue to operate. For the remaining divested locations, the kiosks will be removed. Of the locations that SEG will continue to operate, no kiosk has been removed.

Guggenheim Securities is the sole structuring advisor and book-running manager for the transaction.

Coinstar last year was one of the few franchise business outside of quick-serve restaurant sector to turn to the whole-business securitization model for financing. The asset class attracts highly indebted businesses with substantial franchisee footprints that collateralize their franchise fees and other revenue to obtain cheaper funding for operations – or in some cases, equity dividends.

Whole-business securitization can benefit leveraged chain restaurants and other franchise-based companies by providing lower-cost investment-grade funding over junk-rated syndicated lending.

Coinstar, which owns 80% of the self-service coin-collection kiosk market, produced revenues of more than $344 million for the twelve months that ended in March. It earns revenues from service fee charges on consumers or gift-card providers.

It partners with retailers to operate 19,900 kiosks in the U.S., U.K., Canada, Germany and Ireland through revenue-sharing agreements.

Its top retail partners provide a substantial portion of its business. They include Walmart, Kroger, Albertson’s and Ahold-Delhaize, a food retailer in the Netherlands.

The company’s IP portfolio has 45 U.S. and international patents or patent applications on coin-counting technology, along with 61 trademarks.

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Whole business securitization