Introduction
A franchisor's most valuable asset is often not a restaurant but a promise: the royalties that thousands of franchisees pay every week on their sales. Those payments are steady, spread across many operators and largely independent of the franchisor's own costs, which makes them unusually good collateral. Whole-business securitization turns that stream into debt by moving the royalties, franchise fees and brand intellectual property into special entities that issue notes secured on them.
Dunkin' Brands, owner of Dunkin' and Baskin-Robbins, is a long-standing user. In late 2025 its master issuer, DB Master Finance, sold $900 million of fixed-rate senior secured notes in two tranches, guaranteed by subsidiaries whose assets include franchise fees, area development fees, product sourcing and royalty income from the two brands in the United States and 50 other countries, according to Davis Polk, which advised the initial purchasers. This article explains what gets securitized, how the master issuer structure works, how leverage and coverage tests police it and why refinancing is central to the model. The franchise economics behind the royalties are covered in the franchise model: royalties, franchisees and refranchising.
What Gets Securitized
- Whole-Business Securitization (WBS)
A financing in which a company transfers substantially all of its revenue-generating assets, such as franchise royalties, franchise fees, intellectual property and supply income, to bankruptcy-remote special purpose entities, which issue notes secured by those assets and their cash flows. The operating company continues to run the business as manager.
The collateral is the business's income-producing assets rather than its buildings or inventory. For a franchisor, that typically means:
| Component | What it contributes |
|---|---|
| Franchise royalties | The core recurring cash flow, a percentage of franchisees' sales |
| Franchise and development fees | Upfront payments for new units and territories |
| Brand intellectual property | Trademarks and recipes licensed to franchisees |
| Supply chain or product sourcing income | Margins on ingredients and equipment sold to franchisees, where the franchisor runs it |
| Company-operated restaurant profits | Included in some structures alongside royalties |
Because the assets sit in bankruptcy-remote entities, noteholders are protected if the parent company runs into trouble: the royalty stream keeps flowing to them rather than being caught up in the parent's creditors' claims. That isolation is what allows the notes to be rated more highly than the franchisor itself might be.
Why it costs less
The higher rating usually means a lower coupon than the franchisor would pay on high-yield bonds or a leveraged loan, and the notes carry longer expected lives and no maintenance covenants of the kind found in bank loans. The trade-offs are complexity, significant upfront costs, restrictions on asset sales or moving the securitized assets, and prepayment terms that make early repayment expensive. The comparison with conventional corporate bonds is covered in the Debt Capital Markets guide's investment-grade bonds: mechanics and market overview.
The Master Issuer Structure
- Master Issuer
The special purpose entity at the center of a whole-business securitization that issues successive series of notes over time under one indenture, all secured by the same pool of assets. New series can refinance old ones or add debt without rebuilding the structure.
Under the master issuer sit guarantor subsidiaries that hold the franchise agreements and intellectual property. Franchisees' payments flow into accounts controlled by a trustee, which pays interest and principal on the notes in a set order before releasing what is left to the parent. The franchisor acts as manager, running the brand and servicing the franchise system in exchange for a management fee.
The cash flow waterfall
Collections move through a fixed order of payments, often weekly, before anything reaches the parent company:
Collect
Franchisee royalties, fees and other securitized income are paid into trustee-controlled accounts.
Pay senior costs
Trustee fees, the manager's fee and certain operating expenses are paid first.
Pay interest
Interest on the notes is paid, with reserve accounts topped up as required.
Pay principal
Scheduled principal is paid, unless leverage tests allow it to be suspended.
Release the residual
Remaining cash goes to the parent, unless coverage tests require it to be trapped.
The residual is what funds the parent's investment, dividends and buybacks, which is why franchisors watch the coverage tests that can cut it off.
Most structures issue two kinds of notes. Fixed-rate term notes provide the bulk of the funding, often in several tranches with different expected lives. Variable funding notes work like a revolving credit facility inside the structure. Domino's describes its securitized debt as fixed rate notes and variable funding senior revolving notes issued and guaranteed by certain wholly owned subsidiaries, according to Domino's fiscal 2025 Form 10-K.
Anticipated repayment dates
Each series of fixed-rate notes has an anticipated repayment date, by which the franchisor is expected to refinance it, and a much later legal final maturity. Refinancing before the anticipated date keeps the structure running normally, so franchisors plan each refinancing window well in advance. If a series is not refinanced in time, Domino's 10-K explains, its cash flow would be directed to repaying the securitized debt on an accelerated schedule and, apart from a weekly management fee, would not be available to operate the business.
Leverage and DSCR Tests
The most important test is the debt service coverage ratio (DSCR): securitized net cash flow divided by interest and scheduled principal. Domino's describes a debt service coverage calculation as the most significant financial covenant in its securitized debt, which also requires specified financial ratios at the end of each fiscal quarter; a breach could result in a rapid amortization event or default.
The tests escalate in stages. Below one threshold, the structure traps cash, holding back money the parent would otherwise receive; below a lower one, a rapid amortization event sends all excess cash to repaying the notes; further breaches can allow the trustee to replace the manager. Leverage tests work in the other direction: Domino's scheduled principal payments may be suspended if its holdco leverage ratio is at or below 5.0x, or 5.5x for its 2025 notes, so a franchisor that keeps leverage moderate pays down little principal and preserves cash.
Refinancing: The Domino's Example
Whole-business securitizations are built to be refinanced repeatedly, and franchisors often use each refinancing to add debt as royalties grow or to replace older, higher-coupon series. The master issuer design makes this routine: new series join the same structure while old ones are repaid. In August 2025, Domino's announced that its subsidiaries intended to issue $1.0 billion of new securitized notes and a new $320 million variable funding note facility, replacing two existing facilities, and to use the proceeds with about $150 million of cash on hand to prepay its 2015-1 notes of $742.0 million and 2018-1 notes of $402.7 million at par, according to Domino's announcement.
Recapitalizations and shareholder returns
Many franchisors use securitization to return capital to shareholders: as royalties grow, coverage improves and the structure can support more notes, which fund share buybacks or special dividends. This makes the franchisor's capital structure deliberately highly leveraged, which works as long as the royalty stream keeps growing and the refinancing market stays open. For sponsor-owned franchisors, the same capacity supports dividend recapitalizations, returning cash to the sponsor during the holding period.
Who Uses It and What Can Go Wrong
The structure suits franchisors with large, diversified systems, long histories of stable royalties and strong brands, and increasingly multi-brand platforms and franchised service businesses. It is less suited to young brands with short operating histories or concentrated franchisee bases.
How rating agencies look at it
Rating agencies size the notes from the stability of the royalty stream under stress. They examine system sales history through past downturns, the number and financial health of franchisees, the brand's market position, the share of income from royalties versus more volatile sources, and the structure's protections, from cash trapping to backup manager arrangements. A brand with decades of steady system sales can support more debt at a given rating than a newer concept with the same current royalties, which is why operating history matters as much as current scale. How lenders and sponsors judge which consumer businesses can carry leverage is covered in consumer LBOs: which brands and retailers fit, and how franchisors are valued relative to operators in valuing restaurant companies: operators vs franchisors.
For a coverage banker, whole-business securitization is one of the most efficient tools available to a franchisor: it borrows against the most predictable part of the business at a lower cost than the company's own credit would command. The discipline it demands is a healthy franchise system and a refinancing plan that never assumes the market will always be open.
