In Massage Envy' third securitization since the master trust was established in 2019, the platform will issue three note classes, selling $340.7 million to investors through the ME Funding, series 2026-1.
All the notes, tranches A1LR, A1 VFN, and A2, have a final maturity date of April 2056, and are expected to be rated BBB- from Kroll Bond Rating Agency.
The transaction's collateral is composed of revenue from existing and future franchise and development agreements, regional development agreements, vendor contracts, related franchisee payment and securitization intellectual property.
Cash flows are mainly top-line royalty payments from franchise locations. Those revenues are typically less volatile than profits from company-operated locations, according to KBRA.
The collateral pool includes 997 clinics operating across 49 U.S. states and the District of Columbia as of Sept. 30, 2025, KBRA said. California has the largest concentration by state, representing 12.8% of the locations in the securitized pool. Florida and Texas follow, making up the top three, with 11.1% and 10.1%, respectively.
Massage Envy Franchising is the transaction's manager, while Barclays Capital is the sole structuring advisor and the book runner, according to KBRA.
The deal structure includes a cash sweeping provision based on a leverage threshold. If the senior leverage ratio is between 4.00x and 4.50x, then the transaction will pay down all outstanding class A2 note principal with 40% of all excess cash flows, the rating agency said.
Another cash sweep trigger is based on a liquidity reserve debt service coverage ratio (DSCR) threshold. If the principal and interest DSCR is less than 1.85x, then the required reserve amount or 25% of available cash flows, whichever is less, will be deposited into the liquidity reserve account, KBRA said.
ME Funding's structure also includes two amoritization features. If the principal and interest DSCR is less than 1.80x, the notes will be subject to a rapid amortization event. In that case, all cash collections will be used to pay down senior expenses.
Also, the series 2026-1 notes have scheduled amortization of 5% per annum, which could drop to 3% of the senior leverage ratio is less than 3.50x, the rating agency said.
