The new millennium does not appear to pose any threat to the continuing parade of professional sports ventures looking to securitize in the private debt market.

Following recent deals for new arenas in Miami, Denver and Los Angeles, a new asset-backed securities offering from the National Hockey League's New York Islanders is set to be introduced to investors sometime in the next quarter. While every sports finance deal has a variety of unique characteristics, this transaction may well break the general mold.

Backed by a cross-collateralized stream of television contracts and related revenue, the transaction is being underwritten by securitization innovators CAK Universal Credit Corp.

However, the financial group's involvement will not end when the final papers are signed. Rather, CAK is signed on as a partner in an investment team assembled to purchase, and then issue debt from, the Islanders. If the acquisition is indeed finalized, it is believed that CAK will become the first financial institution ever permitted to hold an ownership interest in a private professional sports franchise.

According to Robert D'Loren, president and chief operating officer of CAK, the debt offering will be preceded by an interim financing step worth approximately $280 million. That phase will resemble a project finance facility done in conjunction with a commercial bank and will be used to "develop on-ice talent and resolve outstanding issues regarding the Nassau Coliseum."

The subsequent private placement will then be used to repay the loan. It will be marketed primarily to buyers who have participated in previous CAK deals.

While D'Loren touts the Islanders' generous local television contract with Cablevision as a strong selling point for potential investors, there are a number of factors working against the transaction.

First, and of most immediate significance, the group trying to buy the hockey club has not yet quite managed to do so. Moreover, the "outstanding issues" surrounding the Islanders' current home arena are less issues and more conflicts regarding the investment team's apparent desire to build a new, albeit nearby, arena in spite of an existing lease with Coliseum lessors Spectacore Management Group.

In addition, the Islanders are one of a growing number of NHL franchises that have recently been unable to turn a profit. Combine that with a fear that the long-term Cablevision contract might not look so attractive in a few years given skyrocketing broadcast rights fees, and investors are wary of getting involved even before seeing the books.

As one buyside source who invested in the new Miami arena said, "In order for me to do hockey, I'd probably want something like a bond insurance wrap because I'm not sure that the cash flow is really strong enough." He added, "Hockey is the only one of the major four sports that is paid for by tickets and that doesn't seem to be cutting it right now... I mean the arenas just aren't full."

Another investor cited concern that some of the Islanders' contracts might not be renewed if the club continued to struggle on the ice.

D'Loren, though, is not fazed.

"I just don't believe that renewal risk will be a problem because we've done various renewal deal before," he explained. "It's no different than tenant renewal risk in a multi-tenant office building."

And, given CAK's track record for circling difficult deals, they might prove to be the favorite when Islanders bonds are finally offered to investors.

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