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TGI Fridays avoids 2nd downgrade of its whole biz ABS

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Kroll Bond Rating Agency isn't going to downgrade TGI Fridays' whole-business securitization after all.

On Monday, the rating agency concluded its review by affirming the BBB ratings of both the Class A-1 notes and Class A-2 notes issued by TGIF Funding 2017-1 series, which was the international chain’s first issue from the new master trust.

The action came a month after S&P Global Ratings downgraded the same $425 million deal. (The notes have a current balance of $411.9 million, due to some amortization, according to Kroll.)

In affirming its ratings, Kroll cited recent “slight” improvements in TGI Fridays' same-store sales growth after two years of declining numbers for both domestic and international franchise-owned stores. And while the company’s debt-service coverage ratio has fallen from 2.2x when the deal launched, that ratio “has recently stabilized over recent quarters” at 2.0x, Kroll stated in its report.

The struggles of TGI Fridays are similar to those other chains in the competitive casual dining space, Kroll’s report stated, but “TGIF continues to respond to the industry pressure with thoughtful initiatives and [Kroll] expects the system’s performance will gradually improve along with modest geographic expansion over the next few quarters.”

S&P cited the same factors, DSCR and same-store sales, when it announced a one-notch downgrade of the deal, to BB+ from BBB, on Feb. 8.

TGI Fridays is the only downgrade S&P has issued within the whole-biz sector since the financial crisis; the rating agency put another deal, Arby's Funding LLC, under review but ultimately affirmed its credit ratings.

Same-store sales at TGI Fridays fell for nine straight quarters; the only growth was at company-owned stores in the fourth quarter of 2018; sales at franchises consistently fell. The chain also had one of the lowest debt coverage ratios among S&P-rated whole-biz deals, and was also comparably weaker through having a small number of stores (approximately 870 worldwide) plus a higher-than-average concentration (47.6% in March 2017) of store locations outside the U.S., S&P stated.

The TGIF Funding securitization involves existing and future franchise agreements, supported by revenues, royalties, franchise and licensing fees, and all existing and future intellectual property rights for TGI Fridays Inc.

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Whole business securitization
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