What is the purpose of the Variable Interest Entities (VIEs) for Christian Brothers Automotive?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
The purpose of the VIEs is to grow the franchise system, for investment purposes and to collect rent. The Company manages its investment portfolio and sells real estate when market conditions are favorable. The VIEs are thinly capitalized and the lease agreements between the VIE and CBAC are the sole income for the VIE until the real estate is sold to a third-party or franchisee and a gain realized.
CBAC's maximum exposure to loss from involvement with these entities is limited to the difference between the fair value of the real estate purchased and constructed and the fair value of the guarantee on the debt at the date of default. The fair value of the guarantee has not been estimated as of December 31, 2024 and 2023, as none of the debt agreements are in default or more likely than not of being in default at year-end.
The Company controls 44% ownership stake in Foedus Sui, LLC (Foedus). The Company holds a controlling interest in Foedus via its financial and contractual arrangements. CBAC is the primary beneficiary of Foedus. The purpose of the VIE is to grow the franchise system and for investment purposes.
Due to the consolidation of these VIEs, the following accounts are included in the consolidated balance sheets at December 31:
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
According to Christian Brothers Automotive's 2025 Franchise Disclosure Document, the purpose of the Variable Interest Entities (VIEs) is to facilitate the growth of the franchise system, serve as investment vehicles, and generate rental income. Christian Brothers Automotive manages its investment portfolio and strategically sells real estate when market conditions are favorable.
The VIEs are structured with minimal capitalization, and their primary source of income is derived from lease agreements with Christian Brothers Automotive until the real estate is sold to either a third party or a franchisee, at which point a gain is realized. Christian Brothers Automotive also controls a 44% ownership stake in Foedus Sui, LLC (Foedus) through financial and contractual arrangements and consolidates Foedus in its consolidated financial statements as the primary beneficiary.
Christian Brothers Automotive's maximum exposure to loss from involvement with these entities is limited to the difference between the fair value of the real estate purchased and constructed and the fair value of the guarantee on the debt at the date of default. The fair value of the guarantee has not been estimated as of December 31, 2024 and 2023, as none of the debt agreements are in default or more likely than not of being in default at year-end. Due to the consolidation of these VIEs, the accounts are included in the consolidated balance sheets at December 31.