Just as everyone thought that the excitement was over, the Morgan Stanley Dean Witter/West LB securitization for Bernie Ecclestone's Formula One Group was back on the front pages, as the European Union competition commission again called into question the validity of the television contracts that back the deal.

The commission's "formal objection" which was apparently leaked to the Financial Times before getting to Formula One caused an initial flurry of concern among investors, the four rating agencies that have rated the deal single-A, and the underwriters. However, both WestLB and Morgan Stanley were soon saying that the issues that the E.U. raises are no different from those that have already been aired and fully discussed with investors, rating agencies and the various legal advisors involved in the transaction.

Both banks also immediately agreed to buy back any bonds they have already sold, but they stressed that investors had only called to ask for more information rather than hoping to return paper.

The commission's formal objection is the first step it must take if it is to proceed with legal action against the Formula One, or the Federation Internationale de l'Automobile (FIA), the sport's governing body, and it contained two main allegations: that the FIA had abused its power to stop the formation of other rival motor racing events, and that the exclusive TV contracts awarded by FIA to the Formula One Group were anti-competitive.

After the initial intake of breath, the underwriters seemed relieved, arguing that, whatever the commission's final decision, bondholders were unlikely to be affected. "Let's assume that the TV contracts have to be shortened and that is all that can happen then that will simply mean that the revenues from broadcasting rights will go up, as broadcasters are desperate for them. That is good for the bondholders ... Also, even if there is a decision that will allow for the formation of directly competing motor racing events, then what chance is there of an alternative event being set up? It would be next to impossible to start something that would impact on F1," said an official at one of the underwriters.

This view seems to be shared by the rating agencies, though only Fitch IBCA had issued a formal statement by press time. The statement considered the affect of an adverse ruling and said: "While these outcomes could have a negative impact on the revenues received by Formula One Administration Ltd., Fitch IBCA was on balance able to conclude that this impact is likely to be immaterial for bondholders. In the case of shortening of the exclusive contracts, revenues could even be boosted."

Investors who were considering buying the bond also seemed sanguine about the commission's statement. "We've been through this all before and nothing seems to have changed. In fact, I think a bigger worry is that Bernie Ecclestone has had a heart bypass recently and there is talk of him taking a back seat in the business. Theoretically, that shouldn't make any difference, but is there anybody else who will be able to keep the whole ego-ridden Formula One business functioning?" asked one. MD

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