Burger King France : Focus Emission

Burger King France undertakes to refinance Financière Quick's debt as part of a € 555m bond offering. The aim is to issue two notes, a 2023 FRN* (6Y NC1, vs. 5Y in the initial plan) and a 2024 fixed-rate note (7Y NC3, while a 5 years tranch was considered also at the beginning). We were somewhat surprised by the timing because the QUIBB notes are actually inexpensive at present given the low interest rates. But we were given to understand that this refinancing is part of a global package, including the renegotiation of the RCF (available at the level of Burger King France, +€ 15m drawable, less restrictive covenants), and will extend the group's average debt maturity.We have a Stable credit opinion on the basis of a 'B-' rating. Burger King's nascent return to France is promising and we are confident in the management team. The earnings trend is expected to be positive in the coming years, driven by the brisk pace of conversions to the Burger King banner and stabilisation of the Quick brand pending completion of the rebranding programme. In contrast, we do not expect a material improvement in the credit profile since the group is set to maintain a high debt level and continue to burn through FCF for at least another two years. There are also some implementation risks, to be monitored from one quarter to the next.In relative value terms, we see few comparable bonds in the B3/B- rating categories and with a fairly long maturity of at least five years. Loxam recently issued a subordinated bond (rated 'B') at 6.00% with a eight-year maturity (April 2025), which trades at 5.3% YTW now (5.5% YTM). Nyrstar (B3/B) also issued € 400m of seven-year bonds at 6.875%. Among older bonds, rated B/B-, we retain as a comparable bond, BUT 11/24 (YTW: 5.1% for a call in 2021. YTM: 5.3%), as well as Altice Lux 02/25 (YTW: 4.5% for a call in 2020. YTM: 5.1%). In comparison, and without any issuance premium, we estimate over the curb a minimum yield of 5.3% for 5 years and 6% for 7 years. Price-talks seem therefore “fair” but with very limited issuance premium compared to the market. *The 3M Euribor may not be negative.>