Loarre Investments, the vehicle used by CVC Capital Partners to invest €2bn into Spain’s LaLiga, is getting close to issuing the first ever European bond used to finance a football league, but is having to offer some eye-catching pricing to lure investors into the deal.
The deal is on course to price on Friday despite LaLiga announcing earlier this week its first loss since 2012.
Sports financing is a growing trend within Europe’s primary markets. However, the focus has been on providing funding for individual teams, rather than entire leagues. The €850m of bonds from Loarre had instant appeal to some investors and the hefty yields flagged in Thursday’s price talk update should help to draw in more.
The trade, led by Goldman Sachs, is being split across €500m 7NC3 fixed-rate and €350m 7NC1 floating-rate tranches, expected to be rated Ba3/BB by Moody’s and Fitch.
Identifying the appropriate pricing is difficult given the deal has no direct comparables. There are also a number of risks associated with the transaction, which needed to be reflected in the pricing. For example, several of the clubs that voted against CVC’s investment, including Real Madrid and Barcelona, are now suing LaLiga over the deal.
“To form our fair price, we also looked at bonds rated BB/BB- of healthcare issuers given their resilient, predictable and good cash generation while they are also impacted by litigation risks,” said Francois Baudet, a senior credit analyst at SpreadResearch, who indicated fair pricing would be in the 6% area for the fixed-rate bond and around 5% for the FRN.
Based on that analysis, IPTs appeared attractive. The fixed-rate tranche was flagged at a 7% area yield and a coupon of 6.5%, while the FRN was offered at Euribor plus 500bp coupon and OID of 97-98. But even those levels weren't sufficiently compelling. On Thursday, the issuer announced price talk of 7.125% yield (with a 96.60 OID) and a 6.5% coupon for the fixed-rate tranche, and a 97 OID for the floater.
“I think over 7% for BB will gain some traction, as our concerns are more mid-term than short-term and short-term there is a locked-in revenue stream,” said a portfolio manager.
Despite the eye-catching levels, pricing did not seem unreasonable to market participants. “It is a minority investment [from CVC] and this is a holdco deal, so you can see why those juicy numbers are needed. But we have heard that the CLOs like it and that the fixed guys like it,” said one leveraged finance banker. “But I hope those other, more typical, Double Bs that are monitoring the market aren’t going to see this and think that is where they will price, because it isn’t. This is very different.”
A very different proposition
Although the relative complexity of the transaction, which is secured by a package including a pledge over the profits derived from the sale of audio-visual rights, put some accounts off, others, who have had experience of buying sports-related bonds, saw liked the idea of taking exposure to an entire league.
By investing in a league, rather than a single club, investors are able to avoid what some described as “sporting risk”, or the risks associated with a club being relegated or performing poorly and therefore losing revenues.
“Investing in a league is a very different proposition to a club,” said one high-yield bond investor. “There are commercial opportunities and the risks are different to a team, where, even if they are successful, the players and agents seem to absorb all of the cash.”
However, LaLiga did make a net loss of €892m for the 2020/21 season, more than 55% of which was attributed to one club. Though the results didn't say which one, it is thought to be Barcelona given the scale of its losses. The league's revenues were also down by nearly 25%, at €3.82bn.
CVC is making a €2bn investment in the league which, as well as the bonds, is being financed through a €1.2bn equity commitment and €40m RCF. Its investment entitles it to an economic participation of around 8.2% in LaLiga’s profits over 50 years.
CVC has already invested €633m into LaLiga and the rest will be invested over the next two and half years.
Super League threat
Although investors appreciate the fact that buying bonds from a league leaves them much less exposed to “sporting risk” some did highlight the recurring threat of the formation of a European Super League.
“A point worth trying to understanding is the impact of a re-emergence of a super league and if it is realistic to discount really long-term rights,” said the portfolio manager.
It was a point echoed by analysts.
“We see the potential creation of a European Super League as a major threat to LaLiga revenues derived from audio-visual rights,” said SpreadResearch’s Baudet.
“Although, we understand from the investments documents that CVC could renegotiate the economic conditions of the silent agreement if Madrid FC or FC Barcelona were to leave the LaLiga Santander competition.”