Applebee’s Funding and IHOP Funding are preparing to raise $1 billion by issuing asset-backed securities (ABS). This deal relies on their franchise agreements and related income streams such as royalties and franchise leases. This highlights the growing importance of the F&B franchise model in today’s financial markets.
Dine Brands Global, which operates Applebee’s and International House of Pancakes (IHOP), runs 3,522 restaurants nationwide as of Q1 2025. Notably, 98% of these locations are franchised. This strong reliance on franchising confirms the company’s focus on the F&B franchise business model. The Kroll Bond Rating Agency (KBRA) provided these figures.
The securitization deal splits into two note classes: A1 and A2. Both classes carry a BBB rating, reflecting moderate but stable credit risk, according to KBRA. The notes are expected to be repaid by June 2030, with final maturity in June 2055.
Franchise royalties and fees will account for about 79.7% of the securitized revenue. The remaining 20.3% comes from royalties from company-operated restaurants, product profits, financing operations, local area licenses, and other income sources. KBRA notes that the deal’s leverage ratio is 5.2 times, which means total debt capacity is 5.2 times the securitized cash flow.
Interest payments on these notes will occur every quarter. Class A1 variable funding notes (VFNs) include a renewal option in June 2030. Guggenheim Securities serves as the sole structuring advisor and bookrunning manager for the transaction.
To protect investors, the deal includes safeguards that maintain steady cash flow. For instance, an interest reserve account covers three months of interest payments for class A notes. Additionally, a cash-trapping mechanism kicks in if the debt service coverage ratio (DSCR) falls below 1.75x or 1.50x. In these cases, 50% or 100% of excess cash flow is moved into a reserve account.
Further protections trigger if quarterly systemwide sales of Applebee’s and IHOP drop below $5 billion or $4 billion. Then, a portion or all excess cash flow will be reserved. A rapid amortization event requires accelerated repayment if DSCR falls below 1.20x or sales fall under $3.25 billion. At this point, all cash flow and reserves pay off senior debt and note principal.
This $1 billion ABS deal emphasizes the value of the F&B franchise model in attracting investors. Franchise businesses in food and beverage provide steady income, which is crucial during uncertain economic times.
Maria Lopez, CFO of Dine Brands Global, explains, “Leveraging our franchise system lets us raise capital to innovate and grow. The F&B franchise model delivers strong cash flow and scalability, especially in emerging markets.”
Financial analyst John Smith adds, “ABS deals backed by franchise royalties offer reliable income streams. The protective features lower risk, making this deal attractive despite economic volatility.”
Industry expert David Nguyen notes, “Franchise-heavy chains like Applebee’s and IHOP outperform company-operated competitors during downturns. Royalty-based revenues stabilize earnings, driving long-term growth. That’s why these deals are gaining popularity in the F&B franchise sector.”
Applebee’s and IHOP’s plan to raise $1 billion through a whole business ABS deal demonstrates the power of the F&B franchise model. This financing structure supports growth while offering investors protection and stable returns. It confirms franchising as a key strategy for success in the evolving food and beverage industry.
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