Parma A.C. Securitisation Project

STRATEGIC TREASURY

Parma A.C. Securitisation Project

by Patrick Nebiolo, Director of Finance and Marketing , Parma A.C. S.p.A. In brief In this article the Finance Director of the Italian football club Parma A.C. describes the club’s 2003-05 business plan, the remodelled corporate structure and its closely correlated securitisation. This was successfully launched in May 2002, and was the third securitisation with an Italian football side as Originator and the first to be backed by receivables deriving from sponsorship, advertising and licence agreements. It was issued by Fiordilatte, an Italian limited company incorporated under the Italian Securitisation Law.

ARMA A.C.’s securitisation (technically an asset-backed securitisation performed through the SPV Fiordilatte), which secured for the club a total amount of 95 million, was launched in May 2002 and has been considered quite innovative, being the first of its kind for Italy and one of the few in Europe using media and sponsorship multi-year contracts for underlying assets and extremely successful for taking place during one of the toughest periods ever for financial markets in general and for the soccer sector in specific.

As agreed by banks and investors in general, the success of the transaction was primarily due to its correlation with Parma A.C.’s recently crafted business plan, which in fact has been partially financed with funds coming from the the securitisation itself.

P

The business of Parma A.C. The principal business of Parma A.C. is the operation of a professional football club including related commercial activities. Founded in 1913, Parma A.C. is one of the oldest and best-known professional football clubs in Italy.

Parma A.C.’s long history of success and its achievement in major domestic and international competitions have resulted in a strong and loyal following.

Table 1 is a list of national and international competitions won by Parma A.C. In the last ten seasons, except for the season 2001/2002, Parma A.C. TMI | NOVEMBER 02

has always ranked amongst the top seven teams in the Serie A Italian Championship. In addition, during the same period, Parma A.C. has played 12 Italian and European Cups finals, winning eight. Since its admission in Serie A in 1990, it has always participated in the European competitions, which has enabled the club to reach the 10th position in the Uefa ranking.

In September 2000, an international marketing division was created inside Parma A.C. in order to further develop and spread the brand Parma A.C. internationally. The project Parma A.C. International has the following goals: (i) increase the popularity of the brand Parma A.C. ; (ii) create international synergies with Parmalat; (iii) create innovative football schools for coaches and children, especially in Asia, to spread the club’s organisational and technical model; this will be done in collaboration with local institutions

and partners; (iv) conclude commercial agreements with international partners; (v) increase the sales of Parma A.C. merchandise.

The 2003-05 business plan The club is currently implementing a new industrial plan, jointly developed with strategy consulting firm Bain & Company (see chart 1). The plan was developed with both short-term and medium/long-term goals in order to overcome the critical period through which the club, and the whole football industry, is currently going.

Short-term objectives are (i) reorganising the company’s structure, (ii) rationalising costs and (iii) activating new ‘light’ business activities.

In the long run, the club aims at maintaining the activities already in place and at setting off more complex

Table 1 – National and International Competitions won by Parma A.C. Tournament

Season

UEFA Cup European Supercup Cup Winners’ Cup Coppa Italia Italian Supercup

1994/1995 & 1998/1999 1993/1994 1992/1993 1991/1992, 1998/1999 & 2001/2002 1999/2000 1

STRATEGIC TREASURY

Parma A.C. revenue breakdown – 1992-2000

99-00

98-99

97-98

Season 96-97 95-96

Media Rights

48.8%

30.7%

30.7%

36.2%

Sponsorships

18.9%

27.4%

27.4%

(prizes, match-day & season tickets)

12.7%

17.4%

Advertising & Merchandising

10.3%

Other Revenues

94-95

93-94

92-93

28.2%

24%

25%

20.9%

25.3%

27.1%

23%

1%

20.9%

17.4%

23.5%

31%

33.8%

38.7%

38.8%

7%

7%

3.8%

4.2%

4.7%

4%

4.4%

4.3%

2.8%

2.8%

7.1%

4.2%

11.3%

0.5%

11.2%

Match Bonuses

3.4%

11.9%

11.9%

0%

0%

0%

0%

0%

Professional Soccer League Contributions

1.6%

3%

3%

4.2%

5.4%

2%

2%

3.8%

100%

100%

100%

100%

100%

100%

100%

100%

Match revenues

Total

Chart 1 – Strategic Guidelines Main activities ● ●

Technical Area

Costs management

●

●

Future Parma model

Technical Area

Revenue growth/ Diversification

● ● ●

Technical Area

plans such as the building of a new stadium. The efficiency of the technical branch will be increased linking players’ salaries to the results achieved. A cap will be placed on total salaries, which should be reduced to Euro 44 million in three years. Emphasis will be placed on football schools and on agreements with minor leagues’ clubs in order to gain preferential access to their youth teams’ players.

The club’s plan aims at focusing the commercial area on the most profitable activities. This will be done through commercial partnerships and 2

Structure aligned with objectives

the exploitation of the potentialities of Parma A.C. branded products and the club’s assets (corporate boxes in the Ennio Tardini stadium, improvement of the Collecchio Sport Centre).

The corporate structure has also been remodelled, and focuses on the company’s new goals and plans (chart 2).

Fiordilatte’s securitisation This is the third securitisation transaction to have an Italian operator of a professional football team as Originator

●

Investments in youth sectors Reduced number of players New salary scheme: – Internal 'salary cap' – Introduction of a 'fixed+variable' salary Alignment of Parma A.C./Parmalat commercial strategies and development/ exploitation of the group's synergies New products/services for the consumer Investments in infrastructures (Stadium revamping, Collecchio Sport Centre) New products/services for players

New organisational structure: – New management – Restructuring of Technical Area

and the first to be backed by receivables deriving from sponsorship, advertising, trademark licence agreements and TV rights licence agreements.

The issuer, Fiordilatte S.r.l. (‘Fiordilatte’) is a limited company incorporated in Italy under the Italian Securitisation Law (law 130/99). Fiordilatte funded the purchase of the portfolio through the issuance of two classes of Notes: Class A and Class B. Class A were publicly placed while Class B have been retained by Parma A.C. S.p.A. (‘Parma’).

Class A Noteholders benefit from a Financial Guaranty Insurance Policy TMI | NOVEMBER 02

STRATEGIC TREASURY

issued by Generali, which unconditionally and irrevocably guarantees the due and punctual payment of Scheduled Payments of Principal (according to the Class A Notes Guaranteed Principal Payment Schedule), Interest and Senior Expenses.

Under this guaranty insurance policy, Generali relinquishes the right to adjust a claim and litigate that claim prior to payment. On the basis of such Financial Guaranty Insurance Policy, Class A Notes have been rated AA by Standard and Poor’s.

The underlying assets The portfolio is represented by: 42 receivables deriving from TV rights licence agreements (Società Diritti Sportivi); 47 receivables deriving from sponsorship, advertising and trademark licence agreements (the remaining obligors). See Table 2.

The Notes

Chart 2 – Company Structure

President

General Manager

Organisation

General Secretary

P.R./Press Office

Legal Affairs

Technical Director

Sales, Finance & Operations Director Marketing & Communication Manager

Talent Scouts

Class A Notes: 94 million FRNs (rated AA by S&P).

◆

Class B Notes: 1 million, not rated, retained by Parma A.C.

◆

No principal payments will be made during the first 18 months following the issue date. Class A notes will be redeemed from (and including) the payment date falling in December 2003.

◆

Class A Notes Principal Payments will at least be equal to the amounts set out in table 3 in relation to each Payment Date.

Finance Administration & H.R. Manager

Main Team

P.M. (Merchandising)

Accounting Manager

Youth Sector

P.M. (Sponsoring)

Human Resources

Medical Staff

P.M. (Media & Communication)

Special Project Manager

P.M. (Contracts)

Facilities & Safety Manager

At closing Fiordilatte issued two Classes of Notes in order to finance the acquisition of the portfolio from Parma A.C.: ◆

Internal Auditor

Graphic Dept.

Chart 3 – Transaction description GENERALI (Guarantor) Costs management

94 mil.

Structure aligned with objectives

1 mil.

Financial guarantee Insurance policy Purchase Price

Parma A.C. Assignment of Receivables

Fiordilatte S.r.I. (Issuer) Interest Rate Swap

Underwriting Proceeds Issuance of notes

Banc of America (Swap Counterparty)

Conclusion Fiordilatte’s securitisation was launched in May 2002, and oversubscribed by investors in the first week on the market.

The proceeds of the securitisation have been utilised by Parma A.C. to fund: ◆

Restructuring of organisation

◆

Investments in infrastructure

◆

Young players’ acquisition (balanced with sale of wellestablished/more valuable players).

TMI | NOVEMBER 02

Transaction Parties Originator Issuer Guarantor Arranger/sindicator Servicer Representative of noteholders Principal paying agent, calculation agent Cash manager Swap counterparty Listing agent

Parma A.C. Fiordilatte Generali Abaxbank (Credito Emiliano Group) Credito Emiliano The Bank of New York The Bank of New York The Bank of New York Bank of America BNP Paribas 3

STRATEGIC TREASURY

Table 2 – Breakdown by outstanding principal amount

Designated Agreement

Outstanding Amount (Euro)

Percentage of total outstanding amount

962 136,345 40,903,386 247,899 75,609 13,014,714 48,340,366 511,292

0.09% 0.13% 39.59% 0.24% 0.07% 12.60% 46.79% 0.49%

103,322,574

100%

Albacom.Amps Telecomunicazioni S.p.A Molten Corporation and Advanced Distribution S.p.A. Parmalat S.p.A. Publieurope International Ltd Sixtus Italia S.r.l.

Societ Diritti Sportivi S.r.l.

Societa Diritti Sportivi S.r.l.

Telecom Italia Mobile S.p.A.

Total

Table 3 – Class A notes principal payments

Payment date falling on

Class A notes guaranteed principal payment

Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05

– – – – – 23,500.000 12,500.000 13,000.000 2,500.000 13,000.000 13,000.000 13,500.000 3,000.000

Total

94,000.000

On each payment date, the funds available to the issuer are: - All amounts collected in respect of the Portfolio during the preceding Collection Periods; - All amounts of interest accrued and available on each of the Accounts; - All amounts of interest accrued on the Eligible Investments; - Any other amounts received by the Issuer pursuant to any of the Transaction Documents.

Patrick Nebiolo Director of Finance, Marketing and Operations, Parma A.C. Patrick Nebiolo has been the Director of Finance, Marketing and Operations at Parma A.C. since January 2002. Before this, he was a manager at the strategy consulting firm Bain & Company.

Patrick holds an MBA in finance and marketing from Stern School of Business – New York University, as well as a Bachelor Degree in Law from Università La Sapienza (Rome).

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Parma A.C. Parma A.C. was founded in 1913 under the name of Verdi Football Club. In the 1930s its name was changed to Parma Associazione Sportiva. It became a limited liability company in 1984 and in the same year, it became a joint stock company.

Parmalat S.p.A, a minority shareholder since 1987, acquired the majority of the club in 1990. The club was promoted to the Italian First Division (Serie A) in 1991.It became a not-forprofit company five years later, and took part in the Uefa Champion League for the first time in 1997.

TMI | NOVEMBER 02