Bertrand Franchise: Having it their way

May 29, 2024

In this week’s deal from the French franchise platform, Bertrand Franchise, the Burger King refinance takes the famous motto on the road as covenant updates allow the borrower to “have it their way” when it comes to covenant calculations.

A practical way to analyse covenants in this deal is by comparing it to the deal being refinanced – Burger King France SSNs due 2026.

Amongst other changes (detailed below), the borrower is adding calculation flexibility that brings the provisions up to market standard for top-tier sponsor deals by allowing any calculation for any covenant in respect of any transaction to be done – pretty much – anytime, and removes the requirement to make consent payments for amendments to all lenders.

“Limited Condition Acquisition” no more

The covenant once called Financial Calculations for Limited Condition Acquisitions drops the last four words and now applies not only to acquisitions subject only to limited conditions (not relating to financing), but to any transaction requiring covenant calculations.

In the place of the more limited “Limited Condition Acquisition” definition, we now have provisions related to “…any acquisition, disposition, merger, consolidation or other business combination transaction, joint venture, Investment, Incurrence, payment or any other transaction (the “Applicable Transaction”) where there is a time difference between commitment and closing or Incurrence (including in respect of Incurrence of Debt, Liens, Restricted Payments, Permitted Investments, Affiliate Transactions, Asset Sales or any designation of a Restricted Subsidiary or Unrestricted Subsidiary)” (emphasis added).

In respect of any such “Applicable Transaction”, the borrower is now permitted to calculate covenant capacity on the date of entry into definitive agreements in respect of such transaction, the date of consummation of such transaction, or, importantly, “any other date relevant to the Applicable Transaction determined by the Issuer in good faith”.

Translation: any calculation in respect of (just about) any transaction can be made (pretty much) anytime. This is a much broader permission than was previously the case, and allows the borrower to cherry pick calculation dates in line with favourable movements in EBITDA.

(No) Payments for Consent covenant

Another notable difference is the removal of the Payments for Consent covenant, which would require the borrower to make any payments for lender consent to amend the documents to all lenders, rather than employing any divide and conquer manoeuvres in liability management exercises.

This covenant lost favour years ago, so whilst this change reflects market standard, it is worth noting given the expected uptick in LMEs in Europe.

The Kitchen Sink

Other noteworthy changes include:

  • Materially lower guarantor coverage given the increased size of the group following the reorganisation
  • Increased structural subordination risk due to increased non-guarantor debt incurrence capacity
  • Enhanced Restricted Payments builder basket capacity due to the removal of the default blocker and insertion of a zero floor (so losses won’t take it below zero)
  • Additionof a J. Crew Blocker (in respect of material IP – query how much material IP the borrower actually owns)

These and other changes were reviewed this morning during our Primary Market Education Series and a replay, along with an annotated preliminary offering memorandum highlighting the changes via blackline, are available on FLT’s online training platform – free for buyside and press.

We hope to see you next week, and invite you to send any prelims you’d like us to cover!



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