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A sophomore whole loan securitization makes it way to the capital markets

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Primrose School Franchising is preparing to raise $145 million from the capital markets through the Primrose Funding, series 2022-1. The whole business securitization is the second transaction from the Primrose Funding platform and is the first deal from the program in almost two years.

The Series 2022-1 will share the same collateral pool as the issuer’s first securitization, the Primrose 2019-1, so in conjunction with the current pool, Kroll Bond Rating Agency will affirm ratings on the issuer’s outstanding Series 2019-1, class A-2.

The current transaction will fund a larger franchise network, as the school count has increased to 469 as of March 31, up from 405. Also, system-wide sales have increased to $1.0 billion, from $800 million.

Funds from the securitization will fund general corporate purposes, at Primrose School Franchising, which is a leading provider of premium early childhood education and childcare in the United States. Some of the proceeds will be used to pay certain transaction fees and expenses.

The class A-1 notes from the Series 2019-1 deal, currently undrawn, will be replaced with the $15 million class A-1 notes from the upcoming transaction.

KBRA expects to assign ‘BBB’ ratings to the A-1 and the $130 million A-2 notes.

Barclays Capital is the sole structuring advisor and book runner, according to KBRA. The issuer will issue notes through the two classes that feature a cash flow sweeping debt service coverage ratio (DSCR) threshold, and the notes benefit from a rapid amortization event.

If on any quarterly payment date, the principal and interest is less than 1.75x, then 50.0% of all excess cash flow will be used to pay down the class A-2 notes fully.

Primrose’s network of schools is 100% franchised, and from a credit perspective, the network is highly diversified. Some 300 Primrose franchise operators are doing business across 33 U.S. states, and the average franchisee owns about 1.5 units. Some 54% of franchised schools have been in operation for more than 10 years, according to KBRA.

Donna Mitchell
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Donna M. Mitchell is a financial journalist based in the New York metro area with expertise covering structured finance, commercial real estate, and wealth management. Her work has appeared … Read full bio


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