S&P rates Franchise loans BB-, B-

S&P said it assigned its BB- issue-level rating and 2 recovery rating to Franchise Group Inc.'s proposed $1 billion first-lien term loan due 2026. The 2 recovery rating indicates an expectation for substantial recovery (70%-90%; rounded estimate: 70%) in default.

Concurrently, the agency gave B- issue-level and 6 recovery ratings to Franchise’s proposed $300 million second-lien term loan. The 6 recovery rating indicates an expectation for negligible recovery (0%-10%; rounded estimate: 0%).

On Monday, Franchise announced it agreed to sell its Liberty Tax business. The company expects to receive $243 million of proceeds, of which roughly $180 million will be cash. The company plans to use the cash portion to pay down the proposed first-lien term loan. “Therefore, our analysis incorporates the $180 million paydown on its $1 billion first-lien term loan in the first year,” S&P said in a press release.

S&P’s B+ issuer credit rating on Franchise Group and stable outlook remain unchanged.

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