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Sonic orders up $850M whole-biz securitization

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Sonic Drive-In, a nationwide chain of restaurants noted for its signature bellhop attendants, is marketing a fifth issuance of notes backed by franchise-fee revenues through its whole-business securitization master trust.

The $875 million Series 2020-1 Issuance from Sonic Capital LLC will raise funds to refinance outstanding notes from its 2013 and 2016 notes series, as well as repay debt with Sonic’s parent company, Mavericks Inc., formerly known as Inspire Brands.

In addition, funds from the note sale will also repay various note classes of similar whole-business backed bonds that were sold by Arby’s Funding, LLC (another Mavericks subsidiary).

The Series 2020-1 offering includes $400 million in A-2-I notes and $450 million in A-2-II notes, as well as a $25 million A-1 variable funding notes, according to presale reports. The final balances of the Class A-2-I and A-2-II notes tranches may change by the time the deal closes, and the deal could be upsized to as much as $925 million, according to S&P Global Ratings.

The notes have preliminary BBB ratings from both Kroll Bond Rating Agency and S&P.

The notes will be collateralized from the fee agreements and revenues generated by 3,583 Sonic restaurants, with annual system-wide sale of about $4.6 billion. For the first time in three years, the company had positive year-over-year same-store sales after conducting refranchising efforts in 2017 and 2018.

The chain has 3,385 franchised locations and 198 company-operated sites in 46 states, according to presale reports. However, over 40% of those stores are concentrated in three states: Texas, Tennessee and Oklahoma. (Sonic, founded in1953, is headquartered in Oklahoma City.)

Barclays Capital is the sole structuring adviser and joint book-running manager alongside Bank of America Merrill Lynch, Credit Suisse, Morgan Stanley and Wells Fargo. KeyBanc Capital Markets and Rabo Securities USA are joint co-managers.

Sonic has utilized whole-business securitization to finance operations since 2013, when it was independently owned. The company was acquired by Inspire Brands, the fourth-largest U.S. restaurant company by systemwide sales, in 2018. Inspire’s portfolio of restaurants includes Arby’s, Buffalo Wild Wings, Jimmy John’s and Rusty Taco. (Arby’s and Jimmy John’s have also sponsored whole-biz deals in recent years.)

Mavericks Inc. itself is majority owned by Roark Capital, which has extensive experience in franchise-fee securitization with its other affiliates such as Primrose, Driven Brands, CKR Restaurants, Massage Envy and Focus Brands.

The Sonic Capital LLC Series 2020-1 deal’s total leverage is approximately 6.6x debt capacity to securitized net cash flow, which Kroll stated is higher than other WBS deals in the restaurant sector – comparable deals by Jack in the Box, Hardee’s/Carl’s Jr. and Wingstop produced debt levels between 5.5x and 5.9x. But Sonic’s deal is “generally in line” with non-restaurant deals conducted by Driven Brand and Planet Fitness, Kroll added.

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Whole business securitization