(Bloomberg) -- Nothing Bundt Cakes, a chain of bakeries known for one type of cake, is marketing a $240 million bond backed by nearly all of its assets, adding to the stream of esoteric offerings in the securitized debt market.

The Texas-based cake maker is borrowing in the whole-business asset-backed securities market for the third time after its initial foray in 2021, when it sold $355 million in bonds. This time, proceeds from the bond sale led by Barclays Plc will be used to refinance all of the company’s 2023-1 Class A notes and possibly to fund a payout to shareholders, according to a person familiar with the matter.

Nothing Bundt Cakes has grown over 50% to 582 total bakeries in the US and Canada since 2021, as of the first quarter this year, according to a report by Kroll Bond Rating Agency, which is rating the new single-tranche deal BBB-. The total system is 97% franchised, according to the report.

The whole business securitization market is a common pathway to raise capital for restaurants that franchise their stores. In such transactions, restaurants will pledge their franchise royalty streams and other assets as collateral. That structure allows credit investors to offer cheaper financing than other debt markets because it gives money managers more control if the company falls into distress. 

While whole business securitization volumes dipped in 2023, issuers are once again turning to them amid a scorching ABS market that’s running over 33% ahead of the same time last year. Companies are jumping in to take advantage of tight spreads and pulling forward issuance given relative calm in the markets as the Federal Reserve contemplates its timing on interest rate cuts and before potential volatility around the US presidential election in November. 

Among the offerings that have helped fuel the jump in ABS sales this year are deals with unusual collateral, including transactions backed by art and Internet addresses.

 

Roark Capital Group, a private equity firm, bought Nothing Bundt Cakes in May 2021. Months later, it completed its first WBS offering. Nothing Bundt Cakes sold $110 million more in a 2023 bond sale. The bakery franchise has more than $469 million of asset-backeds outstanding, according to Kroll.

Nothing Bundt Cakes declined to comment. Roark Capital Group didn’t respond to a request for comment.

The volume of whole-business securitizations surged in 2019 and 2021 as well-known names like Taco Bell and Domino’s sold billions of the debt to investors. More recently, Chicken finger restaurant chain Zaxby’s raised $285 million in the market, and banks are gauging investor interest in the debt for sandwich chain Subway’s leveraged buyout. That offering could be among the largest of WBS deals.

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