Years after the $5 Footlong took a bite out of profits, Subway’s latest offering is a $5 billion acquisition financing plan for a different type of customer: private equity firms.
JPMorgan, the bank overseeing the sale of Subway, constructed a financing package meant to make it easier for potential buyers to meet the sandwich chain’s asking price of more than $10 billion.
Thus far, bids have ranged between $8.5 billion and $10 billion, according to reports. The problem is that rising interest rates and fear of a coming recession have made taking on debt more expensive, which in turn has driven down offers.
The JPMorgan package involves a combination of loans and bonds equivalent to 6.75 times Subway’s 12-month EBITDA of roughly $750 million. It also offers the option of a preferred equity component with a roughly 15% interest rate, sources said.
However, it's possible the financing is only a temporary fix, as a cheaper option for private equity firms would be something called whole business securitization. This would entail taking out loans using restaurant franchise royalties as collateral.
Barclays is one such bank in discussions about long-term financing, reports suggest.
Bain Capital, TPG, Advent International Corp, TDR Capital, Goldman Sachs (NYSE:GS)’s buyout arm and Roark Capital are among the other private-equity firms that are bidding, per reports.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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