IFR 03.08.2019

"OTHûOFûTHOSEûDEALSûCARRIEDû4RIPLEû#û
RATINGS ûWHEREASû3IRIUSûISûRATEDû"n"û30
&ITCH 
"UTûTHEûHIGHûPRICEûISûNOûSURPRISE ûASûTHEû
DEALûCOMESûWITHûAûHIGHûDEGREEûOFûEXECUTIONû
RISKû)TûWASûINITIALLYûMEANTûTOûBEûlNANCEDû
THROUGHûAûPROJECTûlNANCING ûBUTûSTRUGGLEDûTOû
GAINûAûLOANûGUARANTEEûFROMûTHEû5+û
GOVERNMENT
4HEûlNANCINGûPACKAGEûHADûTOûBEûINCREASEDû
SEVERALûTIMES ûlRSTûDUEûTOûHIGHERûTHANû
EXPECTEDûCONSTRUCTIONûCOSTSûANDûNOWûDUEûTOû
THEûMOREûCOSTLYûDEBTûSTRUCTURE
4HEûMAXIMUMûYIELDûPERMITTEDûONûTHEû
BONDûBYû3IRIUSSû2#&ûAGREEMENTûISû û
ACCORDINGûTOû2ElNITIVSû0ROJECTû&INANCEû
)NTERNATIONAL
4HEûBONDûISûPARTûOFûAûSECONDûSTAGEû
lNANCINGûFORûTHEûPROJECT ûWHICHûINCLUDESûAû

53BNûCREDITûFACILITYûAû53MûEQUITYû

RAISEûANDûAû53MûCONVERTIBLEûBONDûISSUE

4HEûNOTESûNEEDûTOûBEûSOLDûBEFOREûTHEû

COMPANYûCANûACCESSûTHEûCREDITûFACILITY

4HEûCOMPANYûISûTAPPINGûTHEûHIGH

YIELDû

MARKETûASûITûWANTEDûTOûAVOIDûAûLONGûWAITûFORû

GOVERNMENT

BACKEDûlNANCINGû4HEûTIMINGû

OFûTHISûFUNDINGûWASûUNCERTAINûANDûTHEû

COMPANYûDIDûNOTûWANTûTOûPUTûTHEûPROJECTûONû

PAUSE

h3IRIUSûISûTESTINGûINVESTORSûRISKûAPPETITEû

ANDûWEûAREûNOTûCONVINCEDûTHATûAûHIGH

YIELDû

BONDûWOULDûBEûANûAPPROPRIATEûlNANCINGû

INSTRUMENTvûANALYSTSûATû,UCRORû!NALYTICSû

SAIDûINûAûRECENTûNOTEûCITINGûEXECUTIONûRISKû

ANDûTHATûTHEûCOMPANYûISûNOTûEXPECTEDûTOû

GENERATEûPOSITIVEû%BITDAûFORûYEARSûTOûCOME

4HEûCOMPANYûDOESûNOTûGENERATEûANYû

REVENUEûORûCASHmOWû&OLLOWINGûTHISûSTAGEûOFû

THEûlNANCINGûTHEûPROJECTûISûEXPECTEDûTOûBEû

FUNDEDûTOûAûLEVELûWHEREûITûCANûSTARTû

GENERATINGûCASHmOW

(IGH

YIELDûINVESTORSûWHOûDOûNOTûTENDû

TOûLIKEûCASH

BURNINGûCOMPANIESûWOULDû

TYPICALLYûLOOKûFORûSOMEûCONlDENCEû

AROUNDûEARNINGSûANDûCASHmOWû

GENERATIONûINûAûCREDITûTOûENSUREûTHEYûAREû

PAIDûBACK

%BITDAûISûEXPECTEDûTOûTURNûMARGINALLYû

POSITIVEûBYûûANDûSEEûITSûlRSTûMEANINGFULû

INCREASEûBYûûACCORDINGûTOûMANAGEMENTû

ESTIMATESûPRESENTEDûINûTHEûNOTESû

PROSPECTUS "UTûAûCONSERVATIVEûESTIMATEûALSOû

PRESENTEDûTOûINVESTORS SUGGESTSûITûWILLû

REMAINûNEGATIVEûUNTILû

/NûTOPûOFûTHEûCONSTRUCTIONûPROJECTûTHEûLACKû

OFûAûMARKETûTRACKûRECORDûFORûPOLYHALITEûISûAûKEYû

RISK

BONDS HIGH-YIELD

AS Roma kicks off in high-yield

„ EMEA HIGH-YIELD Italian club mimics peer Inter Milan to tap the bond market

AS ROMA has priced its debut high-yield offering,

paying a premium for its absence from the

Champions League this coming season.

The €275m of five-year non-call two senior

secured notes were priced at 5.125%, the tight

end of 5.25% area guidance.

The issuer, ASR MEDIA AND SPONSORSHIP, is an

SPV that manages the club’s media, broadcast

and sponsorship business as a separate entity

from the football club. The deal mimics the

structure of an Inter Milan bond issued in 2017.

The structure offers a safeguard to investors

through a “secured account waterfall”, which

places cashflows into certain accounts,

preventing the issuer from making payments

to the club before satisfying the account

requirements – which include paying back

creditors.

Applying the structure to standalone football

clubs allows them to access institutional

investors by stripping away some of the credit

risk involved with the operating metrics of the

club. Roma as a team has been loss-making for

at least three years, finishing 2018 with a €26m

loss.

The deal came at a premium to Inter’s €294m

4.875% December 2022 note issue, which was

quoted at a bid yield to maturity of 3.70% on

Thursday while Roma was due to be priced,

according to Refinitiv Eikon data.

A source familiar with the deal said this was

mostly due to the company’s failure to qualify for

the Champions League, unlike Inter Milan.

That means Roma will miss out on inflows of

between €20m and €45m during the coming

year, according to the notes’ prospectus.

This has a big impact, with the debt service

coverage ratio – which measures the amount of

debt against the amount of cash drawn to pay

debt – estimated to fall to 7.7 times for the year

ending March 2020, compared with 14.8 times

a year earlier.

HIGH DISCLOSURE

Missing out on the Champions League, together

with the main risk bondholders face, relegation,

has prompted a level of disclosure that is highly

unusual.

Relegation means that, in addition to a

lack of revenues from UEFA tournaments,

the club would lose out on media rights from

participating in Serie A, as well as some

sponsorship agreements.

The documentation provides cashflow

estimates for the years ending March 2020

and March 2021 based on revenues that are

contracted throughout the period.

This is meant to reassure investors about

what cashflows are expected should the club be

relegated, the source said.

If this happens, or the club loses certain

media rights contracts, it will have to redeem

part of the bonds.

“It’s incredibly unusual to see two years

of project cashflows and look-forward credit

metrics in an offering memorandum,” said

Steven Hunter, CEO of 9fin, a data provider

focused on the high-yield market.

“Law firms are traditionally very cautious of

giving even ranged guidance or estimates of

capital expenditures for the next 12 months, so

to see specific numbers is a big step change for

a European deal marketed under US securities

law,” he told IFR.

Luckily for AS Roma, the risk of relegation is

being seen as highly unlikely given its historical

performance, according to Spread Research

analyst Jean-Rene Meduri.

SECURITY

This is the second football bond issue in the

market this year, after fellow Italian club

Juventus priced a €175m five-year note offering

in February.

However, that was an unsecured, unrated

bond issue marketed off investment-grade

syndicate desks. This means that Juventus

creditors are exposed to the club as a whole and

payments due to them are potentially impacted

by the club’s spending on players – a major

problem given how expensive transfers can be.

Such a structure is only likely available for clubs

with top credit metrics.

The Juventus bond offering – a €175m five-

year issued in February – has been far more

volatile than Inter Milan’s, seeing sharp moves

off on-pitch performance, although this is also

likely due to its illiquidity.

A second source familiar with the deal said

the structure used by AS Roma and Inter Milan

borrows techniques from NFL, NBA and NHL

league-wide credit facilities in the US, which

pool broadcast revenues from across each

league, allowing the clubs to borrow at a much

lower cost of debt than they could do on their

own.

Like Inter’s deal, Roma’s is rated under S&P’s

project finance methodology, carrying the same

BB– rating.

Proceeds refinance an AS Roma loan that

included the same secured account structure.

Goldman Sachs and JP Morgan were global

coordinators, with UBI Banca as co-manager.

Yoruk Bahceli