Investors on Wednesday gave a warm reception to home services franchiser Neighborly's inaugural whole business securitization, racking up US$2bn in orders for the deal.
The US$800m Barclays-led deal, Neighborly Issuer LLC Series 2021-1, follows the successful WBS debut of restoration and cleaning franchiser ServiceMaster Brands in November and the strong US$510m inaugural ABS from home and commercial services franchisor ServPro in September 2019.
Neighborly offered a US$800m fixed-rate "A-2" note which comes due in April 2028. Two tranches in the structure are not being offered, according to Kroll - a US$30m variable funding note and US$10m of debt intended to provide liquidity advances. The rating agency is expected to assign BBB- for the three classes.
The offered tranche cleared at a yield of 3.60%, which was inside a guidance of 3.75% and initial price thoughts in the high 3% area. This will lower Neighborly's funding costs by over 250bp on a swaps basis, which is equivalent to US$12m in interest savings per annum, a source familiar with the deal said.
The private-equity owned company connects homeowners to a range of 24 franchised home service providers, including plumbing, electricians, landscaping and pest control.
Private equity firms have been upbeat on services franchisers. In 2018, Harvest Partners acquired The Dwyer Group before rebranding it as Neighborly. Roark Capital bought ServiceMaster in 2020, while ServPro is owned by Blackstone.
The Neighborly ABS "went well" as the company's various franchises in home maintenance, repairs and cleaning have rebounded from their early drop during the pandemic, a senior fund manager said.
Neighborly's 24 brands, which operate in Europe and the United States, produced $2.2bn in total revenues in a 12-month period ending October 2020, Kroll said.
"Nearly all the system’s locations have remained open and most of Neighborly’s brands were deemed essential in the US as well as abroad," it said in its pre-sale report.
The collateral includes existing and future domestic franchise agreements, royalties from company operated locations, vendor fees and product margin, license agreements, other franchise fees and intellectual property.
Neighborly's debut "A-2" note was higher than the yield on ServiceMaster's SERV 2020-1, which fetched the lowest ever yield for a seven-year WBS maturity at 2.75%. Initial price thoughts on the Neighborly paper is talked at a high-3% yield, the source familiar with the deal said.
Investors expected a higher yield on the Neighborly deal because of the current sell-off in the bond market, and a slightly lower Kroll rating than ServiceMaster's due to the lack of a highly recognizable brand in Neighborly's portfolio of businesses, the source said.