Jollibee plans to refinance Smashburger’s $80M debt

Homegrown fastfood giant Jollibee Foods Corp. – which expects to take over Denver-based gourmet hamburger chain SmashBurger in a month or two – plans to tap the debt market to refinance the latter’s $80-million maturing debt stock.

JFC, which is increasing in stake in SmashBurger to 85 percent from the existing 40 percent, recently executed the purchase agreement with the sellers that would allow the execution of the $100-million deal in a month or two subject to government approvals in the United States and meeting certain closing conditions.

In a disclosure to the Philippine Stock Exchange on Thursday, JFC said one of its priorities upon takeover will be to change Smashburger’s debt structure to significantly reduce its financing cost for a $80 million loan and enable the business to make more investments for long term growth.

Toward this objective, JFC disclosed that it executed a commitment letter to SJBF LLC, the parent company of the entities comprising the Smashburger business, to provide financing to SJBF LLC in order to pay the $80-million loan obligation maturing on May 15, 2018. JFC intends to replace this with a much lower cost of long term financing at more lenient terms.

As such, JFC disclosed plans to borrow long-term loans from banks or issue loan guarantees to banks on behalf of Smashburger in order to implement this plan.

“A much lower cost long term financing, made possible by JFC’s strong balance sheet will significantly improve the net income of Smashburger immediately. It will also enable Smashburger to make more meaningful investments for healthier and faster growth,” JFC chief financial officer YsmaeI Baysa said.

“Smashburger has positive EBITDA (earnings before interest, taxes, depreciation and amortization). We look forward to the business making positive net income contribution to JFC‘s profit in the medium term and significant profit contribution in the long term,” he added.

This Smashburger takeover deal will allow JFC to have a more significant business in the United States, tripling the sales contribution from that country to JFC’s worldwide system wide sales to 15 percent. It will also boost the sales contribution from foreign business to worldwide system wide sales from 20 percent to 30 percent.