Securitization: An Overlooked Financing Vehicle for Franchisors

David J. Kaufmann One of the nation's largest quick-serve restaurant franchisors raised $290 million in November 2000 by "securitizing" its royalty stream. But securitization remains an unknown concept to the vast majority of franchisors, their coun? sel, and their financial advisors. Mature franchisors seeking to raise funds for any of a number of strategic reasons, including acqui? sitions, system expansion, the development and systemwide incorporation of new product offer? ings or technology, or the retire? ment of existing expensive debt, traditionally turn to the standard sources of financing. These include initial or follow-on public offer? ings, equity private placements, debt offerings, and the establish? ment of bank credit facilities. Usually overlooked is a rela? tively new structured finance tech? nique known as securitization, in which one or more of a franchisor's revenue streams is struc?