Investors may get four more chances to buy whole business securitized paper before year-end with at least one debut issuer gearing up to hit the 144A market, according to a bank active in the sector.
Those predictions came as Church’s Texas Chicken asked the market for $325m across two whole business securitization (WBS) notes with an anticipated repayment date of May 2031.
In late January, Church's priced a $90m deal at 220bp over the I-curve.
Meanwhile, in the past two months, what market participants called “diamond-tier” WBS issuers Dominos, Taco Bell and Dunkin' have collectively issued $2.9bn of bonds.
This week, Dunkin’ priced a $900m trade that was four times subscribed, and for which the spread was tightened 20bp from the tight end of initial price thoughts (IPTs) on the 4.9-year notes to land at 120bp over.
Between 25 and 35 investors bought into each of the two tranches of the Dunkin’ deal.
Barclays and Morgan Stanley structured the WBS. The book was run by those two banks and Bank of America, UBS, Goldman Sachs, JP Morgan, Wells Fargo, KeyBanc, MUFG, Rabobank and Truist.
The Dunkin' deal, dubbed DNKN 2025-1, was backed by royalty payments, rental income and produce sourcing agreements connected to the coffee and donut chain, and ice creamery and cake maker Baskin-Robins.
The Dunkin’ deal was priced at a lower yield on both notes compared to the Domino’s WBS deal, priced in August.
That was despite the spread being about 5bp wider on the Dunkin deal than the Domino’s, and the Domino’s deal being eight times oversubscribed.
A syndicate lead familiar with the Domino's, Taco Bell and Dunkin’ deals said a group of about 50-60 investors were buyers across all three deals.
Corporate credit and WBS convergence
Given most WBS credit ratings are capped at triple-B, the head of esoteric ABS at a bank that leads them said the Dunkin’ trade offered a 30bp-40bp spread pick-up over the corporate bond index for paper with the same rating.
“That's the narrowest basis we've seen in a while," he said, "especially if you look at option-adjusted spread which would take into account the call provisions of the Dunkin’ deal.
“I think it's probably worth anywhere from 10bp-20bp, so if you look at the option adjusted spread on Dunkin’, those spreads could be more like very low 100s, and that's just not a huge differential relative to corporates.”
WBS have performed well through economic cycles. “The first of these deals were done pre-financial crisis," said the same banker. "These deals came through Covid well. It is also the one asset class where, in the base case, your collateral value is expected to grow."
An investor told GlobalCapital, however, that they were uncomfortable investing in WBS because the performance of the corporate entity was so closely tied to the performance of the securitization.
Responding to that point, the head of esoteric ABS banker said credit enhancement on the deals provided risk mitigation.
Dunkin’ details
Investors told GlobalCapital that Dunkin’ Brands had enjoyed 19 consecutive quarters of same store sales growth leading up to this week's deal.
Since its last securitization in 2021, Dunkin' has added about 1,600 stores while annualized securitized net cashflow has risen from $600m to about $850m, according to investors familar with the deal, while the number of has grown to about 22,230.
Following the close of the 2025 deal, expected on November 6, Dunkin' will have about $4.5bn of outstanding securitized debt across deals issued in 2017, 2019 and 2021 and 2025.