Quiznos, the Denver-based sandwich chain, is serving the ABS market a $250 million securitization backed by franchise fee revenues, sources said. Lehman Brothers is leading the transaction.

The offering, with a 3.88-year average life, is currently being shown to investors in the private market with a Baa3' rating from Moody's Investors Service. Bankers at Lehman began putting feelers out last year, and had been speaking to the monolines about securing a wrap over the summer, sources said. Evidently, the bankers were confident of being able to find takers for a triple-B rated class.

One potential buyer expressed enthusiasm for the transaction's "fat pricing." However, it is difficult to tell how fully the transaction will be embraced by the market given the esoteric nature of the asset and its triple-B rating.

The pitch ran into some snags early on when some interested parties became concerned over an ongoing shareholder lawsuit, sources reported. "One of our clients decided against getting involved in the transaction because of the legal concerns," said a source at a law firm.

Several sources who had looked at the Quiznos transaction last year had assumed that the deal had been left to wither on the vine, and were unaware that it had been revived. It is unclear whether or not the transaction underwent a significant overhaul in the interim. Phone calls seeking comment from Lehman had not been returned at press time.

While the company's legal woes have seemingly been resolved, Quiznos had been hit with three class-action lawsuits stemming from when the formerly public company went private in December 2001. Shareholders alleged that company management failed to reveal the true value of the company before the buyout, resulting in an artificially deflated share price. More than 733,000 shares of the company were surrendered at $8.50 per share in the initial tender offer. Last January, large shareholders who exercised dissenters' rights were awarded $32.50 per share by a Denver district judge. After a dizzying courtroom saga that pitted shareholder against shareholder, a settlement was reached in April of last year, granting those who surrendered their shares $12.90 per share.

Quiznos operates roughly 3,500 quick-serve Quiznos Sub shops in more than 20 countries. Nearly all of the company's restaurants are owned by franchisees. Franchise owners pay an initial franchise fee of $25,000, according to the company Web site. For second and third units, franchise owners pay lower franchise fees. Ongoing royalty fees, a percentage of each franchise owner's sales, are paid to Quiznos. Quiznos was launched as a single-store operation in Denver in 1981. The company created a buzz last year with its polarizing "spongemonkey" ad campaign.

Copyright 2005 Thomson Media Inc. All Rights Reserved.

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