A squabble over bragging rights for making the first whole business securitization since the financial crisis speaks volumes about Wall Street's ambitions for this slowly reviving asset class.
The fast-food chain operator Church's Chicken recently priced $220 million of bonds backed by franchise fees and store revenue. The deal was done through Cajun Global, a special-purpose vehicle. Barclays Capital was the sole structuring adviser and bookrunning manager.
The completion of the complex transaction was seen as further evidence that yield-hungry investors are growing more comfortable with more esoteric assets.
However, a presale report issued by Moody's Investors Services declaring the deal, collateralized by essentially all of a company's assets, to be the first since the crisis did not sit well with Goldman Sachs bankers.
In December, Goldman advised NuCO2 on the issuance of notes backed by revenue from the leasing of bulk carbon dioxide systems and the distribution of carbon dioxide to fountain beverage retailers. A person familiar with that deal cited a presale report Moody's had issued at the time as evidence that it, and not the Cajun Global transaction, was the first whole business securitization since the crisis.
To add to the confusion, a third deal, in which Adams Outdoor Advertising raised $355 million through the sale of bonds backed by billboard revenue, also appears to be in contention for the "first post-crisis" designation. Barclays and Morgan Stanley led that deal.
However, people familiar with that transaction said it not a "true" whole business securitization, because of a technical distinction: The management of billboard assets is considered more transferable than the management of a franchise restaurant business, so the Adams Outdoor deal would be an "operating asset" securitization. (A spokesman for Moody's confirmed that it classifies the deal that way.)
When asked to clarify whether the NuCO2 deal or the Cajun Global one deserves the "first" designation, Moody's responded diplomatically. The credit rating agency said that the NuCO2 deal was the first post-crisis whole business deal of any kind, but the Cajun Global one was the first "new issuer" one, as well as the first "quick service restaurant" one.
The bragging rights are important. Lehman Brothers advised on one of the first whole business securitizations ever, the 2005 one for the Quiznos sandwich chain. The bankers who worked on that deal have been with Barclays since it acquired Lehman's U.S. operations in 2008. That team, led by Cory Wishengrad, is helping revive the structure.
Goldman dealmakers also see the potential for more whole business securitizations.
"As the securitization market has improved so dramatically since the financial crisis, it is once again a very efficient form of financing," said Curtis Probst, a managing director in Goldman's structured finance group.
In many cases, Probst said, private-equity firms are looking at whole business securitization as a tool to increase the amount of debt financing or to lower interest costs at some of their portfolio companies. He said certain types of industries and companies lend themselves to this type of financing more than others.
Sponsors of whole business securitizations are benefiting from low interest rates, which have investors looking at more esoteric investments in search of higher returns. The securitizations may not have the same kind of performance history as bonds backed by auto loans, credit cards or other more common assets. Also, since bond insurance is no longer available, the latest deals do not have a triple-A rated class, so the investor base is narrower. But the potential for a higher yield appeals to some investors willing to do their own homework on the deals.
For issuers, whole business securitization may offer higher leverage or lower financing costs than bank loans or high-yield bonds.
Before the financial crisis, private-equity firms used business securitizations to refinance debt they had used to fund their acquisitions. The latest deals suggest that private equity is open to this type of financing again.
Church's Chicken, started in San Antonio in 1952, sold itself to the San Francisco private-equity firm Friedman Fleischer & Lowe in August 2009. (The price was not disclosed.) Proceeds from the securitization of Church's franchise fees and store revenue helped repay the company's outstanding debt.
The senior secured notes, which are rated 'BBB' by S&P and 'Baa2' by Moody's, were priced at par to yield 6%. They have an anticipated repayment date in February 2018 and a legal final maturity date in February 2041. The deal is expected to settle today, and the first payment is scheduled for May 20.
The deal also includes $25 million of senior secured revolving notes, which were provisionally rated Baa2 by Moody's.
NuCO2 is also owned by a private-equity firm Aurora Capital Group of Los Angeles bought it in 2008.