Yum! Brands is tapping the securitization market to refinance a $2.0 billion bridge loan it obtained in connection with plans to split off its China business and modernize its three main brands.

The new offering is backed by franchise royalty and license payments, and intellectual property associated with Taco Bell.

The securitization trust, Taco Bell Funding Series 2016-1, will issue four tranches of notes with preliminary ‘BBB’ ratings from Standard & Poor’s. The class A-1 variable-funding notes are not expected to be drawn at closing.

Barclays Capital, Goldman Sachs, and Guggenheim Securities are the joint lead managers and joint active bookrunners.

Whole business securitization allows companies to raise capital more cheaply than they could on their own by essentially selling all of its cash flows, or in this case the cash flows from one business, while retaining operation control. The triple-B rating on this deal compares favorably with Yum! Brands, which is rated double-B.

The Taco Bell brand is the world's largest quick service Mexican restaurant chain, with over 6,000 restaurants in the U.S. and close to 300 locations internationally as of December 2015. It is performing better than Yum! Brands’ two other brands, KFC and Pizza Hut. System-wide sales in 2015 were $8.8 billion. However, S&P noted in its presale report that any “material stress” by either of the other two brands could negatively affect the back-office services shared by the three brands.

Among the other weaknesses of the deal, according to S&P, is the geographic concentration of Taco Bell stores, which is “somewhat high,” with the largest three states accounting for more than 25% of the total store count.

Also, a “measurable portion” of the overall store count is company-operated, as opposed to being operated by franchisees, which may place more reliance on TBC's performance.

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