Moody's Investors Service downgraded the E95 million class A notes of the Fiordillate insurance-wrapped Italian football securitization (see ASR 5/13/2002). The downgrade is a yellow card for the deal, but more significantly, it means that issuance of wrapped deals will calm until Italian insurers set their priorities straight.

"I would say this deal is a one-off," said Stelvio Bo at Abaxbank, managing bank on the transaction. "The insurer has not decided to set up a separate company for backing this kind of wrap, and it's likely that for the time being it won't be wrapping any deals of this kind." However, he added in the past that there have been a number of structured finance deals that have carried some form of insurance company support, but these are typically different than wraps seen in securitization transactions.

The Fiordillate deal is rated according to the wrap provided by multiline Italian-based insurer Assicurazioni Generali S.p.A. The concern from the outset was the multiline's dedication to this line of business. Based on its ratings approach, Moody's concluded that it was satisfied with the guarantor's commitment to irrevocably and unconditionally pay all senior expenses incurred and to cover the interest payments for the E94 million class A notes in the event of a shortfall.

The financial strength rating of the insurer was downgraded earlier this month to Aa3' from Aa2'; as a result, the class A notes of the transaction issued by Italian football club Parma have also been downgraded. According to the Moody's analyst, the receivables in the transaction on their own were viewed as extremely volatile when the transaction was first issued, particularly because relegation threats expose the transaction to unstable cash flows.

The newly formed Italian PAY-TV company Sky Italia introduces a new dimension to the portfolio standing. The News Corp.-owned company was formed through the merger of News Corp's original presence in Italy under Stream and Telepiu, formerly owned by Vivendi Universal. "The quality of the portfolio could greatly improve now that Stream, a major contributor, has been incorporated into this stronger platform," said Bo.

Despite the preliminary foray into the insurance world, it's likely that Generali will step out of the guarantor business for now. However, Bo said, based on numbers alone, when the Italian segment decides to enter this market it's likely that Generali will lead. "The weakness of a one- notch downgrade should in theory not really have any effect to the standing of the bonds and protection of the cash flows in the Parma deal," explained Bo. "Once the company improves its numbers, it will emerge as a rock-solid business and a good, solid Italian player with an excellent position in Europe."

Past the halftime

A new breed of soccer securitizations is rumored to be brewing in the U.K. market. After a considerably quiet season last year, Bear Stearns is expected to bring to market a new deal for the U.K. national governing body, the Football Association (FA). Notably, this deal is expected to break the GBP100 million mark.

Appetite for football paper has remained standoffish for sometime now because of the ITV digital frenzy and concerns about relegation - demotion to a lesser league - that have affected both the Leicester City and Ipswich transactions. This has created a general malaise within the sector. Typically, the force majeure behind these structures is a loyal fan following that some argue would not be affected by relegation. U.K. football fan loyalty is not as shaky as broadcasting revenue, but concerns persist that a relegated team might not be able to generate sufficient gate receipts.

The FA deal is expected to be structured differently, said one source. "The streams that will generate revenue are completely different than with football clubs themselves, which can have 19 to 20 home games in a season," explained Stuart Brinkworth, structured finance lawyer at Ashurst Morris Crisp. "Because there are much fewer international matches, and the current trend is to have less, not more, securitizing gate receipts is much more difficult, and therefore much more emphasis is placed on sponsorship and merchandising income."

Brinkworth acted for the investors and arrangers on the recent Norwich City securitization and on the GBP75 million Tottenham securitization last year - the FA deal would likely be executed over 10 to 15 years, which means a new risk for shaky investors. "You would have to get the investors comfortable with the renewal risks inherent in securitizing short-term revenue streams over long periods" said Brinkworth. "In saying that, unlike clubs that compete with each other for sponsorship, there is only one England team; the FA, therefore, doesn't have to compete with another football team in that sense when it looks for sponsors, giving investors some degree of comfort.

As for structure, Brinkworth continued, the FA deal would be different from football club deals in that there is no stadium to transfer down to an SPV for the purpose of splitting the revenue-generating assets from the other assets of the group. Thus, while the underlying contracts themselves would be ring-fenced, the structure could be more like a secured bond structure with some flexibility for small amounts of short-term borrowing to fund working capital.

The main hurdle is convincing the limited investor market. In past deals, only two major U.K. investors and two U.S. investors have participated in more than one deal, and market sources question how likely these buyers will be to take on bigger pieces in a chunkier deal given what happened to Leicester and Ipswich - both of which carried out securitizations and both of which are in administration.

An unresolved political issue remains of "Club vs. Country": whether clubs will continue to allow players to participate in more England-team related functions, and ultimately whether clubs will be expected to be compensated that participation. Such payments would be operating costs and would rank preferential to payments on any bonds in an operating company type structure, explained Brinkworth.

"The market is sensitive right now, but maybe it's the right time and place for the FA to issue a different structure that doesn't stimulate fears of relegation or a club's ability to buy and sell players," he said. If anything, it could set the trend for larger deals, paving the way for publicly placed and rated securitizations going forward.

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