Subway Borrows $3.35 Billion in Biggest Securitization of Its Kind

Subway, the restaurant chain with the most locations in the US, has sold $3.35 billion of asset-backed bonds to help fund its buyout by Roark Capital Group, in what is the largest securitization of its kind on record.

Bloomberg
First Published31 May 2024
Subway Borrows $3.35 Billion in Biggest Securitization of Its Kind
Subway Borrows $3.35 Billion in Biggest Securitization of Its Kind

(Bloomberg) -- Subway, the restaurant chain with the most locations in the US, has sold $3.35 billion of asset-backed bonds to help fund its buyout by Roark Capital Group, in what is the largest securitization of its kind on record.

The sandwich maker priced the largest portion of its whole business securitization — where a company pledges most of its assets as collateral, including franchise fees — at spreads of 150 basis points above the benchmark, according to people with knowledge of the deal. The jumbo transaction is the largest among other multi-billion dollar franchise-backed deals from well-known chains like Dunkin’ Brands Group Inc., Taco Bell and Wendy’s. Dunkin’ was the holder of the previous record WBS deal, at around $2.5 billion in 2015.

Investors placed $19 billion of orders for the $3.35 billion of bonds for sale, signaling demand outstripped supply, said the people, declining to be identified as the details are private. Spreads tightened at least 30 basis points across the capital stack from guidance, another indication of significant investor interest.

Morgan Stanley and Barclays Plc acted as joint structuring advisers, as previously reported. The bond sale was Subway’s debut securitization.

The sale has also sealed Subway’s spot among the top 10 largest ABS transactions seen in the last 10 years, according to data compiled by Bloomberg News. ABS sales are running about 27% faster in 2024 compared to this same point in 2023, boosted by sales of bonds backed by traditional collateral like auto loans, and unusual collateral like franchise deals. 

Whole business securitizations in particular have been a popular source of funds for businesses with a large network of franchised stores. The structure gives investors more control of the business’s assets, in exchange for allowing access to cheaper capital. Seven other such deals have priced this year, including Zaxby’s, a chicken finger restaurant chain, and Nothing Bundt Cakes, a bakery chain. 

Private equity firm Roark won the race to purchase Subway last year for more than $9 billion, of which $5 billion came from major banks. The global brand has expanded dramatically to more than 37,000 restaurants compared with 16 shops in 1974.

Bloomberg is in the process of reaching out to Subway, Roark, Morgan Stanley and Barclays for comment.

More stories like this are available on bloomberg.com

©2024 Bloomberg L.P.

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