Upscale fashion house BCBG Max Azria recently priced a $53 million securitization backed by trademarks on the company's portfolio of eight brands and the royalties associated with their licensing.

The deal is comprised of a triple-A rated $12 million tranche and a triple-B minus rated $41 million tranche. The triple-A rating on the A-2 tranche was secured with a letter of credit put up by loan guarantor IP Innovations. UCC Capital Corporation acted as placement agent to New York Life Investment Management, the sole investor. Moody's Investors Service provided the lone rating.

NYLIM invested directly in the $41 million piece, and looked to IPI to upsize the deal. "This is proof positive that there are vehicles being created to allow for sub-A rated securitizations for less than $100 million to gain credit support in the market," said IPI President and CEO Keith Bergelt.

The rating from Moody's was based on the strength of the cash flows from the wholesale, retail, and third party licenses; triggers that trap excess cash and the reserves in the transaction; the potential liquidation value of the trademark; and the experience of the manager and the back up manager, analysts said in a release. UCC Capital is acting as servicer.

Industry observers contend that the apparel industry is ripe for future securitizations. "There are opportunities for this type of whole company securitization to be used by established brands," Bergelt said. "BCBG has crossed the threshold and is now at the level . . . of sustainability that makes it suitable for this type of transaction."

For companies with a sufficient depth of royalty streams, a more traditional securitization backed solely by those streams is also an option, Bergelt added.

IPI has provided enhancement on several IP transactions, however, this marks the firms first true securitization (see ASR, 10/4/04). The other transactions were simple collateralizations of the IP in which IPI took a first lien position, Bergelt said. IPI is currently working on several collateralizations backed by IP from both trademarks and patents. Interested parties include an unnamed electronics company and a consumer products firm.

To date, UCC has completed seven transactions backed by trademark royalty licensing, said Robert D'Loren, president and CEO of UCC Capital. "What's unique about this deal is the way we deal with the retail component. Through this we dealt with how to mitigate risk at the retail level," D'Loren said.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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