North America ABS Issue: Roark’s US$3.35bn Subway securitisation
Whole Lotta Dough
Roark Capital set new standards for M&A financing in the asset-backed market with a record US$3.35bn deal to fund its US$9bn acquisition of Subway, the world’s biggest sandwich store chain.
The US private equity firm’s jumbo securitisation, which was backed by revenues from Subway’s domestic franchisees, accounted for a quarter of the US$12bn of total supply served to this part of the structured finance market in 2024.
The blockbuster deal allowed Roark to begin paying down its more expensive US$5.6bn five-year acquisition warehouse line, which was syndicated among 11 banks.
“This was the first ever [five-year] warehouse facility done in an M&A context to securitisation,” said Lauren Miller, head of esoteric securitisation origination at Morgan Stanley, which was lead-left on the deal named Subway Funding LLC 2024-1.
Barclays, JP Morgan, Mizuho, MUFG, Rabobank, Wells Fargo, UBS, RBC and Truist were the other joint managers.
Although the fast-food industry has fared well since the pandemic, Subway’s growth and profitability, especially in the US, have trailed that of its smaller but faster-growing competitors. There were questions about how Roark would improve the global franchiser’s fortunes in an incredibly competitive landscape.
“I think the scalability of the brand, the history of the brand and the price point of the brand really do differentiate Subway from a lot of its competitors on the sandwich side and from being the healthier option within the true fast-food [space],” Miller said.
After an extensive in-person roadshow, enthusiasm built quickly, including interest from outside the traditional asset-backed investor base, pushing early orders to the US$10bn mark. This gave bankers enough confidence to enlarge the deal to US$3.35bn from US$1.5bn.
The final structure comprised three tranches: a US$1.35bn five-year, a US$1bn seven-year and a US$1bn 10-year. S&P and Kroll rated them BBB/BBB.
When the deal priced on May 30, the final order tally came in at more than US$20bn from 100 unique accounts.
Given the blockbuster demand, the final spreads on the three offered classes came in significantly tighter than price guidance. The five-year, seven-year and 10-year tranches priced at Treasuries plus 150bp, 175bp and 200bp, respectively, from guidance of 180bp–195bp, 205bp–220bp and 230bp–245bp.
The deal's resounding success paved the way for Roark to issue a US$400m variable funding note in July to refinance the revolving portion of the acquisition facility. Two months later, it finished paying down the facility with a US$2.335bn WBS deal backed by revenues from Subway’s international franchisees.
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