Neighborly is preparing to raise $408 million from the asset-backed securities market, a whole business securitization from a franchisor of do-it-for-me household service providers in the U.S.
The Neighborly Issuer, Series 2023-1, is the program's third securitization from its master trust, which has about $1.3 billion outstanding, according to a pre-sale report from Kroll Bond Rating Agency. Neighborly operates 31 brands that offer services including repairs, maintenance and enhancing consumers' homes. The company offers services in more than 3,700 active territories across 50 states, the District of Columbia and five countries outside of the U.S.
Global top-line revenues will go into the securitized collections, and franchise royalties will comprise the majority of those, at 59%. Other lines of revenue include license income and other revenues, at 16%; profits form company-owned business, at 15% and product margins, at 11%, KBRA said. Collateral for the deal includes existing and future domestic franchise agreements, and development agreements, international and domestic license agreements, royalties on company-operated locations, third-party vendor rebates, other franchise fees and intellectual property.
Barclays Capital, Mizuho Securities and KKR Capital markets are joint book runners on the deal, according to KBRA, which will issue the notes through three classes of notes.
The notes benefit from three main features of credit enhancement, including a cash-trapping debt-service coverage ratio (DSCR) threshold, according to KBRA. If Neighborly's principal and interest payment is less than 1.75x but greater than 1.50x on any quarterly payment date, then the deal will deposit 50% of all excess cash flows into a cash trap reserve account. Should the DSCR be less than 1.50x, then the deal will deposit all of the excess cash flow into the reserve account.
Other forms of credit enhancement include a liquidity reserve DSCR threshold, and a provision that requires a rapid amortization event should the DSCR is less than 1.20x.
KBRA plans to assign 'BBB-' ratings on all three classes of notes, and have a final maturity date of January 2053.
