UCC Capital Corp. (UCC) last week placed its first intellectual property-backed securitization of the year, pooling IP royalty streams in a $20 million deal for fashion retailer Candie's Inc.
This is one of the first transactions UCC has closed since the company parted ways with co-founder and former chairman Charles A. Koppleman, who was bought out of the UCC last year (hence, the removal CAK from the firm's name).
UCC was able to structure the Candie's deal for an investment grade rating (Baa2') from Moody's Investors Service. The securitization was originally scheduled for last fall, but was taken out of the market following Sept. 11, re-entering this March. The seven-year ABS priced at 425 over swaps, and was placed with one investor.
Candie's bonds are backed by trademarks and licenses owned by the company, which is a publicly traded youth-oriented footwear designer and distributor. Candie's has licensing agreements with third parties, which monetize several of its brands, including "Bongo," "Candie's" and "Aspen."
The new UCC
According to Chief Executive Officer and Co-Founder Robert D'Loren, UCC has three more transactions in the pipeline which the firm hopes will close this year. Two of the deals are franchise royalty securitizations: one for a retail franchise, and the other for a restaurant franchise, along the lines of the Arby's logo securitization, which closed in 2000. The third transaction is for a company in the fashion/apparel sector.
Significantly, UCC has established an institutional funding relationship with GE Capital, which essentially gives the firm the ability to fund on balance sheet.
"We're looking up the food chain, at some larger deals, which we are able to [approach] given our funding capacities today," D'Loren said. Theoretically, UCC is now able to structure and take a sizable transaction down itself, then sell it when the market is favorable.
Over the last year and half, UCC has built up an M&A and restructuring practice, advising companies with core assets in intellectual property. UCC has engaged in three restructurings assignments in the apparel sector this year alone.
"We have emerged and defined ourselves as a firm designed to provide financial solutions for next economy' companies," D'Loren said.
The term "next economy" refers to business models focusing on intellectual capital.
In 1999, CAK closed one of the first visible fashion royalty securitizations, monetizing the trademarks and brands associated with the Bill Blass clothing label. The transaction funded a management buyout. Interestingly, Bill Blass' chief executive officer, Michael Groveman, is on the board of directors at UCC.