Sunday, 26 May 2019

Driven Brands jump-starts stalled WBS market

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Driven Brands gave a jumpstart to the whole business securitisation market this week by putting an end to a four-month drought.

Whole business securitisations (WBS) have become a popular way for chain store owners to borrower against their franchises at favorable rates.

Driven owns several chains of vehicle repair and service shops, including Maaco, Meineke, Take 5 oil change and 1-800-Radiator & A/C.

This week it raised US$300m by leveraging those brands at the lowest yield yet for its WBS programme.

Talk on its single 6.8-year BBB-/BBB bond was floated initially in the mid-200bp range over interpolated swaps, but narrowed to 230bp-240bp as orders piled up, according to a person with knowledge of the trade.

The class ended up at 215bp and still multiple times subscribed at about a 4.66% yield - the lowest in Driven’s WBS program which began in 2015, off the HONK shelf.

“There hadn’t been a deal and we are in the middle of March,” the person told IFR. “There definitely has been some pent-up appetite for this paper.”

Prior to Driven, the bread and butter of the US WBS sector had been financing major food chains from Domino’s Pizza to Dunkin’ Brands.

The sector now also finances fitness centres and coin machines, with last year seeing US$4.05bn of issuance and US$7.9bn in 2017, according to IFR data.

Driven owns more than 2,600 vehicle repair and service shops in the US and Canada of which about 88% are franchised, according to a KBRA presale.

Sales at the shops increased to US$2.6bn for the fiscal year ended December 2018, up from US$2.4bn a year earlier, according to KBRA.

But there also are risks to the business, including the automotive industry’s embrace of new technologies.

“The shift to more complex electronic technology requires the company and its franchises to continually focus on training programmes and investments in diagnostic equipment,” KBRA wrote in its presale.

Still, the new WBS deal attracted a few newcomers to the HONK programme and gave Driven more room to think about the future, the person said.

“Securitisation funding has performed exceptionally well for them,” the person said. “It gives them the run-way to continue to do acquisitions and to develop the business and grow.”

Up next is Dunkin’ with a US$1.15bn WBS coffee and donut trade that can increase to US$1.7bn. 

Spread tightening in recent weeks has provided a favorable backdrop for ABS issuers, and could pave the way for more new entrants.

“Bankers are looking to expand the universe of first-time issuers,” said KBRA’s Eric Neglia, who focuses on consumer ABS.

“As a rating agency, we are asked to review many of those deals. Some are not ready for securitisation yet” he said.

“However, for those that we are able to rate, there is a significant amount of diligence that goes into the process.”

Barclays was the sole bookrunner on Driven.

Guggenheim Securities is structuring the Dunkin’ deal and is a joint lead bookrunner with Barclays.


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