Servpro was the strongest debut issuer in the growing whole business securitisation market in 2019, with strong investor demand helping lead bank Barclays push boundaries with the structure and pricing.
The Blackstone-owned company was one of several debutantes, in what was a break out year for issuers away from restaurant franchises that have traditionally dominated the format.
The franchise is the leading US brand in repairing residential and commercial properties that have been damaged by water, fire or mould, and was bought by Blackstone in March for around US$1.3bn.
Just six months later, it turned to the whole business market to refinance existing first and second-lien term loans that were syndicated in April to finance the acquisition.
Barclays was sole structuring adviser and lead bookrunner on the US$555m deal, with Goldman Sachs and RBC as joint bookrunners.
“This is a system that is really ripe for whole business securitisation,” said Ben Fernandez, managing director in the securitised products origination group at Barclays. “It’s a non-discretionary type of service, it’s 100% franchised and performance was exemplary through the credit crisis.”
“What this really allowed us to do was to push the envelope on the prior precedent in whole business securitisation.”
On offer was a US$510m A-2 tranche, with a 6.8 year tenor and BBB–/BBB ratings from S&P and Kroll.
After testing the market with guidance of 4%–4.25%, bankers were able to bring pricing to 3.9%, the tightest at the tenor that has ever been achieved by an inaugural issuer.
That represented a cost saving of around 250bp per annum compared with the term loan debt the securitisation was taking out, at a half turn higher leverage, according to Fernandez.
The deal drew over US$3.7bn of demand from around 50 accounts, despite the new debt pushing leverage (total debt to run-rate adjusted Ebitda) at Servpro to 7.5 times – the highest ever seen on a franchise business in whole business ABS.
For several reasons Servpro was seen as an exceptional business that was able to support that kind of structure, which was reflected in the execution.
The services that the company provides are non-discretionary, with around 95% of sales covered by insurance claims.
The increasing frequency of climate events is expected to drive more demand for the large-scale loss services that Servpro provides, but around 90% of the company’s business in the last couple of years has come from everyday events such as burst pipes, basement floods, small fires and smoke damage.
“These are things that happen independent of climate change and from a credit perspective that is compelling,” said Fernandez.
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