Subway raises record $3.4 billion bond to repay acquisition debt

Popular sandwich chain subway raised the largest bond of its kind, worth $3.4 billion, to pay off debt related to the acquisition.

What happened: The bond, secured by royalties and intellectual property from the American Subway franchisee, was very popular, with investor orders exceeding $20 billion, according to the Financial Times. This overwhelming interest allowed the debt package to increase and interest payments to decrease.

Subway will use the proceeds from the bond to repay part of the $5.4 billion in debt originally incurred by a group of banks to finance the company’s leveraged buyout acquisition Roar. The remaining debt is expected to be repaid through a future enterprise-wide securitization tied to Subway’s international operations.

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Investors saw this as an opportunity to use their accumulated funds and increase profits in a market that has grown significantly this year. The yield on the debt, which included five-, seven- and 10-year bonds, was higher than on similarly rated traditional corporate bonds.

Subway has played a key role in popularizing the franchise model, leading to its expansion from 16 stores in 1974 to more than 36,000 worldwide by 2024. However, this success can pose challenges in raising debt in traditional markets. The report shows that typical collateral that creditors rely on, such as individual stores and equipment, is owned by franchisees, making it a complex process for the company.

Why is it important?: The successful bond offering is a significant event for Subway that has been in the news for a variety of reasons. Earlier this year, the company was embroiled in controversy after an Ohio woman was mistakenly charged $1,000 for a sandwich, sparking a fight to get her refund.

Roark, the parent company of Subway, is making waves in the fast food industry after completing its $9 billion acquisition of the sandwich chain earlier this year. The success of this bond offering further strengthens Roark’s position as a significant player in the industry.

In 2023, the company became embroiled in a tuna lawsuit saga that was ultimately dismissed. The company also faced criticism from the senator. Elizabeth Warren (D-Mass.) for its involvement in the $10 billion “Big Sandwich” PE deal that aimed to combine Subway, Jimmy John’s and Arby’s under one roof.

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Photo via Shutterstock

This story was generated by Benzinga Neuro and edited by Kaustubh Bagalkote