Nothing Bundt Cakes, a popular bakery chain known for its signature cakes, is set to issue a $240 million bond backed by almost all of its assets through the whole-business asset-backed securities (WBS) market. This is the third time the Texas-based franchise has turned to this market, having previously issued $355 million in bonds in 2021. The current sale, being led by Barclays Plc, will be used to repay all of the company’s outstanding 2023-1 Class A debts and potentially fund dividends for shareholders.
The WBS market has gained popularity in recent years as a way for businesses with franchising operations to obtain cheaper financing due to the collateral provided by their franchise royalty streams and other assets. This allows credit investors greater control should the company encounter financial difficulties. While whole-business securitization volumes decreased in 2022, issuers are returning to this market during the current strong ABS market, taking advantage of tight spreads and bringing forward issuance in anticipation of possible market turbulence following the Federal Reserve’s deliberations regarding interest rate reductions and the upcoming US presidential election.
Roark Capital Group, a private equity firm, acquired Nothing Bundt Cakes in May 2021, followed by the company’s initial WBS offering. Since then, the bakery franchise has increased its number of outlets to 582 across the United States and Canada, representing a growth rate of over 50% since the start of 2021, according to a report by Kroll Bond Rating Agency, which is rating the new single-tranche bond deal at BBB-. As of the first quarter of this year, the overall system was reportedly 97% franchised.
In recent years, other foodservice chains, such as Taco Bell and Domino’s, have also utilized the WBS market, while Chicken finger restaurant chain Zaxby’s raised $285 million in the market in a more recent transaction. Banks are currently gauging investor interest in the debt for Subway’s leveraged buyout, which could turn out to be one of the largest WBS deals yet.
Nothing Bundt Cakes declined to comment, while Roark Capital Group did not respond to a request for comment.
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