DineEquity (DIN) is cooking up a whole business securitization that collateralizes a variety of assets originated by its two brands, the restaurants Applebee's and International House of Pankakes (IHOP), according to a pre-sale from Standard & Poor’s.
The deal totals $1.4 billion
Applebee’s Funding LLC/IHOP Funding LLC (Series 2014-1) is split between A-1 notes totaling $100 million and A-2 notes that add up to a notional $1.3 billion. S&P has preliminarily rated both tranches BBB (sf).'
Guggenheim Securities is the sole structuring agent and bookrunner on the transaction, which is expected to close in September. The deal’s legal maturity is 30 years.
Typical for a whole business deal, the collateral is a mix of assets linked to the originators. These include “franchise agreements and related franchisee payments, securitization [of] intellectual property, producing-sourcing agreements, franchisee lease payments, franchisee notes and equipment leases, and certain fee-owned properties.”
The deal’s rating hinges on the strength of the restaurant brands and DIN's financial health.
Projected cash flows are also key. S&P said those flows tend to be fairly stable given the “highly franchised nature” of DIN’s business.
On the other hand, the barriers to entry to that business are relatively low, giving rise to the risk that new competitors will siphon customers from Applebee’s and IHOP. In the pre-sale, S&P pointed out that, in general, the restaurant industry is fiercely competitive. If any meaningful growth is in the cards for the more established chains such as Applebee’s and IHOP it will likely come from abroad, the agency said. The deal carries some geographic concentration risk as well, with 10% of all restaurants located in California.
Combined sales for the two chains hit $7.3 billion in 2013, having grown from $6.9 billion in 2010.
As of December 2013, DIN owned, operated or franchised over 3,600 restaurants in all 50 states within the U.S., Washington D.C., overseas U.S. territories, and 16 foreign countries.