S&P rates Franchise loan B+, cuts rating

S&P said it assigned B+ issue-level and 3 recovery ratings to Franchise Group Inc.'s planned $200 million add-on to its first-lien term loan B due in March 2026. The 3 recovery rating indicates meaningful (50%-70%; rounded estimate: 60%) recovery in default.

“Although the proposed transaction is leverage neutral and does not affect our B+ issuer credit rating, the substantial increase in priority claims reduces recovery prospects for the senior secured debt. As a result, we also lowered our issue-level rating on the company's existing $1 billion senior secured term loan ($799 million outstanding as of third-quarter 2022) due in March 2026 to B+ from BB- and revised our recovery rating to 3 from 2,” S&P said in a press release.

FRG plans to use the proceeds to repay the loans outstanding under its asset-based loan facility, which will become due in 2026.

The outlook is stable.

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