Restaurant franchisor Jersey Mike’s Franchise Systems Inc. is behind a $500 million corporate securitization of the company’s business, through the trust Jersey Mike’s Funding LLC, Series 2021-1.
Guggenheim Securities, Inc., is the arranger on the deal, which is expected to close on December 9. The issuance volume will be split between two classes of notes to be issued through the trust. Both are expected to receive ‘BBB’ ratings from S&P Global Ratings.
The notes will pay quarterly, and have a legal maturity date of February 15, 2052, S&P said.
The company will use the proceeds from the transaction to meet dividend payments and general corporate purposes. After the issuance, the master issuer’s total debt outstanding will be $1 billion, said S&P. The issuance will also give the company a 5.4x leverage on a total debt-to-adjusted EBITDA basis.
Other characteristics of the deal include projected cash flows that have a base case debt service coverage ratio of 2.0x, and 1.5x in a downside scenario.
Jersey Mike’s network of quick serve restaurants is almost entirely franchised. In S&P’s opinion, this results in a less volatile cash flow stream compared with businesses that have a lower proportion of franchised restaurants.
Jersey Mike’s Franchise Systems, Inc., headquartered in Manasquan, N.J., is the manager on the deal. S&P noted that the company has a long operating history with strong historical performance metrics, with 16 consecutive years of positive same-store sales growth.
S&P also made note of several operational strengths that could support cash flow to the notes. Across the company’s wide and diverse system of about franchised 2,025 restaurants, Jersey Mike’s has seen sales increase at a 20% cumulative average growth rate since 2006, the rating agency said.
The franchisee base is diverse, as its 536 U.S. franchisees operate an average of about four restaurants each. The largest franchisee operates just 3% total branded restaurants.
Also, FTI Consulting, Inc., is listed as the backup manager in the event Jersey Mike’s Franchise Systems is terminated.
PNC Bank’s Midland Loan Services will service the notes.
