Subway has sold $3.35bn (£2.63bn) of asset-backed bonds to help fund its buyout by Roark Capital, described as the largest securitization of its kind on record.
Investors placed $19bn of orders for the $3.35bn of bonds for sale, as demand outstripped supply, according to reports.
Morgan Stanley and Barclays acted as joint structuring advisers. The bond sale was Subway’s debut securitization.
The bond was secured by the royalties Subway earns from its US franchisees as well as its intellectual property.
The feverish demand allowed bankers to increase the size of the debt package and lower the interest payments Subway ultimately agreed to pay for the debt, the FT reports, citing people familiar with the deal.
Subway will use the $3.4bn raised to pay down some of the $5.4bn debt banks extended to finance the takeover by leveraged buyout firm Roark.
The notes were tied to Subway’s US franchise business, and the company is expected to pay off the remainder of the $5.4bn with a future whole-business securitisation tied to its international operations.
The yields on the debt, which included five-, seven- and 10-year notes, were higher than traditional corporate bonds that were similarly rated.
Roark completed $9bn acquisition of Subway earlier this year.
The private equity firm also owns Inspire Brands, the parent company of the Dunkin’, Buffalo Wild Wings and Arby’s chains, and is seen as specialist owner of growing franchised restaurants chains.
Subway was a pioneer of the franchise model, growing from 16 shops in 1974 to more than 36,000 around the world in 2024.
However, that can make it difficult for a company to raise debt in traditional markets, as the usual collateral its creditors would rely on — individual stores and equipment — is owned by franchisees.
Companies such as Subway have instead pledged the franchise fees they earn and even their brand.
Whole-business securitisations give lenders more control if things go wrong, and limit a company’s ability to take on additional debt.
