Private equity firms vying for Subway are contemplating a type of financing known as a whole-business securitization to help finance a potential acquisition of the sandwich chain, according to people with knowledge of the matter.
(Bloomberg) — Private equity firms vying for Subway are contemplating a type of financing known as a whole-business securitization to help finance a potential acquisition of the sandwich chain, according to people with knowledge of the matter.
The asset-backed financing could provide as much as $3 billion to help pay for the acquisition, while another $2 billion or so could come from traditional bonds and loans, said the people, who asked not to be identified because the discussions are private.
Read More: Subway Auction End In Sight With Roark, Advent Circling
JPMorgan Chase & Co., which is advising Subway on the transaction, has offered to provide $5 billion of one-year bridge financing to interested buyers, in what is known in the industry as staple financing, one of the people said. That would give the company leverage of over six times earnings, the same person said.Â
Discussions are still preliminary and a deal may not materialize, the people said. Buyers are not required to use the staple financing and can come up with their own proposals.Â
Representatives for Subway and JPMorgan declined to comment.
Whole-business securitizations require a company to effectively mortgage all of its assets — such as royalties, fees and intellectual property — to obtain financing. The structure has become popular among high-risk borrowers with large franchises, as it allows them to raise debt more cheaply compared to traditional bonds and loans.
A securitization for Subway will likely be limited to the company’s US operations, given the complexity of structuring such as deal across multiple jurisdictions, one of the people said. Some elements of the financing package were reported earlier by Reuters.
Popular Route
Arby’s Restaurant Group Inc., Wendy’s Co. and Dunkin’ Brands Group Inc. have all tapped this market in recent years. Some of the existing securitizations have come under pressure as companies approach maturity dates in a rising rate environment. Coin-counting kiosks operator Coinstar LLC, for example, received additional financing from its existing creditors as some of its debt reached key repayment dates.
Sales of this type of bond have also slowed down after the 2021 boom, with just two such transactions hitting the market so far this year, compared to 10 at this time in 2022, according to data compiled by Bloomberg.Â
About half-a-dozen parties are vying for Subway as part of an auction that should wrap up by early next month and that could value the sandwich chain at more than $9 billion, Bloomberg previously reported.Â
–With assistance from Carmen Arroyo.
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