Bond market open for restaurants

Bond market open for restaurants

NEW YORK A trio of restaurant companies has tapped into the bond market recently to shore up funds to repay existing debt and to finance growth.

With capital in demand, but tough to acquire, the note offerings from Wendy's/Arby's Group, Real Mex Restaurants and El Pollo Loco have provided a sliver of hope that the financing freeze may be thawing, and investors may be warming to restaurant deals. In addition, Wendy's/Arby's closing of $551 million in a note offering sparked speculation that another acquisition could be in the Atlanta-based company's future.

The parent to the Wendy’s and Arby’s chains closed this week on an offering of $565 million in senior unsecured notes. The notes, due 2016, have an interest rate of 10 percent and were priced at 97.53 percent of the face value, for gross proceeds of about $551 million, the company said.

Credit Suisse, Citigroup and Bank of America were the joint bookrunning managers for the sale.

Wendy’s/Arby’s said it used a portion of the proceeds to repay about $132.5 million in debt under the company’s existing senior secured term loan. Other funds will be used for general corporate purposes, which the company said may include “working capital, funding for key strategic growth initiatives, including new unit development, acquisitions of other restaurant companies, repayment or refinancing of indebtedness, and the return of capital to its stockholders, including through stock repurchases and/or dividends.”

Securities analyst Larry Miller at RBC Capital Markets said in a note earlier this month that Wendy’s would most likely use the proceeds to “either buy back shares or make an acquisition, and possibly thereafter to make reinvestments in the business, i.e., dual-branding, breakfast roll-out, international development, and a remodel.”

Wendy’s/Arby’s, a company formed through the merger of Wendy’s International and Arby’s former parent Triarc Cos., has a rich history of mergers and acquisitions on both the Wendy’s and Triarc side. In addition, the company’s chairman, Nelson Peltz, is a well-known activist investor and dealmaker.

Other noted uses for the capital, like dual-branded locations, follow Wendy’s/Arby’s announcement earlier this month that the first dual-branded location [3] will open in the Middle East. A Wendy’s/Arby’s spokesman, Bob Bertini, said there are no dual-branded units in the United States, but that the strategy is one of several the company may test in early 2010.

Prior to Wendy’s/Arby’s debt offering, Real Mex Restaurants Inc. said it planned to privately place $110 million of senior secured notes due in 2012. The company said it would use the net proceeds from the issuance mainly to repay its senior secured notes due April 2010.

In late May, El Pollo Loco Inc. closed its offering of $132.5 million in senior secured notes. The notes, due 2012, were issued at a price equal to 98 percent of their face value and hold an interest rate of more than 11 percent.

Contact Sarah E. Lockyer at [email protected] [4].