Arsenal Football Club (AFC) is planning to securitize GBP260 million ($476 million) of fixed- and floating-rate notes backed by future revenues from ticket sales. The proceeds will be used to refinance its new 60,000 capacity stadium in North London. It's the first time a football deal is financed via the public market.
Barclays Capital and Royal Bank of Scotland are leading the deal and providing liquidity and swaps. Ambac Assurance U.K. is wrapping the transaction triple-A.
Although this offering is primarily a securitization of ticket receipts from the new Arsenal Emirates Stadium, it also benefits from the AFC's other income streams and assets. Thus, the deal functions more like a whole business securitization structure, said analysts at Fitch Ratings who rated it AAA' based on the monoline wrap, with an underlying BBB' rating on the notes.
"In contrast to other corporate securitizations where there are numerous potential customers of the asset-owning company, in this transaction AFC is the sole stadium user," explained Robert Robinson at Standard & Poor's, which also rated the deal AAA.' "The debt-service repayment for this transaction is entirely supported by match-ticket revenue from the stadium."
Upsizing the stadium
The stadium, which is scheduled for completion on July 31, increases the capacity of the AFC's home games to over 60,000 at the new stadium from 38,500 at the old stadium. "It's the only deal that has happened in quite some time," said one industry source familiar with the transaction. "I understand that there is a fair amount of restrictive covenants, and that the deal was having some difficulty getting rated. One aspect of getting it done depended on the club agreeing to do various things."
These covenants help reduce the risk of the AFC getting into financial difficulty. If any of the covenants is breached, resulting in an event of default, the controlling creditor will have the right, upon calling an event of default, to divert all transaction cash to the debt-service account. "The analysis does not rely primarily on the enforcement of security," S&P explained. "Instead, it relies on the assumption that if the AFC becomes insolvent, we expect that there will be an out-of-court financial restructuring plan allowing the AFC to continue playing at the stadium throughout this process."
But pundits doubt whether the structure can be readily copied. Few football clubs command the revenue generated by a club the size of Arsenal. For these smaller clubs, issuing a deal via the public market just wouldn't add up. Another major stadium under construction in the U.K. is Wembley Stadium, which will host the England national soccer matches as well as other major events. Once completed, it's likely to be a candidate for a similar type of securitization, one market source said.
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