Wingstop Restaurants is preparing to return to the securitization market to raise $500 million in a whole business securitization through Wingstop Funding 2024-1 trust.
This marks Wingstop's fourth term securitization, according to Asset Securitization Report's deal database and Kroll Bond Rating Agency. The deal will issue just one tranche of notes, which has a December 2054 final maturity date, and which KBRA rates BBB.
As series 2024-1 comes to market, KBRA affirms ratings on the outstanding notes, the series 2020-1, A2 notes; 2022-1, A1 notes; and 2022-1 A2, according to analysts. Morgan Stanley is sole structuring advisor and joint book-running manager.
Royalties from Wingstop's 2,402 franchise locations and 56 company-operated restaurants will provide collateral to the bonds, KBRA said. This bolsters credit to the notes, the rating agency said, because a large franchisee base typically provides a more stable stream of recurring cash flow.
It appears that some of the deal's geographic distribution shifted from domestic restaurants to international locations. The top three states account for 41.6% of the pool, down from 47.4% in the series 2022-1 deal, according to KBRA. International restaurants account for 13.3% of total locations, up from 11.4% in the 2022-1 deal.
The franchise system of ownership is also less operationally complex than a company-run business, so it can be easily transitioned and serviced should the company's performance deteriorate, KBRA said.
Several aspects of Wingstop's operations have been on the upswing, according to KBRA. The company has 2,458 store locations as of Q3 2024, up from 1,731 locations in the same period in 2021. Storewide sales came to $4.5 billion in the last twelve months ending in Q3 2024, compared with $2.3 billion in LTM Q4 2021.
Another positive credit aspect is the credit enhancement structure. The senior notes have an interest reserve account that covers about three months of class A note interest payments. Wingstop Funding also uses a cash trapping debt service coverage ratio threshold. If on any quarterly payment date the principal and interest DSCR is 1.75x or less, then 50% of all excess cash flows after the twelfth step of the priority of payments will be deposited into the cash trap reserve account. Should the P&I come to less than 1.50x, then 100% of the excess cash flow will be deposited into the cash trap reserve account.
