Sandwich Chain Jersey Mike’s to Raise $400 Million in Asset Backed Securities

Jersey Mike's is preparing to issue $400 million in whole business securitization bonds, backed by franchise fees and US trademarks, with an anticipated BBB rating from S&P Global Ratings and Kroll Bond Rating Agency. This debt offering is intended to potentially facilitate a payout to Blackstone Inc., which acquired a majority stake in the sandwich chain earlier this year, illustrating a common strategy for private equity-backed companies to leverage securitized assets for capital distribution.

Analysis

Jersey Mike's intends to issue $400 million in asset-backed securities, specifically through a whole business securitization structure collateralized by its franchise fees and U.S. trademarks. The proceeds from this debt offering are slated to potentially fund a payout to Blackstone Inc., which acquired a majority stake in the company earlier this year. This transaction is a classic private equity maneuver to extract capital from a portfolio company shortly after an acquisition, leveraging stable, predictable revenue streams. The securities are expected to receive a BBB rating from S&P Global Ratings and Kroll Bond Rating Agency, placing them at the lower end of the investment-grade spectrum. This rating suggests that while the bonds are considered to have adequate capacity to meet financial commitments, they face a moderate credit risk. The neutral overall sentiment reflects the routine nature of such a financial engineering transaction, while the slightly positive sentiment for Blackstone (BX) appropriately captures the benefit of an accelerated return on its recent investment.

Key Decisions for Investors

• For investors in Blackstone (BX), this is a positive development as it demonstrates an efficient strategy to monetize its investment in Jersey Mike's, potentially accelerating cash returns to the fund and its shareholders.
• Potential buyers of the new Jersey Mike's bonds should weigh the stability of the franchise-fee collateral against the BBB credit rating and the use of proceeds for a shareholder payout rather than internal reinvestment.
• Credit market participants should monitor the pricing and demand for this deal as it serves as a barometer for investor appetite in the whole business securitization space, particularly for assets owned by private equity sponsors.