Roark Capital is using a whole business securitization to refinance its purchase of Driven Brands.
Driven Brands, whose brands include Maaco, Meineke and 1-800-Radiator & A/C, will pledge nearly all of its revenue-generating assets to several bankruptcy remote special purpose vehicles, which will then issue $460 million of notes, according to a presale report published by Kroll Bond Rating Agency.
The transaction will also include franchises that operate under the Merlin, Pro Oil Change, Econo-Lube N’ Tune, Aero Colours, Drive N Style and AutoQual brand names.
Franchises lend themselves to whole business securitizations. Some recent transactions include Wendy’s Company and Dunkin Brands.
Securitizing the entire assets of a portfolio company allows the private equity sponsor to obtain cheaper financing than it could in the leveraged loan or high yield bond market.
Kroll has assigned preliminary investment grade rating of BBB’ to two tranches of notes to be issued by Driven Brands Funding, the parent special purpose vehicle. There’s no easy comparison with the debt being refinanced, as terms of Roark Capital’s acquisition of Driven Brands from another private equity firm, Harvest Partners, in April were not made public. Nor were the terms of Driven Brands’ subsequent purchase of 1-800-RADIATOR in June.
However, Wendy’s and Dunkin both used their whole business deals to refinance single-B rated debt.
The collateral consists of all existing and future franchise agreements in the United States, product sourcing entities, related intellectual property and a license fee from Canadian sub-franchises.
The company has a network of approximately 1,800 locations across all 50 states and 10 Canadian provinces. Nearly 100% of the locations are franchise locations, with the average Maaco and Meineke franchisee tenure being over 16 years. As of the 12 months ended March 28, 2015, Meinieke represented approximately 52% of all locations, while Maaco and 1-800-Radiator represented approximately 26% and 12%, respectively. Approximately 94% of annualized sales are generated from locations within the United States, while about 6% of annualized sales are from Canadian locations.
Midland Loan Services is the servicer; FTI Consulting is the backup servicer. Citibank is the trustee.