Fast-Food Spot Arby’s Dabbles in Obscure Part of Bond Market

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Arby’s Restaurant Group Inc. is returning to an obscure corner of the asset-backed securities market at a painful moment for restaurants.

The fast-food chain, known for roast beef sandwiches, is refinancing a previous deal in which it essentially mortgaged almost all its assets by selling bonds known as whole-business securitizations, with investors getting paid by cash flows from franchise and company royalties and rental revenue.

Securities like these, sold by restaurants, were flagged by bond graders early in the pandemic. The asset-backed notes allow higher-risk businesses to borrow with investment-grade ratings on their debt, and some of these companies are performing relatively well in the economic downturn.

“The current favorable market conditions present an opportunity for our company to refinance and extend the terms of existing debt,” a spokesperson for Arby’s operator Inspire Brands Inc. said in an email. Inspire runs other restaurants including Buffalo Wild Wings and Sonic Restaurants, and is owned by private equity firm Roark Capital Group.

Whole-business securitizations issued by restaurant chains were flagged by rating companies early in the pandemic, as the new coronavirus caused Americans to shy away from indoor dining in favor of takeout and delivery. Such securities issued by Roark-owned restaurant operator Focus Brands have been placed on review for potential downgrade by S&P Global Ratings.

Arby’s is returning to the ABS market to refinance whole-business securitization notes it sold in 2015. Those securities are now trading at around 101.4 cents on the dollar. S&P Global rated the prior securities BBB-, the lowest investment-grade rating.

S&P gave the two classes of new bonds a preliminary rating of BBB- as well, citing the brand’s staying power and cash flow projections that indicate the business would be able to cover its debt obligations. The legal status of the assets would also insulate them against any default, according to a report dated Monday.

The ratings firm said its analysis accounted for potential drops in the company’s cash flow in adverse economic conditions. S&P said it’s assuming the pandemic is at or near its peak in some regions, but will remain a threat until there’s a vaccine or treatment widely available, which may not be the case until the second half of next year.

©2020 Bloomberg L.P.

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