Actionable Ideas for Companies and Sponsors
Rapid Expansion of the Whole Business ABS Market
Whole Business ABS is utilized by companies with cashflow generating assets to achieve higher ratings and thus a lower cost of funds versus the high yield and levered loan markets. As of September 28th, Whole Business ABS issuance volume for 2021 YTD totaled $10.9 billion, up +145% from 2020 total volume. Traditionally, Whole Business ABS has been used by large franchisors such as Wendy’s and Dunkin’ Donuts to obtain long-term investment grade-rated financing. These companies still comprise the majority of issuances, and recently issuers have been able to price transactions at all-time lows (e.g., on August 11th, Taco Bell priced a $2.25 billion 7.3-yr transaction at a weighted average cost of funds of 2.31%).
Jefferies has recently worked to expand the Whole Business ABS market to create a structure that is able to provide acquisition financing for sponsors and brand management companies looking to fund the purchase of franchisors. Unlike traditional Whole Business ABS, these acquisition financing structures are unrated and shorter-term. For example, FAT Brands Inc. has utilized this acquisition-finance Whole Business ABS structure to acquire two companies in 2021 – Global Franchise Group and Twin Peaks – which has effectively quadruped the company’s cashflow. Jefferies acted as structuring agent and sole bookrunner on both transactions. This technology has the ability to be broadened to other sectors that exhibit strong recurring cashflows.