Driven Brands is preparing a $175 million asset-backed securities deal that will provide investors with exposure to a relatively safe industry during the coronavirus pandemic.
Driven Brands was acquired in April 2015 by Roark Capital Group, a consumer-focused private-equity firm based in Atlanta, and has issued six three ABS deals since then, including three last year. Driven Brands comprises several well-known brands, including ABRA, CARSTAR, Fix Auto, Maaco and Meineke.
The deal’s collateral includes all existing and future franchise agreements, royalties from existing and future company-operated locations, and product sourcing agreements. In addition to repaying a portion of the outstanding principal of a $115 million ABS deal completed last year, proceeds may be used for future acquisitions.
Kroll Bond Rating Agency gives Driven Brands Funding LLC a BBB rating, noting that high unemployment and work-from-home protocols during the COVID-19 pandemic may reduce vehicle usage and the need for automotive services, although the company’s stores have been deemed “essential services” in most states and Canada and have remained open.
“Furthermore, while the Driven Brands system has experience sales declines in the past several months related to COVID-19, recent sales trends have improved significantly and trending towards comparable levels from a year ago,” Kroll says in its presale report, adding that the transaction also benefits from geographic diversity.
Long-term trends also favor Driven Brands, the largest automotive services company in North America. The number of vehicles in operation is growing steadily along with miles traveled and vehicle age, all increasing the need for vehicle maintenance and repair. Plus, increasingly complex vehicles require consumers to rely more on service providers with specialized knowledge, tools and equipment — Driven Brands’ bailiwick.
The ABS deal provides a number of structural protections for investors. For example, the transaction includes a “dynamic transaction structure that accelerates principal payments to the note holders upon the weakening of collateral performance,” according to Kroll.
In February, Driven Brands announced the hiring of a new chief financial officer, Tiffany Mason, previously CFO at Lowe’s, where she led the treasury, investor relations, tax, M&A and corporate planning departments.
