Mexican fast-food chain Qdoba Restaurant Corp. raised $305 million to refinance debt by pledging its franchise agreements and other assets, opting for a funding tool that’s dropped in popularity this year.
(Bloomberg) — Mexican fast-food chain Qdoba Restaurant Corp. raised $305 million to refinance debt by pledging its franchise agreements and other assets, opting for a funding tool that’s dropped in popularity this year.
The San Diego-based company, owned by private equity firm Butterfly Equity, on Thursday priced its first whole business securitization. Qdoba offered revenue-generating assets including royalties from more than 500 franchises and sales from almost 200 company-owned stores as collateral for the deal, according to people familiar with the transaction. The company downsized the overall offering from $325 million, the people said.
Qdoba aims to reduce its periodic interest payments by refinancing a term loan that cost more than 12% in interest this year and was set to mature in 2025, the people said. The company took on the loan in 2018 when Apollo Global Management Inc. bought the chain from Jack in the Box Inc. Butterfly acquired the company in 2022.
Qdoba and Barclays Plc, its structuring agent, declined to comment. Butterfly Equity didn’t respond to a request for comment.
Whole business securitizations have declined since 2021, with 2023 marking the lowest deal volume since at least 2016 as issuers navigate uncertainty around interest rates, according to data compiled by Bloomberg.
Other fast-food chains, including Arby’s Restaurant Group Inc., Taco Bell and Wendy’s Co., in recent years have raised hundreds of millions of dollars by securitizing assets. Roark Capital Group plans to borrow nearly $5 billion via a whole business securitization to finance its investment in sandwich chain Subway Restaurants Inc., Bloomberg News reported in August. Roark didn’t immediately respond to a request for comment.
Qdoba plans to use proceeds to refinance existing debt and repay a portion of preferred equity in addition to general corporate uses, according to the people familiar.
“It’s a win-win win for the company because their cost of capital is lower, there’s more debt, they’re actually taking out some preferred equity and putting some cash on the balance sheet,” said Ben Hunsaker, a portfolio manager at Beach Point Capital Management.
Qdoba Chief Executive Officer John Cywinski earlier this year said he believes in an asset-light model, with plans for growth coming from franchising. The company aims to have more than 2,000 stores by 2033, most of them operated by franchisees.
The company had 727 stores in operation by July 9, with 73% of outlets run by franchisees, according to a report by Kroll Bond Rating Agency LLC. The company had refranchised more than 115 restaurants at the end of the third quarter, Kroll said.
Qdoba generated revenues of $476 million during the fiscal year ended Oct. 2, 2022, up from $455 million a year earlier, according to an income statement seen by Bloomberg News.
–With assistance from Carmen Arroyo.
(Updates to show deal is priced after being downsized and adds detail on use of proceeds.)
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