Wingstop Restaurants is tapping the capital markets for $450 million in a whole business securitization called Wingstop Funding 2022-1. The transaction partially refinances $50 million from the 2020-1 deal, class A-1.
Morgan Stanley & Co. is the deal’s sole structuring advisor and sole book-running manager, according to a pre-sale report from Kroll Bond Rating Agency.
Wingstop had 1,731 locations as of Q4 2021, with system–wide sales of about $2.3 billion for the last twelve months (LTM) ending in Q4 2021. That compares with 1,436 locations as of June 27, 2020, with system–wide sales of $1.7 billion for the LTM ended on June 27, 2020.
Otherwise, the securitized net cash flow (SNCF) on the transaction increased to about $115.5 million for LTM Q4 2021, compared with $89.6 million for the LTM ending on September 26, 2020.
Royalties from 1,695 franchise locations, as of Q4 2021, contribute the cash flow in the collateral, and franchise 98% of the collateral in the trust, according to KBRA’s description of the deal.
The notes will be issued through two classes, and KBRA expects to assign ratings of ‘BBB’ to both. The rating agency expects the $200 million class A-1 notes to repay in March 2027. The $250 million class A-2 notes are expected to mature in March 2029.
Notes from Wingstop Funding 2022-1 will benefit from a couple of important credit enhancements. The transaction has a cash-trapping debt service coverage ration (DSCR) threshold. If the principal and interest is less than 1.75x on any quarterly payment date, then 50% of all the deal’s excess cash flows will be deposited into the cash trapping reserve account. If the DSCR is less than 1.50%, then all of the cash flows will be deposited into the cash trap reserve account.
Wingstop Funding 2022-1 also has a rapid amortization provision. If, on any quarterly payment date, the principal and interest payments are less than 1.20x, the notes will be subject to rapid amortization of the notes.
KBRA noted that, as part of the restaurant sector, Wingstop is potentially sensitive to labor shortages currently moving through service-based industries.
In terms of geographic diversity, Wingstop operates in 44 states and six foreign countries as of Q4 2021. Domestically, Texas and California account for 23% and 19% of the collateral pool’s restaurants, KBRA said.
