Loan guarantor IP Innovations Financial Services's latest deal supporting a trademark-based loan to Wise Foods underwritten by GMAC Commercial Finance may be an indication of the growing acceptance of intellectual property as a viable, albeit intangible, asset class.

Under the arrangement, IPI provides credit enhancement on a $7 million IP-based term loan as part of a larger five-year $43 million facility administered by GMAC. IPI's enhancement has a first priority perfected security interest in all of Wise's IP, including its trademarked brand names, present and future, through the course of the loan.

Pinning a numeric value on the staying power of Cheese Doodles is a multilayered process. Keith Bergelt, senior vice president at IPI, said that private equity firm Willis Stein & Partners' recent acquisition of Jays Foods was a helpful gauge.

"That was largely a brand acquisition, with some hard assets. It was a very good comp on what a brand is worth. Jays is significantly smaller than Wise, so we had to consider that as an indicator of value," Bergelt said.

The firm also looked at the growth potential of the brand and the impact of exogenous factors, such as the low-carb craze, on the snack food industry as a whole. In addition, the stock prices of public companies in similar industries were used as yardsticks, Bergelt said.

The fragmentation of the snack food industry makes strong secondary brands, like Wise, a good bet. The Frito-Lay division of PepsiCo is the indomitable national player, which leaves many smaller players like Wise scrambling for number two in their regional markets. "Retailers need to have a number two, in order to make sure they are not controlled by number one," Bergelt said. "Wise is the number two brand in the Northeast seaboard region."

The Wise transaction represents the second time this year IPI has teamed up with securitization heavyweight GMAC Commercial Finance on an intellectual property deal. The first was a term loan for under $10 million written to ADT, a provider of thermal and acoustic insulation products for the automatic and appliance industries (see ASR 3/8/04).

In addition to its ongoing relationship with GMAC, IPI's Bergelt reported interest from other lending institutions such as GE Commercial Finance.

IPI is slated to close an apparel deal with an undisclosed retailer within coming weeks. The firm is also participating in a proper IP securitization sometime later this year. The deal will likely be for less than $100 million, Bergelt said. No further details were available.

Drug companies with established revenue streams are the most likely to complete securitizations in the near term, Bergelt said. A term securitization backed by drug royalties is expected to come to market before the year is through, sources said.

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