European Wax Center is sponsoring a $440 million whole business securitization deal, the company’s first such deal. The transaction, EWC Master Issuer 2022-1, will use the proceeds to repay all borrowings under the company’s existing credit facility, for general corporate purposes, and fund certain transaction accounts, among other purposes.
The EWC estimates that the hair-waxing market generates about $18 billion, domestically annually. Across EWC’s 853 locations, the company generated about $797 million in system-wide sales for the twelve-month period ending December 25, 2021, according to a pre-sale report from Kroll Bond Rating Agency.
Guggenheim Securities is the sole structuring advisor and joint book-running manager on the deal, which will be secured by existing and future franchise and area development agreements, supply contracts, profits from wholesale and retail product sales, royalties and other franchise fees, and intellectual property, KBRA said.
Notes will be issued from just two classes of notes, both of which could get a ‘BBB’ rating from KBRA.
In terms of credit enhancement to the notes, EWC Master Issuer 2022-1 benefits from cash trapping triggers and rapid amortization events, the rating agency said.
If any quarterly payment date comes around and the debt service coverage ratio (DSCR) is less than 1.75x, but equal to or greater than 1.5x, then 50% of all excess cash flows will be deposited into the cash trap reserve account. If the DSCR is less than 1.5x, then 100% of all excess cash flows will be deposited into the reserve account.
The notes will be subject to a rapid amortization if certain triggers or events are breached, including if, on any quarterly payment date, the DSCR is less than 1.2x, the rating agency said.
The company’s retail system includes royalties from 848 domestic franchise locations, and 239 franchisees, with the average franchisee owning about four locations, the rating agency said. Operating in 44 states, European Wax Center is also geographically diverse. About 17% of its wax centers are located in California, while 11% are in Texas, and the top three states account for 37% of all locations.
