Domino's Pizza is planning to issue up to $1.85 billion in asset-backed securities, funded by franchise fees from its stores. In turn, the company plans to use the funds to finance a stock repurchase plan.
The company retained Lehman Brothers to act as sole structuring advisor on the ABS transaction. JPMorgan Securities and Merrill Lynch will act as joint bookrunners on the deal, which is slated to come to market in the first half of 2007.
"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. "The most efficient and flexible debt we can negotiate is asset-backed securitization, which provides the lowest cost of financing available to us."
Domino's is planning a major recapitalization consisting of four major components, eventually resulting in a conversion of traditional bank bond financing to asset-backed securities funding. Initially, the company said in a statement, Domino's plans to secure a bridge loan of up to $1.35 billion to buy back 22% of its outstanding common stock, and repay the bridge loan with funds from the securitization.
As with its potential securitization deal, Lehman Brothers, JPMorgan Securities and Merrill Lynch are participating on the bridge loan facility.
The company also plans to repay about $274 million of outstanding senior subordinated notes of bank debt, as well as pay off an outstanding senior credit facility.
If the company cannot complete the ABS deal, the bridge loan would convert to a five-year term loan instead.
Founded in Ann Arbor, Mich., Domino's Pizza operates about 8,238 franchise and company-owned stores in the U.S. and in 50 countries.
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