Roark to Borrow $5 Billion in Obscure Debt Market for Subway Deal

Private equity firm Roark Capital Group expects to borrow nearly $5 billion in a little-known debt market to help permanently fund its investment in US sandwich chain Subway, after lining up temporary funding from banks.

(Bloomberg) — Private equity firm Roark Capital Group expects to borrow nearly $5 billion in a little-known debt market to help permanently fund its investment in US sandwich chain Subway, after lining up temporary funding from banks.

A group of seven banks committed to provide $4.9 billion of temporary financing that is expected to be converted into one of the largest whole-business securitization deals ever, according to people with knowledge of the matter, asking not to be identified as they’re not authorized to speak publicly. Whole-business securitizations require companies to essentially mortgage all of their cash-generating assets — such as royalties, franchise fees and intellectual property — to obtain capital.

This type of asset-based financing has become increasingly popular among fast-service restaurant franchises, as they help companies light on hard assets but with strong revenue streams borrow more cheaply than in the loan and bond markets. Arby’s Restaurant Group Inc., Wendy’s Co. and Dunkin’ Brands Group Inc. have all tapped this market over the last few years.

The whole-business securitization for Subway could be the biggest deal of its kind. The largest single whole-business securitization to date has been a roughly $2.6 billion issuance from Dunkin’ Brands in 2015, according to Barclays Research. Pizza chain Domino’s meanwhile has the most outstanding debt from whole-business securitizations, totaling around $5 billion that is spread across multiple deals, according to Barclays.

The seven banks that have committed financing for the Subway acquisition are Morgan Stanley, Barclays Plc, JPMorgan Chase & Co., Mizuho Financial Group Inc., MUFG, Rabobank and Wells Fargo & Co., as reported by Bloomberg.

Representatives for Subway declined to comment, while those for Roark didn’t immediately reply to requests for comment. Representatives for the banks either declined to comment or didn’t immediately respond.

At least some of Subway’s suitors had previously contemplated an up to $3 billion whole-business securitization deal and around $2 billion of corporate debt to finance a potential purchase of the chain, Bloomberg previously reported.

–With assistance from Crystal Tse.

(Updates to add comparisons to other whole-business securitizations in fourth paragraph.)

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