Are hamburger franchises a little less attractive as investments than donut franchises?

Wendy’s Company's today priced a $2.275 billion securitization of its franchise fees via WEN Series 2015-1.

The company sold $872 million of class A-2-1, 4.2-year notes at swaps plus 185 basis points, yielding 3.38%.

The $900 million of 6.8-year, class A-2-II notes priced at swaps plus 210 basis points, yielding 4.1%. The longer dated, $500 million of 9.6-year class A-2 II notes priced at swaps plus 225 basis points, yielding 4.52%. Standard & Poor’s rates all of the notes ‘BBB’.

Those yields are slightly higher  than  similar tranches of the previous whole business securitization, by Dunkin Brands, in January. Dunkin's 4-year, class A-2 notes were priced to yield 3.26%. The longer dated, 6.8–year, class A-2 notes yielded 4%. S&P also assigned a 'BBB' to Dunkin's notes.

Wendy’s may be paying slightly more than Dunkin, but its whole business deal is still less expensive that the single-B rated company's corporate debt. It plans to use proceeds from the securitization pay off its existing, $1.3 billion senior credit facility and return a nice helping of cash to shareholders.

Guggenheim Securities is the lead manager; Wells Fargo and Rabo Securities are the co-managers.

Whole business securitization allows weaker borrowers access to cheaper funding than they could get from secured debt. While both types of debt are secured by the same assets — franchise revenue – a securitization is more secure. The notes are issued by a special purpose vehicle that uses proceeds to acquire the assets. The franchise fees are collected by the trust, which pays them directly to bondholders. This type of structure typically earns a much higher credit rating than bonds issued by the company itself, bringing down funding costs.

The Wendy's system includes approximately 6,500 franchise and company-operated restaurants in the United States and 28 countries and U.S. territories worldwide. In an earnings release today the company stated that it plans to reduce its company-operated restaurant ownership to approximately 5% of the total system by the middle of 2016.

Wendy’s will sell a total of approximately 380 restaurants in 2015 (including the previously announced sale of 100 Canadian restaurants) and approximately 260 restaurants in 2016, for a total of approximately 640 restaurants. The issuer expects to sell a total of 100 Canadian restaurants before the end of June 2015. To assist with the sale of its 540 domestic restaurants, the issuer hired The Cypress Group, which managed the first phase of its system optimization initiative.

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