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Taco Bell serving up another $1.45B of whole business ABS

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Yum Brands' Taco Bell Corp. is sponsoring its first whole-business securitization in two years, with plans to offer up to $1.485 billion in notes to refinance existing debt and fund a shareholder dividend.

Taco Bell Funding’s 2018-1 series will include two tranches of five-year and 10-year notes. The Class A-2-1 bonds with an anticipated maturity of November 2023 will have a balance up to $515 million, while the Class A-2-II notes expected to pay off in November 2028 will be set at a maximum of $950 million.

The two tranches of notes will have a minimum notional amount of $1.2 billion at close, with an additional issuance of up to $265 million within three years if certain conditions are met.

The notes are triple-B rated by S&P Global Ratings.

The issuance is the first in two years for the Mexican-food restaurant subsidiary of Yum Brands (NYSE: YUM), which has approximately 6,500 U.S. and international locations with $10 billion in annual sales. The company has 460 franchisee groups that own 91% of Taco Bell’s stores. The top 10 franchisees make up 36%.

The proceeds will pay down the existing $788 million of existing Series 2016-1 Class A-2-1 debt, pay down a revolving credit facility, and potentially fund a dividend to Yum! shareholders.

The $1.4 billion in new debt is expected to raise Yum! Brand’s total debt-to-adjusted EBITDA leverage to 5.3x.

The notes will be paid on domestic franchise and license royalties, company-owned restaurant synthetic royals, certain fees and licensing income, according to S&P. The notes include amortization triggers such as a debt-service coverage ratio of 1.2x or systemwide sales falling below $4.2 billion – events S&P considers unlikely given Taco Bell’s 50-plus-year operating history through multiple economic downturns.

Barclays is the arranger.

The $1.4 billion issuance is the largest whole-business securitization of the year, ahead of a first-time, $1.2 billion fee securitization by Planet Fitness in July and a $1 billion bond offering in May backed by CKE Restaurant Holdings (Hardee’s/Carl’s Jr.) business revenue to refinance debt and fund a private-equity sponsor dividend.

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Whole business securitization