Yahoo Finance TGI Fridays Pays Back Bonds With Kraft Heinz Licensing Deal
(Bloomberg) -- Restaurant chain TGI Fridays Inc. has paid back about half of its existing asset backed bonds after selling a licensing business to Kraft Heinz Co., according to a report by S&P Global Ratings.
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The company struck a deal with the food products firm earlier this week, which allowed Kraft Heinz to continue selling TGI Fridays food products and control the license. The proceeds of the sale were used to pay down $137 million of the dining chain’s whole business securitization, a type of transaction in which a company effectively pledges most of its assets in exchange for cheap financing.
TGI Fridays has about $150 million in debt outstanding from those bonds, the S&P report notes, which were originally issued in 2017.
The paydown comes after the firm looked at ways to address the $375 million in bonds, having tapped Guggenheim Partners to explore options ahead of a key repayment date, Bloomberg reported. While whole business deals have final maturities that are years in the future, the bonds do have deadlines by which the borrower must either refinance or agree to reset the interest rate, known as anticipated repayment dates. TGI Fridays faced one such deadline on April 30, according to S&P.
TGI Fridays declined to comment.
The sale of the licensing product is part of TGI Fridays’ strategy to reduce its debt, as it “contributed about $8 million to $9 million of the $12 million of annual licensing income,” according to S&P’s report. The firm announced a merger with its largest global franchisee, Hotsmore Plc, on April 16, according to a press statement. The restaurant chain expects to refinance the remaining securitized debt once the deal closes during the third quarter, S&P said.
TGI Fridays’ sales dipped during the pandemic, triggering a situation known as “rapid amortization,” where available cash flow from the securitized assets — in this case, from franchised restaurants — goes toward repaying principal. S&P downgraded the debt to B- from B in February. The ratings agency said that the company’s system-wide sales for 2023 weakened compared to 2022.
The downgrade came shortly after the bar and grill franchise announced it was closing 36 underperforming locations across the US. TGI Fridays also said it was selling eight corporate-owned restaurants in the Northeast to its former CEO Ray Blanchette, according to a January press statement. Blanchette resigned last May.
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