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Sonic hops back into whole biz in $170M master trust issuance

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Sonic Corp. (Nasdaq: SONC) is marketing $170 million in bonds backed by royalties and franchise fees that will be issued through its whole-business securitization master trust.

Sonic Capital LLC Series 2018-1 consists of a single-tranche of Class A-2 notes that will be used primarily to repay the outstanding $98 million balance on variable-funding notes issued through the drive-in chain’s 2016 whole-biz deal.

Proceeds will also be used for general corporate proceeds and a dividend to shareholders, according to a presale report issued by S&P Global Ratings.

S&P has assigned a preliminary BBB rating to the seven-year notes (due February 2025), similar to the rating the Oklahoma-based company received from S&P two years ago. The notes will be among four outstanding series on the platform, which has had four issuances since debuting in 2011.

Investors will receive the cash flow primarily from royalty-related revenues from the chain’s large percentage of franchised-owned stores as well as rental income from franchisee’s leasing real estate from the company. (The small percentage of company-owned stores also contribute through master-lease buyback income, according to S&P.)

Franchisees' agreements require store owners to pay Sonic an initial franchise fee and royalty fee on a graduated percentage of revenues – a percentage rate that increases as sales and revenues increase.

The notes are ultimately backed by a security interest in all the assets assigned to the Sonic master trust.

Sonic Capital LLC Series 2018-1 is the second restaurant whole-biz securitization on the year. The trust for Wendy’s hamburger chain has issued more than $1 billion of fees, in a deal initially launched in late 2017 and closed this month.

S&P issued final ratings to Wendy's Funding LLC Series 2018-1 on Wednesday.

The 65-year-old Sonic Corp., based in Oklahoma City, operates the country’s largest chain of drive-in restaurants with 3,588 stores in 45 states. Sonic features a 1950s-style décor, with an all-day menu of breakfast foods, hamburgers, foot-long hot dogs and milkshakes delivered to parked cars by roller-skating carhops.

The company has continued annual growth of 3.1% a year since 2012, mostly through its continued expansion of franchise-owned stores. The company was 94% franchised-owned at year-end 2017, compared with 89% in 2015. The company has a high franchisee concentration, with 10 groups accounting for over 30% of total franchise store count.

The new notes issuance will boost Sonic’s leverage to 5.6x debt-to-Ebitda (up from 4.9x), which is slightly lower than other quick-serve competitors that utilize franchise-fee securitizations.

Guggenheim is the sole structuring advisor and joint lead active bookrunner.

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Whole business securitization Esoteric ABS