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Church's Chicken issued a $245 million asset-backed security Friday. It is the first whole-business securitization based on restaurant / franchise revenues since the credit crisis began, according to AutomatedTrader.
This type of whole business securitization based on revenue from restaurant chains is unusual and was last seen in 2007. Previous issuers include Dunkin Brands Inc., which is owned by the private-equity groups Bain Capital LLC, Carlyle Group LP and Thomas H. Lee Partners; Sonic Corp. (SONC); Domino's Pizza Inc. (DPZ); as well as IHOP Franchising and Applebee's Enterprises LLC, both owned by DineEquity Inc. (DIN)... The performance of whole business securitizations backed by restaurant franchise payments, such as the Church's Chicken bond, has been "stable," note Moody's Investors Service analysts in a note. These haven't suffered during the economic downturn because they experienced "milder customer traffic declines than did the more expensive fine dining and casual dining industry segments," the analysts note.
Although this whole business securitization of franchise systems is appreciated by analysts, Church's may note that these instruments have been known to bring down franchisors. What does the company need to incur $245 million in high-interest debt for?