Lately Domino's Pizza is looking a lot like an overachiever. The quick-serve restaurant and delivery chain is doing more than $5 billion in global retail sales, which should go a long way to support its ambitions for rapid growth from its locations in more than 55 countries. The key component of its recapitalization plans is also chipping away at issuance records in the intellectual property securitization sector.
The company revealed a few more details behind its $1.85 billion securitization of franchise fees from its stores, which might make the deal the largest IP securitization so far, just edging out the $1.8 billion KCD IP transaction and the $1.7 billion Dunkin Brands, which came to market in May 2006.
Lehman Brothers is structuring advisor on the transaction, while JPMorgan Securities and Merrill Lynch are joint bookrunners on the Domino's deal.
Two tranches are being offered in the 144a, Regulation S transaction. Notes are being offered through an A-2 class sized $1.6 billion, which are insured by MBIA and Ambac in a 75/25 split, according to people familiar with the situation. Moody's Investors Service and Standard & Poor's are expected to assign triple-A ratings to the A-2 notes. The $100 million M-1 class, is rated BB' by S&P.
Domino's plans to use the proceeds from the transaction, which is slated to close in mid-April, for a stock repurchase plan. Putting securitization at the center of its future capitalization strategy makes the most sense for the company for several reasons, company officials have said.
"Based on the strong cash flow characteristics of our business, the appropriate corporate finance decision for our company is one that includes significant leverage," David Brandon, Domino's Pizza's chairman and CEO said earlier this year. "The most efficient and flexible debt we can negotiate is asset-backed securitization, which provides the lowest cost of financing available to us."
Furthermore, securitization offers more flexibility than traditional bank loan debt. It enables the company, which simply wanted more exposure to the triple-A debt markets, to maintain incremental debt, someone familiar with the company said.
Although Domino's would have been content with bond insurance from one provider on the deal, throwing the transaction out to more than one monoline insurer created more competition in that sector, a source familiar with the deal said. Also, for investors who have never patronized restaurant franchise royalty deals, insurance wraps will go a long way to helping them understand and participate in these types of transactions.
With its five-year, interest-only securities and two optional one-year extension periods, the Domino's deal resembles previous quick-serve restaurant franchise securitizations, most notably the Dunkin' Brands deal, people familiar with the situation said. The deal also includes an A-1 class, which is not being offered. The $150 million tranche is comprised of variable fund notes rated triple-A by Moody's and S&P, said sources familiar with the transaction.
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