Dallas-based Wingstop Inc. (NASDAQ:WING) on Thursday announced plans to issue new bonds backed by franchise revenue and royalties to refinance its existing debt and potentially pay a dividend to primarily chain shareholders. regional chicken wings.
The company will sponsor $450 million in bonds through its Wingstop Funding LLC trust, in a global securitization that will offer investors cash flow and royalty income from its more than 1,436 restaurants (all but 30 of which are franchised).
Wingstop Funding LLC 2020-1 will include $50 million in Class A-1 variable senior funding notes and $400 million in Class A-2 fixed rate notes (with an expected redemption date of December 2027) to increase its securitized funding facility to $480 million. , the company said. The ratings have preliminary BBB ratings from the Kroll Bond Rating Agency, in line with recent WBS transactions involving Arby’s Funding LLC and Sonic Capital LLC.
The company’s second securitization transaction will raise approximately $317 million in outstanding senior term notes from the 2018 series issued by Wingstop.
In addition to refinancing debt, Wingstop officials plan to use the proceeds to support the company’s accelerated growth plans, which also include diversifying its footprint in which half of its stores’ revenue comes from just three. States (Texas, California and Florida).
“We remain focused on executing our growth strategies and our vision to become a top 10 global restaurant brand,” CEO Charlie Morrison said in a press release.
In third-quarter revenue reported this week, Wingstop posted 25.4% year-over-year growth in quarterly same-store sales, fueled in large part by the meteoric growth of its online sales channel. (up more than 62% from Q3 2019) as customers shifted to home food delivery and chose pick-up options over fast-food options.
Founded in 1994, Wingstop has long focused on delivering its menu of wings primarily with and without bones – a strategy that has served the company well over the past eight months after the coronavirus outbreak injured many. quick-service restaurant competitors who were more dependent on restaurant customers.
System-wide sales increased 32.8% to $509.2 million for the quarter, and company-owned same-store sales increased 15.2% as the chain added 43 new stores in the previous three months. The company’s annual sales are approximately $1.7 billion, up from $1.2 billion when Wingstop was first securitized.
Securitized net cash with approximately 91% of revenues from domestic franchise royalties. Another 5% came from franchise fees and the rest from revenue from international operations and royalties from company-owned stores.
Unlike some other WBS transactions, Wingstop will include revenue from company-owned stores in securitized net cash flow, which rose to $89.6 million from $57.5 million two years ago. according to Kroll. The company has 282 franchisees, and the average franchisee owns about five units. The average initial seniority of franchisees is around eight years.
The company has added around 200 new stores since 2018. Part of Wingstop’s growth strategy is to lease space in inexpensive Class B and C real estate, typically involving low upfront cash investments. This has fueled the company’s 24% compound annual growth since 2000.
Barclays is the sole structuring adviser and joint bookrunner.
For the new issue, Wingstop Funding will offer investor protections, including cash trapping periods if the trust’s debt service coverage ratio falls below certain levels; as well as a rapid amortization feature if the DSCR of principal and interest falls below 1.2x in a quarterly period.