ME Funding Secures $340.7M Asset-Backed Securitization From Massage Envy Franchise Revenue
•February 17, 2026
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Why It Matters
The financing provides Massage Envy with long‑term, low‑cost capital to fund expansion while offering investors exposure to stable franchise royalty streams. Its structured cash‑flow protections set a benchmark for franchise‑based ABS in the services sector.
Key Takeaways
- •$340.7M ABS issued, third Massage Envy securitization.
- •Notes mature April 2056, rated BBB‑ by KBRA.
- •Collateral: royalty revenue from 997 franchise clinics nationwide.
- •Cash‑sweep triggers linked to leverage and DSCR thresholds.
- •Amortization rate varies 3%‑5% based on senior leverage.
Pulse Analysis
The rise of franchise‑backed asset‑backed securities reflects a broader shift toward leveraging predictable royalty streams for capital markets. By securitizing franchise fees rather than operating earnings, issuers like ME Funding tap into cash flows that are less volatile and more insulated from day‑to‑day business fluctuations. This model has gained traction in service‑oriented sectors, where brand consistency and widespread locations generate steady income, making it attractive to investors seeking yield in a low‑interest‑rate environment.
ME Funding’s series 2026‑1 incorporates sophisticated credit enhancements, including cash‑sweep provisions triggered by senior leverage ratios between 4.00× and 4.50× and liquidity‑reserve DSCR thresholds below 1.85×. These mechanisms prioritize senior note repayment and preserve a liquidity cushion, thereby supporting the anticipated BBB‑ rating from KBRA. The tiered amortization schedule—5% annually, potentially reduced to 3% when leverage falls under 3.50×—offers flexibility, aligning debt service with the underlying cash‑flow performance of the 997 clinics spanning 49 states.
For the broader market, this issuance underscores growing investor appetite for structured finance products anchored by franchise royalties. The transaction not only furnishes Massage Envy with a durable financing source for expansion but also sets a precedent for other franchisors to monetize their royalty streams. As capital markets continue to seek assets with resilient cash flows, franchise‑based ABS could become a staple in diversified fixed‑income portfolios, prompting banks and rating agencies to refine models for assessing franchise‑related credit risk.
Deal Summary
ME Funding announced the issuance of $340.7 million in asset‑backed securities backed by franchise and development revenue from Massage Envy. The series 2026‑1 notes, managed by Massage Envy Franchising and structured by Barclays Capital, will mature in April 2056 and are expected to receive a BBB‑ rating from KBRA.
Article
Source: Asset Securitization Report
ME Funding raises $340.7 million in ABS from franchise revenue
By Donna M. Mitchell
February 17, 2026, 3:08 p.m. EST
MassageEnvy.com
In Massage Envy’s third securitization since the master trust was established in 2019, the platform will issue three note classes, selling $340.7 million to investors through the ME Funding, series 2026‑1.
All the notes—tranches A1LR, A1 VFN, and A2—have a final maturity date of April 2056, and are expected to be rated BBB‑ from Kroll Bond Rating Agency (KBRA).
The transaction’s collateral is composed of revenue from existing and future franchise and development agreements, regional development agreements, vendor contracts, related franchisee payment and securitization intellectual property.
Cash flows are mainly top‑line royalty payments from franchise locations. Those revenues are typically less volatile than profits from company‑operated locations, according to KBRA.
The collateral pool includes 997 clinics operating across 49 U.S. states and the District of Columbia as of Sept. 30, 2025, KBRA said. California has the largest concentration by state, representing 12.8 % of the locations in the securitized pool. Florida and Texas follow, making up the top three, with 11.1 % and 10.1 %, respectively.
Massage Envy Franchising is the transaction’s manager, while Barclays Capital is the sole structuring advisor and the book runner, according to KBRA.
The deal structure includes a cash‑sweeping provision based on a leverage threshold. If the senior leverage ratio is between 4.00× and 4.50×, then the transaction will pay down all outstanding class A2 note principal with 40 % of all excess cash flows, the rating agency said.
Another cash‑sweep trigger is based on a liquidity‑reserve debt‑service‑coverage‑ratio (DSCR) threshold. If the principal‑and‑interest DSCR is less than 1.85×, then the required reserve amount—or 25 % of available cash flows, whichever is less—will be deposited into the liquidity reserve account, KBRA said.
ME Funding’s structure also includes two amortization features. If the principal‑and‑interest DSCR falls below 1.80×, the notes will be subject to a rapid amortization event; in that case, all cash collections will be used to pay down senior expenses.
Additionally, the series 2026‑1 notes have scheduled amortization of 5 % per annum, which could drop to 3 % if the senior leverage ratio is less than 3.50×, the rating agency said.
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