Franchise Group Inc.'s Proposed First-Lien Loan Rated 'BB-' (Recovery: '2'), Second-Lien Loan Rated 'B-' (Recovery: '6')

NEW YORK (S&P Global Ratings) Feb. 23, 2021--S&P Global Ratings today assigned its 'BB-' issue-level rating and '2' recovery rating to Franchise Group Inc.'s proposed $1 billion first-lien term loan due 2026. The '2' recovery rating indicates our expectation for substantial recovery (70%-90%; rounded estimate: 70%) in the event of a default. At the same time, we assigned our 'B-' issue-level rating and '6' recovery rating to the company's proposed $300 million second-lien term loan. The '6' recovery rating indicates our expectation for negligible recovery (0%-10%; rounded estimate: 0%). Franchise Group announced on Feb. 22, 2021, that it has entered into a definitive agreement to sell its Liberty Tax business. The company expects to receive $243 million of proceeds from

...- Our assumptions also include the $180 million reduction of the first-lien term loan in 2021. Simulated default assumptions - Simulated year of default: 2025 - EBITDA at emergence: $145 million - Implied enterprise value (EV) multiple: 5x - Estimated gross EV at emergence: $723 million Simplified waterfall - Net EV after 5% administrative costs: $687 million - Valuation split (obligors/nonobligors/unpledged): 100%/0%/0% - Priority ABL claims: $93 million - First-lien term loan claims: $818 million - --Recovery expectations: 70%-90% (rounded estimate: 70%) - Second-lien term loan claims: $316 million - --Recovery expectations: 0%-10% (rounded estimate: 0%) Note: All debts amounts include six months of prepetition interest....

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