Subway, the globally recognized sandwich chain, recently raised a groundbreaking $3.4 billion bond to manage its acquisition debt, marking a significant financial move. This bond issuance is the largest of its kind and is aimed at addressing the debt incurred during the leveraged buyout of Subway by Roark Capital Group, a private equity firm.
The bond, which is secured by Subway’s U.S. franchisee royalties and intellectual property, attracted tremendous investor interest. According to a report by the Financial Times, investor orders for the bond exceeded $20 billion. This high demand allowed Subway to increase the size of the debt package and secure more favorable interest terms, reducing the overall cost of borrowing.
The funds from this bond will be used to pay off a substantial portion of the $5.4 billion debt that was initially extended by a consortium of banks to facilitate Roark’s acquisition of Subway. The remaining debt is expected to be repaid through a future whole-business securitization linked to Subway’s international operations, further illustrating the company’s strategic approach to managing its financial obligations.
Investors saw this bond issuance as a prime opportunity to allocate their capital in a market that has experienced significant growth this year. The bond’s yields, which span five-, seven-, and ten-year notes, were notably higher than those of traditional corporate bonds with similar ratings, making them particularly attractive to investors looking for higher returns.
Subway’s success with this bond offering is notable, especially given the challenges associated with raising debt in traditional markets. The company’s widespread franchise model, which has propelled its growth from 16 stores in 1974 to over 36,000 by 2024, complicates the collateralization process for creditors. Typically, assets like individual stores and equipment, which serve as collateral, are owned by franchisees rather than the parent company. This structural complexity underscores the significance of Subway’s achievement in securing such a substantial bond issuance.
The bond issuance comes at a critical juncture for Subway, which has been navigating various public relations challenges and controversies. Earlier in the year, Subway faced a backlash when an Ohio woman was erroneously charged $1,000 for a sandwich, leading to a protracted refund dispute. Additionally, Subway was embroiled in a lawsuit regarding the authenticity of its tuna, a case that was eventually dismissed. The company also faced scrutiny from Senator Elizabeth Warren over a $10 billion private equity deal, dubbed the “Big Sandwich” deal, which aimed to consolidate Subway with other fast-food brands like Jimmy John’s and Arby’s. Warren criticized the deal as potentially harmful to competition and consumer choice.
Despite these challenges, Subway’s parent company, Roark Capital, has been making significant moves within the fast-food industry. The successful bond issuance solidifies Roark’s position as a formidable player in the sector and underscores its strategic vision. Roark’s acquisition of Subway for $9 billion earlier this year and the subsequent financial maneuvers demonstrate its commitment to strengthening its portfolio and driving growth.
In conclusion, Subway’s $3.4 billion bond issuance is a remarkable achievement that highlights the company’s strategic financial management and the strong investor confidence in its future prospects. This move not only addresses a significant portion of its acquisition debt but also positions Subway and Roark Capital favorably in the competitive fast-food industry. As Subway continues to navigate its challenges and leverage its strengths, this bond issuance marks a significant milestone in its financial strategy, paving the way for future growth and stability.