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Focus Brands taps whole biz ABS to refinance Jamba Juice

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Focus Brands is tapping the securitization market to refinance its $200 million acquisition of Jamba Juice — and possibly fund a dividend to shareholders.

The company plans to issue $300 million of fixed-rate term notes from its existing whole business master trust, which it first used to raise $800 million in April 2017. At that time, the collateral consisted of franchise and development agreements, company-operated location royalties, licensing fees, vendor payments and fees, intellectual property, and related revenues for six brands: Auntie Anne’s, Carvel, Cinnabon, McAlister’s Deli, Moe’s Southwest Grill and Schlotzsky’s.

Focus is now contributing Jamba Juice collateral to the securitization trust and plans to issue $300 million of Class A-2 fixed-rate term notes. Proceeds will be used to repay the outstanding $200 million of Class A-1 variable rate funding notes issued last year, pay transaction fees and expenses, fund certain accounts. They could be used to fund shareholder distributions, according to Kroll Bond Rating Agency.

Kroll expects to assign a BBB to the new notes, which is one notch lower than the BBB+ it assigned to the original notes issued last year. The rating agency has also put the ratings of the existing notes under review and expects to lower them to BBB as well.

In its presale report, Kroll said that the collateral has performed in line with its expectations. However, the issuance of additional debt is expected to modestly increase the overall leverage of the transaction, bringing it to approximately 5.8x, which is more in line with other whole business securitizations it has rated at BBB in the restaurant sector.

So while FOCUS has experienced growth in systemwide sales in all existing brands, the additional debt and possible integration challenges related to the Jamba Juice acquisition adds to potential operational uncertainty.

Jamba Juice represents approximately 14% of FOCUS’ total combined units, 15% of total combined systemwide sales, and 13% of total combined securitized net cash flow, according to Kroll.

That’s not the only source of growth in the portfolio FOCUS systemwide sales, excluding Jamba Juice, have grown from $2.7 billion in fiscal year 2016 to $2.9 billion as of July 2018, with improvements at all six historical brands, per Kroll.

FOCUS has also expanded its footprint within international territories; as of July 2018, total international locations totaled 1,373 stores versus 1,230 stores in December 2016.

As of July 2018, the FOCUS restaurant system included 6,191 locations with annual systemwide sales of approximately $3.4 billion. The transaction relates to royalties from 6,069 franchise locations and 122 company-operated restaurants, representing approximately 98% and 20% of total store locations.

Approximately 77.8% of the locations are in the United States and the remainder are located across 54 countries.

Meanwhile, the notes issued in 2017 have amortized to 99.1% of the original principal balance.

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Whole business securitization
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