Qdoba Raises $305 Million Through Asset-Backed Financing to Refinance Debt

Posted on: 10.24.23
Published by: Emmanuel Abara Benson
Article Source: BNN Network

San Diego-based fast-food chain, Qdoba Restaurant Corp., has successfully raised $305 million to refinance its debt using an innovative whole-business securitization strategy. This move marks a departure from the traditional financing methods and demonstrates the company’s commitment to optimizing its capital structure.

Qdoba pledged its franchise agreements and other revenue-generating assets as collateral for this groundbreaking funding initiative. These assets include royalties from over 500 franchises and sales from nearly 200 company-owned stores. The financing deal, priced by Qdoba and structured by Barclays Plc, aims to reduce the company’s periodic interest payments significantly.

The Motivation Behind Debt Refinancing

Qdoba’s decision to pursue this financing avenue was driven by its goal to trim interest expenses. The term loan the company held this year was costing more than 12% in interest and was set to mature in 2025. Qdoba initially assumed this debt in 2018 when Apollo Global Management Inc. acquired the chain from Jack in the Box Inc. In 2022, Butterfly Equity took ownership of the company.

Challenges and Popularity of Whole Business Securitization

Whole business securitizations have seen a decline since 2021, with 2023 registering the lowest deal volume in years, as issuers grapple with uncertainty around interest rates. Qdoba’s unique move stands in contrast to this trend, aligning with the company’s strategic financial goals.

The $305 million secured through this initiative will primarily be used to refinance existing debt and repay a portion of preferred equity. It will also bolster the company’s cash reserves for general corporate uses, positioning Qdoba for future growth.

Qdoba’s Growth Strategy

Qdoba’s CEO, John Cywinski, envisions an asset-light model for the company’s expansion, primarily through franchising. With ambitions to reach more than 2,000 stores by 2033, the majority of which will be operated by franchisees, the company is embracing an innovative approach to secure its financial future.

Financial Snapshot

According to a report by Kroll Bond Rating Agency LLC, as of July 9, 2022, Qdoba had 727 operational stores, with 73% of them managed by franchisees. The company had also refranchised more than 115 restaurants by the end of the third quarter. Qdoba’s revenues for the fiscal year ending on October 2, 2022, totaled $476 million, reflecting a year-on-year increase from $455 million.

This move by Qdoba reflects the evolving landscape of financing in the fast-food industry and showcases the company’s commitment to its long-term financial stability and growth strategy.

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