It's not unusual to see something new arising from the Italian regions, but just when you think they have done it all, out parades yet another trend-setting deal. This time around, the Italians scored a goal when the football club Parma A.C. S.p.A came to market.
The transaction is unusual on two accounts: it was the first Italian football securitization publicly placed and the first deal under the new Italian securization law 130/99 to carry a performance wrap - a detail that made this particular structure viable for public market distribution.
Without it, explained analysts, it would have been impossible to place because the underlying collateral was rated based on that performance bond, offered by Assicurazioni Genarali S.p.A. The insurance provider is rated Aa2' by Moody's Investors Service and as a result the single-tranche offering was also rated Aa2'.
"This deal was done for funding reasons and usually securitization has not really been a funding option for these clubs," said one source. "Now clubs can look at it as an alternative option that allows them to diversify funding and also gets their name out on an international level, because investors have the time to get used to them." At launch time last week the EURO94 million transaction was expected to price by the end of the week with price talk at a spread of 70 basis points over the three-month Euribor.
Public or private
The European securitization market is no stranger to football transactions. In the past years the U.K.'s Premier League football club has completed several transactions, predominately on a smaller scale than Parma and typically executed through the private market. Italy itself completed similar deals a few years ago that were also funded througout the private market.
But, said analysts, in the U.K. transactions the receivables were largely investment-grade notes that carry an average life of 20 years, whereas the privately placed Italian deals spanned five to seven years and are unrated notes. Without the wrap, the Parma receivables would have been viewed as sub-investment grade notes. "The receivables are extremely volatile," explained one analyst. "In one year with relegation, you could lose 35% of your receivables."
So why haven't the U.K. teams opted for the public market route? Some sources say it's largely due to the limited size of these transactions, which are typically below the GBP60 million mark and generally only securitize ticket receivables. The Parma deal is larger because its SPV receivables derive from sponsorship, advertising, trademark licensing and TV rights licensing agreements for football seasons up to 2005, an option that U.K. clubs are said to be considering for future securitizations. Still, the key for the Parma deal is in its performance guarantee, which has allowed investors to become comfortable with the structure.
Nonetheless, Assicurazioni is a multiline provider and following the Hollywood Funding fiasco of last year, it takes time to become comfortable with the guarantee. "You have to determine that they will pay attention, regardless of what their other obligations may be," said the source.
In the 40 days preceding a payment date the outstanding balance of the SPVs account will be established. If a shortfall occurs, a demand of payment will be made to the insurer within five days, at which point the insurer will have 15 business days to make the payment. Moody's rated the deal based on its belief that the performance bond is irrevocable, unconditional and timely.
In Italy a monoline provision would have to come from abroad and to date none have made the move, but with Assicurazioni taking this first step, other insurers may take an interest in Italian securitizations, said one market source.
But whether the Parma transaction opens a floodgate of more Italian soccer transactions is difficult to say. The last football securitization was completed in 1998 and the reason why it has taken so long before another transaction came to market has to do with the financial needs of the teams, said one source.
In Italy teams have typically not been in need of liquidity and the last two deals completed in the private market were used largely as a tool to tap the capital/loan markets. "Now all of the teams have been all over the press and there is a general falling trend," explained the source. "With regards to other teams tapping the market, it has to be seen whether securitization is a viable and profitable tool to improve financial standings."