Another whole business securitization is on the way, as Jack in the Box Funding, 2022-1, prepares to issue about $1.2 billion in asset-backed securities. Existing and future franchise and license agreements, the royalties and profits from existing and future restaurants, and intellectual property, among other assets, will collateralize the transaction.
Guggenheim Securities and BofA Securities are joint structuring advisors and joint active bookrunners on the deal, which will issue notes through three classes of senior secured notes, according to a presale report from Kroll Bond Rating Agency.
KBRA expects to assign ‘BBB’ ratings to the notes. In the case of the $150 million A-1 notes, the notes should repay in February 2027, but that class has two one-year extension options. The rating agency also expects to affirm the ratings on the Master Issuer’s outstanding Series 2019-01, class A-2-II and Class A-2-III.
KBRA notes that the transaction benefits from credit enhancements such as cash trapping triggers and rapid amortization conditions. The notes will pay on a quarterly basis. If the principal and interest debt service coverage ratio (DSCR) is less than 1.75x on any quarterly payment date, then 50% of all excess cash flows will be deposited into the cash trap reserve account, KBRA said. If the DSCR is less than 1.50x, then 100% of all excess cash flows will be deposited into the reserve account.
If the DSCR drops to less than 1.20x on any quarterly payment date, then the notes will be subject to a Rapid Amortization Event.
The rating agency noted that the 2022-1 transaction has several key changes from the 2019-1 series. The transaction-adjusted securitized net cash flow has increased to about $329 million for the last-twelve-month (LTM) period that ended Q3 2021, compared with $262 million for the LTM ending on April 14, 2019. The transaction’s leverage is also higher, at about 6.0x, compared with the 5.5x level in the series 2019-1 issuance.
Jack in the Box has been active in corporate operations, as well. The number of contributed locations has decreased to 2,218 as of October 3, 2021, compared with 2,240 on June 28, 2019, KBRA said. Further, system-wide sales were $4.2 billion in the last twelve months, up from $3.5 billion for the LTM ending on April 14, 2019. Those figures could potentially expand further; in December 2021 the company announced its intentions to acquire Del Taco for $575 million.
