Dunkin’ Brands orders up another $1.45B whole biz ABS

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Dunkin’ Brands, one of the first companies to securitize franchise fees, is returning to the market for the first time in two years with a $1.45 billion transaction via Guggenheim Securities.

DB Master Finance LLC Series 2017-1 will consist of three tranches of notes: a $150 million tranche of variable funding notes and two tranches of long-term notes sized at $650 million apiece with seven- and 10-year expected maturity dates, respectively.

S&P Global Ratings expects to assign a BBB rating to all of the notes.

According to S&P, $733 million of the proceeds will be used to repay existing debt issued in the company’s prior deal in 2015. The remainder will be used for general corporate purposes, which could include funding a dividend to shareholders.

While variable notes have gone undrawn in other whole-business deals, Dunkin’ expects to fully draw the A-1 series, which have a five-year expected maturity.

Dunkin’ will be raising its corporate leverage to 6.2x from 5.0x with the securitization, which will involve the surrender of all cash-generating assets of the franchise to the trust issuer that will take in royalty cash flows and franchisee payments to make debt payments.

Funds will also come from licensing, net rental income and profit distribution arrangements from the 20,242 Dunkin’ Donuts and Baskin-Robbins stores in the 67-year-old chain (none of the locations are corporate-owned).

Franchise expansion remains brisk for both Dunkin’ Donuts (a 5.1% compound annual growth rate since 2006) and Baskin-Robbins (2.8%), and systemwide sales have had 5.7% annual growth in that time. But systemwide same-store sales growth is on a downward trend – and in particular, Baskin-Robbins: S&P reports that same-stores sales have slowed “substantially” from 6.1% in 2015 to 0.7% last year.

Dunkin’ Brands of Canton, Mass., joins five other quick-serve restaurant chains to have completed whole business securitizations in 2017: Domino’s Pizza, Jimmy John’s, TGIFriday’s, Church’s Chicken, and Five Guys Burgers and Fries. Two other franchise-fee securitizations involved “fast casual” food company Focus Brands (parent of Cinnabon, Auntie Ames and other small shopping mall/airport locations) and kiosk vendor Coinstar.

The total issuance of $5.1 billion already tops last year’s total volume of $2.73 billion from two deals (Yum Brand’s Taco Bell and Sonic Corp.). Most issuers in the category have been renewing or refinancing whole-business deals every two years since 2011, although the field has attracted newcomers this year like Five Guys, Jimmy John’s and Coinstar.

Dunkin’ Brands was one of the first fast-food franchisors to tackle the asset-backed market, using it in 2006 as a means to partially fund its private equity takeover by Bain Capital, Carlyle Group and T.H. Lee Partners. Companies like Dunkin’, Taco Bell and Wendy’s have regularly assigned billions of franchisee fee and royalty payments into such deals in the past six years that provides a lower coupon that speculative-grade rated secured debt.

It's previous transaction was a $2.5 billion franchise-royalty deal closed in January 2015.

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