Football and Spanish securitisation funds

Among the latest off-field football-related developments comes news that Spain’s Real Madrid has extended its agreement over its sponsorship rights income.

As an Atletico Madrid fan (and real estate obsessive), I was joking the other day with my colleagues Antonio (big Barcelona fan) and Isabel about the possibility of Barcelona selling its iconic Camp Nou stadium and Cultural y Deportiva Leonesa (Isabel’s hometown team, which plays in the third tier of the Spanish football league) signing Barcelona’s Lionel Messi, widely regarded as one of the best footballers ever.

The impact of COVID-19 on football, as in many other sectors, has been very negative. But the sport has had financial issues since well before the start of the pandemic. If clubs want to put their finances on a more stable footing, they probably need to seek novel sources of funding that are based on their ability to generate cash flows (especially once we return to ‘business as usual’).

It was while we were musing on these issues that we remembered our old friends, the asset-backed securitisation funds (commonly known in the Spanish market as FTAs).

Despite their existence for more than 20 years in the Spanish legal system, FTAs are still unfamiliar to some originators and there are some investors who do not fully believe in their advantages and flexibility.

What is an FTA?

In very broad terms, an FTA can be seen as the equivalent of a special purchase vehicle (SPV) in standard non-Spanish structures as it is:

• the assignee of the credit rights;
• a special purpose insolvency-remote vehicle;
• not allowed to engage in other business; and
• ‘orphan’ in the sense of belonging to no-one for balance sheet purposes.

The asset side of an FTA can be made up of credit rights included on the asset side of the originator’s balance sheet and (potentially tying in here with the world of football) also some specific future credit rights, which include:

• the products or proceeds deriving from the exploitation of a trademark or trade name; or
• the collection rights for the sale or the provision of services giving rise to flows of payments of a recurring or one-off nature, provided that the amount can be known or estimated.

So, if football clubs can convert their future cashflows derived from the likes of ticket sales, the exploitation of trademarks and trade names, and television and advertising rights into a smooth repayment stream, they could access an additional source of funding that could help improve their financial position.

Some other basic features

An FTA is organised as a separate estate without legal personality, and must be managed and represented by a management company.

The liabilities side of an FTA is made up of the securitisation notes (fixed-income securities) that it will issue. The liabilities of the FTA may incorporate any credit facilities granted by any third parties.

FTAs can be categorised:

• according to the balance sheet structure, as
  • open FTAs, where the composition of the assets and liabilities can be modified from the moment of incorporation; and
  • closed FTAs, where the composition of assets and/or liabilities cannot be modified after their incorporation.
• according to the type of investors targeted, as
  • standard FTAs, where the securitisation notes can be addressed to all categories of investors; and
  • private FTAs, where the securitisation notes must be exclusively addressed to, and traded between, qualified/professional investor clients only.

FTAs can be listed (on any official secondary market or a multilateral trading system) or non-listed.

Since FTAs are separate estates without legal personality, they must be established and managed by professional management companies. The exclusive object of those management companies is the incorporation, administration and legal representation of FTAs.

Additionally, in case of insolvency of the originator entity, the assignments of assets to the FTA enjoy extra protection against possible rescission by the insolvency administrators. Assignments of assets to an FTA can only be rescinded if the existence of fraud is proved.

With FTAs carrying all these advantages, we may not see Messi playing for Cultural y Deportiva Leonesa any time soon but we may soon see a wave of securitisations in football!