The notes benefit from an unconditional and irrevocable guarantee from Ambac Assurance UK Limited (Ambac) in respect of timely payments of interest and timely repayment of principal according to the schedule. However, the ratings reflect the underlying ratings of the transaction without credit given to the financial guarantee from Ambac, following Fitch's withdrawal of Ambac's Insurer Financial Strength rating on 26 June 2008.
This transaction is primarily a securitisation of ticket receipts from Arsenal Emirates Stadium, the home ground of The Arsenal Football Club PLC (AFC). However, the structure also benefits from charges and security over other income streams and the assets of the wider AFC group and as such represents more of a whole business securitisation.
The transaction's performance (driven by ticket sales) is mainly affected by the first team's pitch performance and popularity of the team. In addition, the notes benefit from a guarantee from AFC and, among others, security over its shares. As such, Fitch analyses the consolidated cash flows of the stadium and club. Since the club's move to Emirates stadium, the club's turnover has enjoyed strong growth, although it has remained largely flat over the past two years. Ticket revenues (GBP93.9m) and broadcasting revenues (GBP84.6m) were the dominant sources of income accounting for about 80% of total revenues (GBP222.9m) for the financial year ending in May 2010.
Gate and match revenues were down by 6.2% compared to FY09 as there were five fewer home fixtures played (FA Cup and the Champions League). In FY12, ticket prices are set to increase for the first time since FY09 (by 4%) helping to counter rising utility costs in the stadium and other inflationary cost rises.
Broadcasting revenue rose by over 15% compared to FY09 due to higher coverage of live games (23 live games compared to 19 in the previous year); but the main reason was the increased broadcasting revenue from the Champions League where 2009/10 represented the first year of a new cycle of UEFA broadcasting contracts.
The deterioration in general economic conditions since 2008 had some impact on the club's retail and commercial revenue lines (combined revenues of GBP44.0m down from GBP48.1m the season before). They were also affected by the lower number of home games, which impacted takings at the Arsenal stores, catering royalties and competition performance bonuses under certain of the sponsorship agreements. Wages increased to GBP111m, which represented approximately 49% of total revenue, still one of the lowest ratios among the Premier League clubs. It is expected that player wages will rise more quickly next season.
In Fitch's view, the debt service coverage is adequate to maintain the notes' current rating and Stable Outlook, although the continued importance of revenues generated from the participation in the Champions League (ticket sales and broadcasting revenues) - which accounts for a significant share of total revenues - may give rise to some income volatility in the future. Fitch considers that should AFC fail to retain its position as a top Premier League club, then it has sufficient flexibility in its cost base to preserve debt service coverage.
((Bangalore Ratings Team, Hotline: +91 80 4135 5898, pritam.choudhary@thomsonreuters.com, Reuters Messaging: pritam.choudhary.thomsonreuters.com@reuters.net)) |
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