Driven Brands Funding and Driven Brands Canada Funding will be co-issuers on a forthcoming $410 million securitization of revenues from its franchised base of stores operating in auto supply and servicing companies, including Maaco, Meineke, and CARSTAR in both the United States and Canada.
Based in Charlotte, N.C., Driven Brands operates a franchised base of 3,444 branded locations in 49 U.S. states and all 10 Canadian provinces, according to S&P Global Ratings, which expects to assign ratings of 'BBB-' to both classes of notes.
Known in the U.S. as Driven Brands Funding and Driven Brands Canada Funding, the series 2022-1 transaction will be the 10th series of notes from the platform. Barclays Capital is the sole structuring adviser and sole book-running manager on the deal, which S&P expects to close on October 5.
The co-issuers will use the proceeds primarily to cover fees and expenses in connection with the transaction, but once those are covered the capital could also be applied to general corporate purposes. Those might include future brand acquisitions or repaying outstanding debt under the parent company's revolving credit facility, according to S&P.
Driven Brands, 2022-1 should repay the notes on a quarterly basis.
Among the rating agency's rationale are brand and business strength, plus resilience in a stressed economic environment. For one, the brands are expected to continue generating sufficient cash flows from business operations, as long adequate servicing remains in place. The brands are also expected to generate substantial and reliable cash flow to the notes.
Further, S&P considers a significant portion of the brands' sales to be non-discretionary, making the underlying revenue stream more resilient to any potential recessionary or pandemic shocks.
Individual franchisee businesses generally operate independently of the managers, S&P noted. This is another plus, because asset performance will not be fully correlated with manager performance.
"We expect the franchised system would continue generating cash flow if a manager files for bankruptcy," the rating agency said.
As for notable structural highlights and credit enhancement, Driven Brands benefits from several features. For one, if system-wide sales dip below $640 million, or the debt service coverage ratio (DSCR) is 1.20x, the conditions will trigger a rapid amortization.
The trust also has a cash flow trapping DSCR trigger of 1.75x, according to S&P.
