(Bloomberg) — Pizza Hut has begun preliminary discussions with asset-backed security investors ahead of a potential bond sale to finance its $1.5 billion buyout.
The restaurant chain has held talks with some investors and will be meeting with more during the ABS East conference in Miami next week, according to people familiar with the matter, who asked not to be identified because the discussions aren’t public.
The potential offering is expected to be a whole business securitization, where a company essentially borrows against its cash-generating assets, including fee income from franchise agreements. No final decision on the bond has been made, and the plans may change, one of the people said.
Pizza Hut company representatives including Eduardo Luz, interim chief executive officer; Felix Faulhaber, chief financial officer; and Savannah Franklin, chief legal officer, are expected to attend, the people said. Sunny Patel, Managing Director at LongRange Capital, the private equity firm acquiring the restaurant chain, is also expected to attend.
UBS Group AG is coordinating the meetings, the people said. The bank is expected to lead the bond sale, Bloomberg previously reported. UBS declined to comment, as did LongRange.
UBS provided financing for LongRange Capital’s $1.5 billion purchase of Pizza Hut’s operations outside mainland China from Yum! Brands Inc. in September. The transaction was part of a two-part sale agreed in June, with the other portion being Yum China Holdings Inc.’s $1.2 billion purchase of Pizza Hut’s China-based business.
The debt is expected to receive grades from credit-rating companies. Whole-business securitizations are typically done on a so-called best-efforts basis. A special purpose vehicle is set up to protect holders of the debt from any bankruptcy proceedings.
Whole-business securitization has become a financing option for restaurant chains and other franchised businesses seeking lower borrowing costs, often allowing junk-rated companies to borrow with investment-grade credit ratings. Dunkin’ Brands Group Inc., Taco Bell Corp. and Domino’s Pizza Inc have all raised capital through this type of debt within the last 18 months.
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