Beverly Hills-based fast-food franchise Fatburger quietly closed a $39.7 million fundraising round on Friday that, according to Forbes, “involved securities issued on ethereum.” The securities were also rated by DBRS Morningstar, representing the first time that the ratings giant issued an assessment on a security with a blockchain component.
“While the rating itself is on a traditional paper debt security that closed on Friday, Morningstar cited faster access to data about the securities as a result of the increased transparency from using ethereum in its rating document, paving the way for a more pure class of crypto-assets native to the blockchain,” wrote reporter Michael del Castillo.
Andrew Wiederhorn, president and chief executive of Fat Brands, Fatburger’s parent company, told Forbes that the company has several more projects underway with a total fundraising goal of $500 million by the end of the year.
In 1947, using pieces of scrap materials from her partner, Lovie Yancey opened up a three-stool hamburger stand in Los Angeles called Mr. Fatburger. Today & every day, we celebrate Lovie & all the inspiring women who represent Fatburger around the world.#IWD2020 #EachForEqual pic.twitter.com/zNWeaG5Sd2
— FATBURGER (@Fatburger) March 8, 2020
“It’ll be a transformative event for Fat Brands,” Wiederhorn said. “And I’m certain that there will be a number of smaller franchise companies or restaurant companies that want to access the whole business securitization market to access capital rather than term loans from lenders.”
Citing “the Company’s track record of consistent financial performance with systemwide sales, revenues, average unit volume (AUV), and store count steadily growing over the past five years,” among other things, DBRS Morningstar rated $20 million worth of Class A notes a rating of ‘BB’; another $19.7 million in Class B notes were rated ‘B.’
The fixed-rate notes, which average 7.75 percent per year, are backed by the royalties and initial upfront fees that are charged to Fat Brands franchises, which include Fatburger, Ponderosa Steakhouse, and Buffalo’s World Famous Wings (not to be confused with Buffalo Wild Wings.)
According to the rating, 400 stores are currently contracted to pay these fees, and another 200 are scheduled to open.
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Ethereum securitization could contribute to “shorter forecast performance period and higher visibility”
DBRS Morningstar also cites a “shorter forecast performance period and higher visibility into the viability of brands,” as a factor in the rating. Wiederhorn credited this specifically to the tokens issued on the ethereum blockchain.
However, while the structuring consultant, a New York-based firm called Cadence, would issue security tokens to all investors and record the transactions on ethereum, DBRS Morningstar said that the ethereum tokens are only “digital representations” of ownership and that the use of blockchain “will only occur outside of and parallel to this transaction and will not govern actual ownership of the notes.”
— Zac Prince (@BlockFiZac) March 8, 2020
Anthony Pompliano, renowned Crypto Twitter commentator and co-founder at Morgan Creek Digital, called the fundraising and the rating “a really big deal.”
“Just a small peak into the future of finance,” he wrote.
This is a really big deal.
Just a small peek into the future of finance.https://t.co/lPv6p0ISdC
— Pomp 🌪 (@APompliano) March 8, 2020