FAT BRANDS (FAT) ANNOUNCES $144M SECURITIZATION, CUTS INTEREST RATE ON LONG TERM DEBT BY ALMOST 300 BASIS POINTS, and EXPANDS LIQUIDITY!

As our readers know, Fat Brands (FAT) has established itself as a multi-branded restaurant franchising company, with about 700 locations, spread among seven brands, the largest and most rapidly growing being Fatburger and Johnny Rockets. Our previous reports describing Fat Brands can be found by way of the SEARCH function on our Home Page.

Management had previously indicated their expectation that the securitized debt which was in place at yearend would be expanded, with a reduced interest rate, in the first half of ’21. On schedule they announced this morning completion of an offering of $144M of Fixed Rate Asset -Backed Notes, structured through their royalty receiving subsidiary. This new facility has an average fixed interest rate of $5.92% per annum, replacing and expanding $80M of notes that carried an average interest rate of 8.75%, and leaving Fat Brands with $64M of availability for future acquisition.

We have no relationship with the underwriters, but, since some firms are better than others in accessing capital, we point out that Jefferies LLC acted as structuring agent and co-lead bookrunner, along with Cadence Securities LLC.

Separately, CEO, Andy Wiederhorn, updated the current fundamentals at Fat Brands, saying “systemwide sales are recovering rapidly, fueled by the return of in-store dining combined with a continued high volume of direct online ordering and third party delivery. On an aggregate basis, YTY sales of new franchise locations have already exceeded both 2019 and 2020 calendar year sales figures, creating a pipeline of over 200 additional units contracted for development.”

THE CURRENT HIGH YIELD DEBT ENVIRONMENT

From a broader perspective, while the transaction described above clearly indicates that money is very much available, at surprisingly attractive rates if a Company presents itself well, the chart just below is instructive. It shows how, in the current historically low interest rate environment, demand from investors of all stripes have driven interest rates, in this case for “Junk Bonds” to the lowest level in decades. The age old term is “reaching for yield”. We credit Fat Brands’ management for making good use of the current low interest rate environment to strengthen and build their long term positioning within the franchising industry.

CONCLUSION

Aside from updating the progress at Fat Brands, we have one word of advice to our readers that are operating businesses in the current environment that makes equity and debt available at a very modest cost: ENJOY !

Roger Lipton