North America Structured Finance Issue: Driven Brand's US$410m whole-business securitisation
Driven breaks WBS mould
In the heart of the financial crisis, Americans prioritised auto loan payments over paying their mortgages with the thinking that keeping a car around at least meant the ability to hold down a job.
Driven Brands, one of North America’s top franchise companies for auto servicing and parts distribution, seized on America’s enduring love for their automobiles by selling the first ABS issue created from a portfolio of vehicle repair chain stores.
Its US$410m whole-business securitisation, called HONK 2015-1, is IFR’s North America Structured Finance Issue of the Year because it threw open the doors to lower-cost, repeatable funding that previously was reserved only for the nation’s biggest fast-food restaurants.
Driven owns a portfolio of companies that cater to keeping older cars on the road for longer, which includes well-known brands like Maaco, Meineke and 1-800-Radiator.
The trade also set a second milestone by being the first ABS to serve as take-out financing for an acquisition loan since the credit markets collapsed in 2008.
“Obviously, we looked at various types of financing,” said Jonathan Fitzpatrick, CEO of Driven Brands.
“But when we looked at the [WBS] market, which had more attractive rates, [and a] deeper market, that was important to us.”
Roark Capital received a US$430m bridge loan facility from Barclays to acquire Driven in April, as well as a “hell or high water” promise that its take-out ABS financing would be structured and distributed through a WBS.
Barclays, which had an exclusive mandate to structure and sell the deal, successfully navigated the maiden transaction through a volatile market in July at attractive levels.
The single-tranche of 6.8-year BBB–/BBB rated notes was priced at a 5.25% yield, or roughly a 250bp saving per annum versus traditional term-loan financing.
“It’s fun when you are winning,” said Ben Fernandez, a managing director at Barclays who worked on Driven. “We expect knock-on deals next year that use the securitisation structure and are whole-business in nature.”
Dunkin’ Brands completed the most high-profile take-out securitisation deal in 2006, but until recently the appetite for bonds backed by whole business franchises had been slow to recover.
As of early November, a total of US$6bn of ABS bonds backed by franchise businesses had cleared the market in 2015, more than four times the prior year’s output, according to Thomson Reuters data.
“People had heard of food franchises and bond deals coming from the automotive industry, but no one had ever done an automotive franchise ABS,” Fitzpatrick said.