Second-round bids for Subway came in last week from more than 10 private-equity firms, one of the sources said, adding that Subway has dropped low bids and is whittling down the pool of final bidders. To be sure, Subway is allowing bidders to use any financing route they want, as long as they can show they can secure committed financing. This is a more expensive route that private equity firms may not opt for, three of the sources added.
JPMorgan's financing package also offers the option of a preferred equity component with a roughly 15% interest rate, the sources said. In 2021, the chain launched a menu overhaul and splashy marketing campaign as it embarked on a turnaround plan that has helped sales grow. Milford, Connecticut-based Subway has been revamping its operations to deal with outdated decor and $5 deals on foot-long sandwiches that eroded franchisees' profits. Bidders would have to rely on JPMorgan's debt package or arrange their own financing to clinch a deal with Subway, and then refinance through a WBS scheme down the line, the sources said.īarclays Plc, a major player in the market for WBS financing, is one of the banks in discussions about long-term financing, the sources said. WBS financing requires store-by-store due diligence by ratings agencies which can take more than a year. This would involve borrowing using the royalties of restaurant franchises as collateral. This is because a cheaper option for a private-equity buyer of Subway would likely be to finance the acquisition long-term through a so-called whole business securitization (WBS), the sources said.
It is possible that this financing will serve only as a temporary solution. The debt financing is based on a mix of loans and bonds and its size is equivalent to 6.75 times Subway's 12-month earnings before interest, taxes, depreciation and amortization of about $750 million, the sources added. Subway's financial adviser, JPMorgan Chase & Co, is now hoping a $5 billion debt financing package it has put forward will show buyout firms they can borrow enough to structure an attractive deal even at a $10 billion-plus valuation, the sources said. So far, bids for Subway have ranged between $8.5 billion and $10 billion, one of the sources said.
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