Wendy's Funding LLC Series 2019-1 Notes Assigned Ratings; Series 2018-1 And Series 2015-1 Ratings Affirmed

  • Wendy's Funding LLC's series 2019-1 issuance is an ABS transaction backed by a security interest in substantially all of the assets of the master issuer and guarantors.
  • We assigned our ratings to the series 2019-1 class A-1, A-2-I, and A-2-II notes.
  • We also affirmed our ratings on the series 2018-1 class A-2-1 and A-2-II notes and the series 2015-1 class A-2-III notes.
  • The ratings reflect our view of the transaction's liquidity, projected cash flows, and strength of the Wendy's brand, among other factors.
NEW YORK (S&P Global Ratings) June 26, 2019--S&P Global Ratings today assigned 
its ratings to Wendy's Funding LLC's senior secured notes series 2019-1. At 
the same time, we affirmed our ratings on the series 2018-1 class A-2-I and 
A-2-II notes and the series 2015-1 class A-2-III notes (see list). 

The note issuance is an asset-backed securities (ABS) transaction backed by a 
security interest in substantially all of the assets of the master issuer and 
guarantors.

The ratings reflect our view of the company's:
  • Brand strength. The strength of the Wendy's brand, the likelihood for the brand to survive through a Wendy's bankruptcy, and the brand's resulting capacity to continue generating sufficient cash flows from business operations, provided that adequate servicing remains in place.
  • Replaceable manager. The manager's responsibilities are generally limited to sales and general and administrative (SG&A) functions, which we believe increases the likelihood of successful replacement following a termination of the current manager. Additionally, the transaction has a backup manager, FTI Consulting Inc. (established at the transaction's closing), that reviewed the business' cost structure relative to the sizing of the management fee and believes it is adequate should it need to step in.
  • Legal isolation of the assets. Substantially all of the business' cash-generating assets will no longer be owned by the manager at the transaction's closing. They have been sold through a true sale to the securitization issuer and guarantors, which are bankruptcy-remote entities. This should decrease the likelihood that existing Wendy's creditors could disrupt cash flow to the securitization following a manager bankruptcy. Legal opinions related to true sale and nonconsolidation have been or will be provided before the transaction closes.
  • Asset performance not fully correlated with manager performance. A system of franchised restaurants will likely continue to generate cash flow following the manager's bankruptcy because individual franchisees generally operate independently from the manager (aside from SG&A functions, which we believe can be transferred to a backup).
  • Cash flow coverage. Given the brand's strength, the replaceable nature of the manager, and the legal isolation of the assets from the manager, we have projected long-term cash flows for the business. Our analysis incorporates cash flow haircuts reflecting our view of how the business' assets could weaken in adverse economic conditions. Under these conditions, our analysis shows the cash flows generated by the business are sufficient to meet all debt service obligations of the rated notes.
  • Liquidity. A reserve account funded with three months of interest expenses and/or a letter of credit.
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