Financing

Subway's debt sale is apparently breaking a record

The whole business securitization Roark Capital is using to finance its acquisition of the sandwich giant is reportedly the largest on record.
Subway
Subway's debt sale is apparently popular, according to Bloomberg. | Photo: Shutterstock.

Subway may have lost its status as the world’s largest restaurant chain by unit count, but it has reportedly earned itself another record, albeit a far more obscure one.

The company is selling $3.35 billion in asset-backed bonds to fund Roark Capital’s acquisition of the chain. According to Bloomberg, once the sale is complete, that will make it the largest whole business securitization on record.

Whole business securitizations (WBS) are complex forms of debt, in which companies pledge their assets, including their revenue streams, as collateral. They’re popular among franchise restaurants, whose primary asset is the royalties they earn from their franchisees.

Doing so allows them to borrow at cheaper rates than they would otherwise and helps fuel mergers and acquisitions in the restaurant space.

The form was popularized by companies such as Domino’s and Dunkin’. Fat Brands used securitizations to fuel nearly $1 billion in acquisitions in late 2020 and 2021. The Wall Street Journal wrote a good explanation for this back in 2016.

By using securitization, Subway is able to borrow at lower rates than it would otherwise, a key consideration given rising interest rates and likely concern from lenders about the overall state of the brand.

While interest from potential buyers was not as strong as the company might have liked, there is plenty of potential interest in the bonds Subway is selling. According to Bloomberg, the bond offering is already oversubscribed.

That could ultimately be good news for the market for restaurant mergers and acquisitions, in particular, if buyers and sellers realize the instrument could be used to fund large-scale deals, according to the law firm White & Case.

It helped push the Subway sale across the finish line. Subway was put on the market early last year. But its price tag and the chain’s shrinking base of U.S. locations left it lacking the number of buyers to fuel a robust valuation.

The debt markets also left some buyers unable or unwilling to pay the price Subway’s owners wanted. The securitization apparently helped bridge some of that gap.

Subway was ultimately sold last year to Atlanta-based Roark for a reported price of $9.6 billion, one of the biggest industry deals of all time. That sale was finalized earlier this year.

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