Neighborly Raises $275 Million in Whole Business Securitization

Neighborly Company is raising $275 million in asset-backed securities through a whole business securitization, according to Kroll Bond Rating Agency. The deal, structured as Neighborly Issuer, series 2026-1, will issue a single tranche of notes with an anticipated repayment date of January 2032 and a legal final maturity of January 2057.

Neighborly is a franchisor of repair and maintenance service providers operating across the United States. The company oversees a portfolio of 27 brands, 19 of which contribute collateral to this transaction. International and U.S. franchise royalties account for the majority of the company's collections, KBRA said.

What does the rating say?

KBRA assigns a BBB rating to the single tranche, which sits within a master trust. That investment-grade mark matters: whole business securitizations let franchisors borrow against royalty streams rather than assets, and the BBB tier signals KBRA sees meaningful but manageable credit risk in those streams. The caveat is that the rating depends on franchisee performance, which the rating agency's summary does not break out by brand.

The deal also reshuffles the trust's capital structure. KBRA expects the trust to repay the $265 million class A2 notes from series 2023-1 with proceeds from the new issuance. The agency also expects to affirm ratings on the issuer's outstanding notes, which range from series 2021-1 through 2024-1.

Who is running the deal?

Barclays Capital and KKR Capital Markets are joint bookrunners, KBRA said. The presence of KKR Capital Markets is notable given KKR's history with franchisor transactions, though the rating agency's disclosure does not detail the banks' roles beyond bookrunning.

How does the structure protect noteholders?

The transaction's structural features carry most of the credit weight. Series 2026-1 class A2 notes have a scheduled amortization of 1.0% annually. That schedule stays in place unless the senior leverage ratio falls to or below 5.5x without an ongoing rapid amortization event, KBRA said.

The deal layers on three cash-management triggers:

• Cash trapping. If the principal and interest debt service coverage ratio equals 1.50x, or ranges between 1.50x and 1.75x, on any quarterly payment date, half of all excess cash flows go into the cash trap reserve account.
• Full trap. If the DSCR falls below 1.50x, all excess cash flows are deposited into the cash trap reserve account.
• Liquidity reserve. If the principal and interest DSCR drops below a 1.85x threshold, 25.0% of all excess cash flows move into the liquidity reserve account.

In plain terms, the deal pays out cash to investors at a trickle, roughly one percent of principal per year, and locks away surplus revenue the moment coverage ratios weaken. That protects noteholders but leaves little room for the trust to absorb a sharp royalty decline without tripping multiple triggers at once.

What comes next?

The 2032 anticipated repayment date gives Neighborly roughly six years of runway before investors expect their principal back. Whether the trust refinances again, as it is doing now with the 2023-1 notes, will depend on the health of franchise royalties across the 19 contributing brands. KBRA's affirmation of the outstanding 2021-1 through 2024-1 notes suggests the existing structure has performed, but the rating agency's release does not disclose current DSCR levels, leaving investors to weigh the triggers against undisclosed coverage data.