Subway decides to attract business buyers with a $5 billion financing plan

Fast food restaurant chain Subway has not yet received bids to buy its business above $10 billion, as it previously wanted. That’s why JPMorgan Chase, which is managing the sale, has presented to potential buyers a $5 billion debt financing plan for the acquisition. writes Reuters, citing sources familiar with the matter.

As the agency notes, since February, when it became known about Subway’s plans, interest rates have risen, and fears about a slowdown in economic growth have intensified. All this makes it more expensive for investment companies to make loans to secure purchases, which is why the amounts they offer have decreased. Subway’s bids so far have ranged from $8.5 billion to $10 billion.

JPMorgan, in turn, expects its proposed debt financing package to convince potential buyers that they can borrow enough to secure an attractive deal even at a valuation of more than $10 billion. Based on a combination of loans and bonds, the size of the package is equivalent to 6.75- multiple of Subway’s annual earnings before interest, taxes, and other charges of approximately $750 million.

Such a plan could only serve as a temporary solution, sources said, as the cheaper option for a privately owned Subway buyer would likely be long-term financing of the purchase through a securitization of the business. Such a scenario would involve borrowing using restaurant franchise royalties, but would require a thorough review of each location in the chain, which could take more than a year.

As of 2021, Subway was the largest restaurant chain in the US, with approximately 21,000 locations in total. The first restaurant in Russia was opened in 1994, but it soon closed and resumed work only in 2004. In the same year, four more establishments were opened. Now in Russia there are 599 restaurants operating under the franchisee system.