As the financial world tries to keep pace with the current digital age, many enterprises have begun to incorporate blockchain, the technology popularized for powering cryptocurrency’s largest asset, bitcoin. FAT Brands, the parent company of franchises such as Fatburger, Bonanza Steakhouse and Ponderosa Steakhouse, in cooperation with digital securitization platform Cadence, is tokenizing a bond offering on the ethereum blockchain.
“FAT Brands is working with Cadence as the lead arranger to do a whole business securitization,” FAT Brands CEO Andy Wiederhorn said to me in an email. “Similar to other issuances arranged by Cadence, a digital asset will be created that is a digital reflection of ownership for every investor in the structured notes,” Wiederhorn added.
Public company FAT Brands (FAT: Nasdaq) oversees many sizable franchised restaurants, including Buffalo’s Cafe, Hurricane Grill & Wings and six others. The California-based parent is working with New York-based, Coinbase-backed Cadence, “a digital securitization and investment platform for private credit,” according to Wiederhorn. “The FAT Brands securitization will also be a private credit issuance.”
“In total, Cadence has facilitated $17 million in debt securities on a blockchain, ranging from $20,000 to $4 million per fund, with $10.8 million still outstanding,” Forbes wrote in an article.
FAT Brands plans use fee payments from its franchises to back the brunt of its $30 million securitization, a document stated. The bond will start off with standard paper-based issuance methods. Cadence will then take the issued paper securities and tokenize them, the document detailed. FAT Brands aims to bring the security to the public by then end of 2019.
Cadence will use a public version of the ethereum blockchain for the tokenization, Cadence head of capital markets Prath Reddy confirmed to me in a email. “There will be security tokens issued on the [e]thereum blockchain that digitally represent ownership in the underlying Reg D exempt bonds,” Reddy said.
The details and specifics around the offering’s exemptions, however, still appear to be in progress, according to Wiederhorn’s comments. “It is anticipated that exemptions will be filed for Reg D and Reg S, allowing US accredited investors and international investors to invest in the offerings.”
Morningstar Credit Ratings, daughter company of Morningstar Inc., likely will also engage in the ordeal to give the public a sense of the asset’s risk and profitability levels, taking the agency further down the rabbit hole of the growing blockchain-based securities asset industry, a Forbes article noted.
Why Use Blockchain?
One significant aspect drawing entities toward the use of blockchain is the technology’s ability to provide increased transparency, while adding tightened security via decentralization. These attributes make sense for FAT Brands regarding its tokenized financial asset offering.
“The digital asset serves as a digital reflection of ownership and provide[s] a level of transparency into the cap table of each structured note, including how much each investor invested,” Wiederhorn said. “Cadence has already issued 16 different structured notes to date as of the end of August, and so it is likely that investors who have invested in prior Cadence offerings will be investing in this offering as well,” he added. “By issuing this digital asset, Cadence provides a level of transparency into the cap table that has never existed before.”