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LBOs: JPM and Lehman Brothers Dunkin’ into royalty pool to fund buyout

Uses of securitization to fund US buyouts is getting ever more innovative.

First came property-backed bond and loan financings for the new mega US leveraged buyouts, then the securitization of Hertz’s vehicle fleet. Now bankers are working on a securitization of franchise royalties to refinance the loan financing supporting the $2.43 billion buyout of Dunkin’ Brands by Bain Capital Partners, the Carlyle Group and Thomas H Lee partners announced at the end of last year.

JPMorgan and Lehman Brothers want to sell $1.5 billion of notes secured by franchise royalty receivables from Dunkin’ Brands franchised outlets, to repay the interim loan financing.

This is not the first time US retailers have done securitization deals. In February 2005, fast-food sandwich retailer Quiznos did a securitization of its future franchise royalties and in 2003 fashion retailer Guess did a similar deal, securitizing its global licensing revenue. However, if the Dunkin’ Brands securitization is successful, it will be the first time this technique has been used in the context of an LBO.

Although he will not comment on the specifics of the Dunkin’ Brands financing, Eric Hedman, director in Standard & Poor’s structured finance new assets group, says that rating these sorts of revenue streams involved taking into account many different moving parts.

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