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S&P downgrade watch dropped for TGI Friday whole-biz notes

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Approximately $400 million in securities backed by the fee-franchise revenue of TGI Friday’s is no longer under threat of further downgrades by S&P Global Ratings, after the fast-casual chain showed improving third-quarter sales and revenue figures resulting from its revamped pickup-and-delivery services amid COVID-19.

S&P announced it has removed the downgrade watch on TGIF Funding LLC’s series 2017-1 transaction, which is a whole-business securitization of the TGI Friday’s franchised restaurant chain.

The TGIF Funding 2017-1 series is the company’s only securitization offering to date, originally sized at $425 million.

The outstanding Class A-1 and A-2 notes – currently rated B – have been previously downgraded twice by S&P, and have been on watch since March after the onset of the coronavirus pandemic. Kroll Bond Rating Agency itself has downgraded the securities three times since their March 2017 issuance.

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S&P and Kroll each lowered the ratings this year (from BB+ and BB levels, respectively) as TGIF’s ongoing profitability concerns and declining sales levels were exacerbated by dine-in restaurant closings instituted at local and state levels to stem the spread of COVID-19.

The ratings remained under review as falling systemwide sales i n the second quarter forced the TGIF Funding trust to waive its management fee and temporarily accelerate principal paymentsto ABS noteholders, according to reports from both firms.

Kroll took the bonds off of negative watch in September.

Since August, TGI Friday’s average unit volume “has shown significant improvement,” according to S&P, as most of its stores have reopened dine-in services and the company has increased sales in the pickup and delivery channels.

TGI Friday’s management has also reported stable cash liquidity on the books as of October 2020, and the holding company’s leverage ratio decreased in the second quarter – although that 10.79x ratio remains elevated compared to peer QSR franchisors that also sponsor whole-business securitizations.

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