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Driven Brands taps whole-biz market in second issuance for 2019

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Driven Brands is issuing its fifth securitization of fees and revenues from its franchise base of auto repair and maintenance centers, according to a presale report from Kroll Bond Rating Agency.

Driven Brands, which operates and manages over 2,700 Maaco, Meineke and other branded auto-service stores, is marketing $275 million in a new issuance from its master trust established four years ago.

The Series 2019-2 Class A-2 notes will add to the five previous issuances that have totaled $1.38 billion, and will carry the same BBB rating as the prior notes.

The new notes have an anticipated repayment date of October 2026, according to Kroll’s report.

Driven Brands is one of the largest franchisors in the aftermarket auto service sector, and best known for its Maaco paint and collision repair centers and Meineke brake and muffler shops. The company also owns and operates CARSTAR (another paint/collision franchise), Take 5 Oil Change, Pro Oil Change, Econo-Lube N/ Tune, Aero Colors, Merlin, Drive N Style and AutoQual store names.

Approximately 2,318 of the stores are franchise-owned and managed by about 1,600 franchisees; most of the 383 company-owned stores are Take 5 oil-change centers that Driven acquired in 2016.

CARSTAR and Maaco make up 58% of systemwide sales.

The securitized net cash flow into the trust for the trailing 12 months prior to June 29 was approximately $194.3 million, a growth from the $171.4 million for the 2018 fiscal year ending in December.

The notes’ collateral includes all existing and future franchise agreements in the U.S. and Canada, as well as collections and profits from the company-operated Take 5 locations. Driven has plans to increase the franchise base of Take 5, and has a pipeline of 175 agreements with potential franchisees that will be added over the next several years, according to Kroll.

The proceeds from the new series will include a $75 million contribution to a prefunding account that will be used to acquire the rights to additional franchisee revenues as new operators are brought into the fold. The proceeds will also fund reserve accounts supporting the entire series of notes issued from the trust, as well as general purpose funds that could be used for future acquisitions.

The fast-growth strategy has elevated the company’s estimated leverage to 6.5x with the next issuance, according to Kroll.

“Recent and future acquisitions will continue to present new operating challenges that may have a negative effect on the Company’s overall financial performance,” stated Kroll’s report. “However, [Kroll] believes that many of the results of the management team’s initiatives are exhibited by the Company’s performance since 2012.”

The new notes represent the first time Charlotte, N.C.-based Driven Brands has tapped into the whole business securitization market twice in the same year. In March the company sold $300 million in notes in a deal that closely followed Driven’s acquisition of the 48-store Super-Lube centers in five states in February.

The 2019-2 series deal was structured by Barclays Capital.

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Whole business securitization