Nothing Bundt Franchising, LLC, is planning its first asset-backed securities deal, a whole business securitization that will generate about $358.7 million in proceeds for Nothing Bundt Cakes, a franchisor and operator of specialty bakeries that offer gourmet baked goods.
Based in Las Vegas, Nothing Bundt Cakes is the only franchised gourmet cake concept of scale, with 387 bakeries across 41 states as of March 28, 2021. An affiliate of Roark Capital purchased Nothing Bundt Cakes in May 2021, according to Kroll Bond Rating Agency.
The proceeds from the whole company securitization will be used to repay existing debt, fund general corporate purposes, and pay certain fees and expenses related to the transaction, KBRA says.
In exchange, NBC and its affiliates will contribute all domestic and revenue-generating assets to NBC Funding LLC, and its subsidiaries. The deal’s collateral will include existing and future franchise agreements and associated royalties and fees, royalties and profits from company-operated bakeries, distributed profits, plus intellectual property and other fees and income, KBRA says.
Royalties from the company’s network of franchise locations and 15 company-operated bakeries support the transaction. The network is also very fragmented, as far as ownership goes, according to KBRA. About 90% of franchisees own one or more Nothing Bundt Cakes locations, while the largest franchisee represents 1.8% of sales across the system.
While the Nothing Bundt Cakes system is spread across 41 U.S. states as of March 2021, California and Texas account for the states with the largest concentration of stores, with 17% of total bakeries each.
Nothing Bundt Franchising’s capital structure features four classes, most below investment grade. KBRA expects to assign a ‘BBB-’ rating to the $20 million series 2021-1, A-1-VFN Notes; the 2021-1, the $3.7 million A-1-LR Notes; and the $280 million 2021-1, A-2 notes. The $55 million series 2021-1, B notes will receive a ‘BB’ rating, KBRA says.
The company makes one core product, bundt cakes, and is a small operator compared with other sponsors of whole food securitizations in the food sector, says KBRA. What could potentially be a credit drawback, however, is offset by Nothing Bundt Cakes’ extensive menu of specialty bundt cakes, in varying sizes and flavors. Nothing Bundt Cakes also enjoys strong brand recognition, with a team of seasoned senior managers that have a long track record of success.
In a potential credit negative, KBRA pointed to the current labor shortage in the restaurant sector.
“Recently, many service-based industries including the food sector are having difficulty hiring and retaining qualified personnel,” the rating agency noted. “This is creating operational challenges and may increase labor cost and negatively impact bakery profitability.”
