WEN

Business Context and Reporting Period

Company: The Wendy's Company (WEN)
Filing Type: Form 8-K (Current Report)
Date of Report: June 23, 2021
Event Date: June 22, 2021
Context: The Company's subsidiary, Wendy's Funding, LLC (Master Issuer), completed a refinancing transaction involving the issuance of new senior secured notes and the establishment of a revolving financing facility. This transaction replaced existing debt obligations and amended the Base Indenture and Management Agreement.

Key Financial Metrics and Transaction Details

Use of Proceeds: Net proceeds were used to repay $471.25 million of Series 2015-1 Class A-2-III Notes and $434.25 million of Series 2018-1 Class A-2-I Notes. Remaining funds are designated for general corporate purposes, including growth initiatives, capital returns, or additional debt retirement.

Collateral: The Notes are secured by substantially all assets of the Securitization Entities, including franchise agreements, real estate, and intellectual property.

Material Changes vs. Prior Period

• Debt Refinancing: Replaced approximately $905.5 million of existing fixed-rate debt with new fixed-rate debt totaling $1.1 billion, extending maturities to 2029 and 2031.
• Revolving Facility Expansion: Terminated existing $150 million (Series 2019-1) and $100 million (Series 2020-1) variable funding notes, replacing them with a new $300 million revolving facility.
• Indenture Amendments:
  • Increased maximum Senior ABS Leverage Ratio from 6.5x to 7.0x.
  • Increased maximum Holdco Leverage Ratio from 7.0x to 7.5x.
  • Expanded the "basket" for guarantees to allow guarantees of indebtedness more generally, not just franchisee indebtedness.
  • Added a new event of default if Debt Service Advances or Collateral Protection Advances remain outstanding for 90+ consecutive days.
• Management Agreement Amendments: Increased the Specified Non-Securitization Debt Cap from $25 million to $100 million under certain circumstances.

Guidance, Outlook, Risks, and Unusual Items

Management Commentary: The transaction was executed to refinance maturing debt and provide liquidity flexibility through the new revolving facility. The Company anticipates approximately $26.2 million in undrawn letters of credit on the closing date.

Risks and Covenants:

• Amortization Triggers: The Notes are subject to rapid amortization events tied to failure to maintain debt service coverage ratios, global gross sales falling below specified levels, manager termination, or failure to refinance by anticipated dates.
• Interest Rate Reset: If the Class A-2 Notes are not repaid or refinanced by their anticipated dates (2029/2031), interest rates will reset to a higher rate (greater of 5.00% or a formula based on 10-year Treasury yields plus spreads).
• Variable Funding Costs: Interest on the revolving facility is variable and subject to market rates plus margins. A commitment fee of 40 to 75 basis points applies to the unused portion.

Unusual Items: None reported in this filing; the transaction is a standard securitization refinancing.

Investor Verification Checklist

• Verify the exact interest rate reset formula and triggers for the Class A-2 Notes if not refinanced by 2029/2031.
• Confirm the current utilization of the $300 million Variable Funding Notes and associated commitment fees.
• Review the specific conditions required to implement the increased leverage ratios (7.0x and 7.5x) as they are contingent on repayment of older notes or Control Party designation.
• Assess the impact of the increased Non-Securitization Debt Cap ($100 million) on the Company's overall capital structure flexibility.
• Monitor the "rapid amortization" covenants related to global gross sales and debt service coverage ratios.