Pizza Hut is exploring a series of bonds backed by franchise-fee cash flows to help pay for the $1.5 billion acquisition, according to people familiar with the talks who asked not to be named because the plans are not public. A Pizza Hut representative did not promptly respond to a request for comment, and spokespeople for LongRange and UBS said they would not comment.
The financing was supplied by UBS Group AG, which is expected to lead a deal using a whole‑business securitization. Before the bonds hit the market, Pizza Hut's debt is expected to receive rankings from credit-rating companies, the people said. In this structure, deals are commonly marketed on a best efforts basis, and a dedicated special purpose vehicle is established to help shield bondholders if there are bankruptcy proceedings.
This format has been popular with restaurant chains looking to lower borrowing costs. Dunkin' Brands Group Inc. raised $900 million in October using it, and Taco Bell Corp. and Domino's Pizza Inc. have tapped similar funding recently. Still, leverage can bite.
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Chains from Hooters to Red Lobster piled on this kind of debt and later went bankrupt. FAT Brands Inc., which owns Fatburger and Johnny Rockets, entered bankruptcy protection in January after missing interest payments that came due last October on a portion of its $1.2 billion of whole‑business securitizations.
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