A new penalty system that penalizes clubs incurring out-of-control debt could further dampen appetite for U.K. soccer securitizations.

The 20 clubs under the Barclaycard Premiership aim to implement a nine-point penalty system for clubs entering into administration. Essentially, this means that clubs facing an insolvency will now have to consider being moved nine points lower in the ranks, which would expose the lower-tiered clubs to a greater risk of relegation (see ASR 6/02/02). For bankers, it means even greater uncertainty when it comes to structuring securitizations.

Under past regulations, clubs that enter administration were able to clear themselves of debt. For instance, Leicester City came out of a bankruptcy that was declared two years ago with its debt restructured and at the top of its game - the club was promoted to the highest rung of the league, according to sources. The Football Association (FA) favors the points penalty scheme because ideally it should deter clubs from amassing excessive debt.

A number of the U.K. clubs have used securitizations to finance stadium facilities backed by future receipts of ticket sales. Although relegation risks have typically been accounted for in securitizations, it is difficult to accurately gauge what sort of threat it poses to future gate receipts. ABS bankers met with the FA premier league to discuss what impact the new rules - due to be implemented on June 3 of this year - will have on the viability of completing future deals.

Under the new rules, clubs at the lower end of the scale will find it difficult to access capital market funding, said market sources. With clubs facing increasingly exorbitant player fees, finding alternative streams of revenue has become imperative to keep clubs afloat. According to market reports, an estimated GBP500 million (US$918 million) of club funding is sourced through the capital markets each year.

Bankers would like to avoid the added dimension of risk created by the new system and instead are proposing that players be taxed directly in a relegation scenario by reducing salaries by 50%. In the event of insolvency, bankers ask that the preferential payment of players' salaries be abolished in favor of freeing up greater cash flows to be paid out to lenders.

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