The $1.4 billion bond issue securitized on Formula One revenues should avoid any fallout from the row that has erupted between the company's new German owner and the big motor manufacturers, according to bankers close to the deal.
The dispute blew up in early April, when the big car makers who supply the engines for the Formula One cars - Renault, BMW, Fiat, Mercedes and Ford - threatened to set up a rival championship after failing to reach agreement over broadcasting rights after the existing deal expires in 2007.
The car makers said they did not trust assurances from Kirch, the German broadcaster that now controls 75% of the Formula One parent company SLEC, not to restrict TV audience to pay-per-view subscribers after 2007. The manufacturers, who plough hundreds of millions in the sport, want as big a worldwide viewing audience as possible for their showcase products.
While most observers consider the threat of a break-away championship to be a negotiating ploy on the part of the car makers' - it could take them years to establish a rival championship with the standing, brand recognition and TV revenues that Formula One enjoys - the agencies and banks say it is too distant to have an impact on the bond.
Robin Saunders, the head of securitization and principal finance at West LB in London, said there was "absolutely no possibility" that the car makers would try to tear up the existing agreement with Formula One and that the issue would be refinanced way ahead of the point where it came up for renegotiation.
"Everyone expects the bonds to have been redeemed long before that date," added another of the bankers involved in launching the transaction in May 1999.
While the issue has a notional maturity in 2010, it was always envisaged that it would be taken out earlier. It becomes increasing expensive for the company from May 2002, with the coupon over Libor steps up from 130bp to 200bp and then up again to 300bp from May 2004, and no dividends can be paid to shareholders as long as it remains outstanding.
The issue is therefore likely to be taken out within the next year or so. "The expectation is that once the coupons step up it will be refinanced," said Chris Hilliard, the analyst who rated the issue for Fitch. He said Fitch had no plans to take any rating action.
Dominic Swan, senior vice-president in the structured finance group at Moody's, agreed that the nature of the dispute meant it was not an issue as far as standing of the bonds was concerned.
