Syndicated Loans in Franchise Financing: Diligence Considerations, Negotiation Strategies, Key Loan Provisions

Large franchise businesses often use syndicated loans to finance major growth initiatives such as large-scale acquisitions, recapitalizations, or multi-unit expansions. A syndicated loan structure allows the borrower to access greater capital than a single lender could provide alone. For lenders, syndicated loans diversify their risk profile and help them maintain close relationships with their customers. Syndicated loans also benefit lenders because they allow them to remain within their credit exposure limits and each lender in the syndicate benefits financially from their participation by collecting pro-rata interest and fees.

While syndicated loans offer many advantages to both franchise borrowers and lenders, there are unique considerations and issues that counsel on both sides of the transaction must understand and navigate. For instance, with a syndicated franchise loan, both borrowers and lenders will need to consider the franchisor/franchisee relationship and the financial analysis will need to cover EBITDA, EBITDA addbacks, and account for new builds and remodels. A thorough analysis of the real property structures will also be required and the loan covenants will need to account for the unique circumstances relating to a franchise business.

Listen as our expert panel reviews the unique considerations of syndicated loans to large franchise businesses and provides guidance on navigating these complex transactions from the perspective of both borrowers and lenders.

I. Overview: syndicated loans and franchise businesses

II. Franchisor/franchisee relationship

III. Tri-party agreement: consent; no documents.

IV. Different types of real property structures: Is the property owned by the same entity as the operator, is it owned by an affiliate, or is it owned by a third party?

V. Documents: mortgage, leasehold mortgage, estoppels, landlord lien waiver, etc.; UCC override provision

VI. New units

VII. Closed units

VIII. Financial analysis: existing EBITDA, EBITDA addbacks, accounting for new builds, accounting for remodels, etc.

IX. Financial covenants

X. Defaults

XI. Practitioner pointers

The panel will discuss these and other key considerations:

• What are the typical negotiation points between franchise lenders and borrowers with syndicated loans?
• What are the key franchise specific loan provisions?
• What diligence exercises should franchise borrowers and lenders expect with a syndicated loan?
• What are key considerations when determining the structure of a franchise syndicated loan?