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MUFG’s “secret recipe” in fueling the growth of a KFC franchisee

Kentucky Fried Chicken® is a staple of the fast-food landscape in the United States and around the world. Known today as KFC, the storied restaurant chain was founded by Harland “Colonel” Sanders nearly 70 years ago, and the chicken it serves is famous for its elusive mix of 11 herbs and spices savored by millions—a formula the company has kept secret while also using it as a marketing tool.

In June, MUFG’s newly expanded Restaurant Finance group offered its own recipe for successful deal-making in a transaction that helped a major franchisee of the restaurant company modernize and expand its locations.

The challenge of a KFC franchisee

As a franchisor, KFC licenses its many restaurants throughout the world to franchisees, which individually own and operate one or more of them. In return, those franchisees pay KFC royalties for the ability to use the company brand, serve its product, and profit from restaurant proceeds.

Mitra QSR is the third-largest KFC franchisee in the United States. It owns and operates a total of 197 KFC restaurants—38 of which are co-branded with Taco Bell—in 15 states, from Texas to New Jersey.

And Mitra faced a significant challenge: Aiming to remodel outdated restaurants, develop new ones, and expand its restaurant network, it needed to undertake substantial capital expenditures over the next several years, and it required a financing solution that would support its large outlays of cash.

MUFG’s solution

Our Restaurant Finance Group devised a way to optimize Mitra’s balance sheet in a manner that would enable it to lower its capital costs so it could shoulder the cost of remodeling, enlarging its restaurant network, and reinvesting in the business.

Our restaurant finance team accomplished this by reconfiguring Mitra’s capital structure, the particular combination of debt and equity used by a company to finance its overall operations and growth. The proposed transaction included the following elements:

  • First, MUFG helped Mitra reduce its debt costs by refinancing existing debt at lower interest rates.
  • Second, MUFG allowed Mitra to lower its cost of capital by helping the company redeem its preferred equity shares through the use of cash on its balance sheet. (Preferred equity is a more expensive class of stock ownership that has a higher claim on assets and earnings than common stock.)
  • Finally, MUFG established two separate lines of credit (known as a new unit development/ remodel line of credit and a revolving line of credit) that are intended to provide needed liquidity for future capital expenditures and support daily cash outflows.

Through these measures, MUFG enabled Mitra to free up more cash, increase its capital expenditures, and reinvest in the business with the aim of bolstering its position as a leading KFC franchisee.

Where food meets finance

“Our group takes pride in delivering customized solutions based on the individual needs of each client we advise,” says Christopher Addison, MUFG’s Relationship Manager on the account, “and those solutions could not be made possible without team collaboration.”

This syndicated transaction led by MUFG’s Restaurant Finance Group signals its growing momentum in this rapidly transforming sector.

You can read more about the Restaurant Finance group and what it does here.