Films) MLCMB Will Cover Interest Expenses Exceeding Italian Lire (ITL) 475 Billion Asset-Backed Floating-Rate 9.35% Annually
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Structured Finance Asset-Backed Special Report Finance for an Italian Library of Movies plc Giovanni Pini David K. A. Mordecai (212) 908-0664 (212) 908-0771 [email protected] [email protected] Interbank Offered Rate (LIBOR) plus 100 basis points Rating (bps) annually. Investors will receive principal repayments ITL475,000,000,000 Asset-Backed starting in June 2000 and terminating in March 2005. Floating-Rate Notes . A– The ‘A–’ rating is based on: Company Contact ➢ Strong legal and cash flow structures. Fin.Ma.Vi. S.r.l. ➢ Available credit enhancement, consisting of an in- Claudio Tinari Senior Executive Vice President itial overcollateralization of 88.4%, i.e. the present 39 6 324 721 value of the expected revenues from the commer- cial exploitation of the film library exceed the Underwriter amount of notes to be issued by more than 88%. Merrill Lynch International Starting in January 1999, the overcollateralization Dorian Klein can be reduced to 56%. Managing Director ➢ Debt service reserve of ITL29.34 billion, sized in- 44 171 867 3608 itially to cover three quarterly interest payments Pierluigi Berchicci and, subsequently, two controlled principal amorti- Associate zation amounts. The interest component of the 44 171 867 3608 debt service reserve has been funded on the closing day with issuance proceeds. The principal compo- Trustee nent will be funded by trapping excess cash flows Bankers Trustee Co. Ltd. between December 1999 and March 2000. ➢ Hedge agreement entered into with Merrill Lynch Summary Capital Markets Bank Ltd. (MLCMB), whereby Finance for an Italian Library of Movies plc’s (Films) MLCMB will cover interest expenses exceeding Italian lire (ITL) 475 billion asset-backed floating-rate 9.35% annually. notes represent the first securitization of future receiv- ➢ Cecchi Gori Group’s experience in distributing ables originating from an Italian movie library. Investors films in Italy. will be repaid from the proceeds resulting from the commercial exploitation of a library of films, the major- Investors will also benefit from: ity of which have already been released. In recent ➢ Termination events that will result in a fire sale of the securitizations of movies in the U.S., principal is ex- library and, thus, in an early repayment to investors. pected to be repaid from future revenues of films that ➢ A portion of issuance proceeds (ITL132.0 billion) held have not been released. in escrow (reserve account) to make payments to foreign producers under license agreements or to Coupon payments to investors will be made quarterly on cover production costs on the yet uncompleted films. the last day of March, June, September, and December and will be indexed to the three-month lire London April 30, 1998 www.fitchibca.com Finance for an Italian Library of Movies plc Legal Structure for all Cecchi Gori companies in the in exploiting the library. The mini- Similar to prior securitizations, this television broadcasting sector, such as mum guaranteed amount has been transaction uses a non-Italian issuing TMC and TMC2. set to cover quarterly interest and vehicle and the sale of the receivables principal payments on the notes. pursuant to Law 52 of 1991. Original to The following are the main legal fea- ➢ MLCMB, through its Milan branch this transaction is the asset type being tures of the transaction: (Merrill Lynch Milan), has pur- securitized (lease rentals from a library ➢ Finmavi and Tiger (the lessors) have chased the base rentals with full of movies), the sale of receivables with leased (15 years and 19 years, respec- recourse against the lessors in case full recourse, and the legal concept of tively) part of their businesses to Me- of default of Mediafiction. The sale the lease of a business. diafiction S.p.A. (100% owned by has been made in accordance with Finmavi), a special purpose company. Law 52 of 1991. The additional The Cecchi Gori Group Fin.Ma.Vi. ➢ Mediafiction will pay rental reve- rentals are still owned by the les- S.r.l. (Finmavi) is the holding com- nues to the lessors the base rentals, sors. The lessors, however, have pany for a group of companies in- determined by reference to the an- waived their rights to the additional volved in movie production and nual accounting revenues of Me- rentals in the event of losses by distribution. Finmavi and Cecchi diafiction; and the additional rentals, Mediafiction or if a termination Gori Group Tiger Cinematografica determined by reference to the cash event has occurred. The base rent- S.r.l. (Tiger) own a library of existing consideration received by Mediafic- als will be paid to MLCMB only Italian movies and licensed foreign tion in exploiting the film library. when all other prior payments (such movies, as well as the rights to movies The base rentals are payable quar- as payments due to licensors that currently in production. Finmavi is terly, while the additional rentals have not been covered by Finmavi fully owned by the Cecchi Gori family are payable annually. Each base or Tiger) in the relevant collection and owns 95% of Tiger. Finmavi is rental is subject to a minimum guar- period have been made, and the legally separate from Media Holding anteed amount payable irrespective sinking fund and debt service re- S.r.l., which is the holding company of the performance of Mediafiction serve have been replenished. 2 Fitch IBCA, Inc. Finance for an Italian Library of Movies plc ➢ As a result of the sale, the money vency in the 12 months prior. In Others Structural Aspects due on the base rentals will be paid other jurisdictions, a lease contract ➢ The foreign licensors have con- directly by Mediafiction to Merrill can be terminated by the bank- sented, in writing, to the lease of the Lynch Milan without being com- ruptcy trustee of the lessor. businesses. Mediafiction and Films mingled with the assets of Finmavi ➢ The full recourse obligations of Italia can become the counterpart of or Tiger. Finmavi and Tiger do not jeopard- the licensors. Under circumstances ➢ Cash received as part of the addi- ize the true sale status of the trans- where the foreign licensors would tional rentals will only be released fer of the base rentals to Merrill otherwise have the right to termi- to Finmavi and Tiger in January of Lynch Milan provided that the re- nate the licenses by reason of the each year provided that the overcol- course is limited to the extent of the default or bankruptcy of Finmavi. lateralization ratio is greater than lease rentals deriving from the lease ➢ The licensors have agreed to cer- 1.56 times (x). The overcollaterali- to which each seller is a party (no tain restrictions on their ability to zation ratio is the ratio between: i) cross-guaranty). terminate the licenses upon a de- the most recent annual valuation of fault or insolvency of Finmavi. the film library; and ii) the out- Several features in the legal structure of ➢ Finmavi continues to be fully liable standing amount of the notes after this transaction would cause a fire sale to the licensors for the performance deducting the amount in the sink- of the film library protecting investors of the obligations with respect to ing fund, and the principal compo- from a potential deterioration in the the licensed films. nent of the debt service reserve. value of the collateral, in particular: ➢ Finmavi has entered into a hedge ➢ All the shares in Mediafiction have ➢ Films Italia S.r.l. (Films Italia), a agreement (the initial hedge agree- been pledged to Merrill Lynch Milan. special purpose company incorpo- ment) with MLCMB. Under the ➢ Merrill Lynch Milan has funded the rated in Italy and 95% owned by term of the hedge, Finmavi will pay acquisition with a LIBOR deposit Films p.l.c. and 5% by MLCMB, MLCMB the difference between received by Merrill Lynch Capital will be able to exercise a call option 9.25% plus a spread and the three- Markets Bank Ltd., Dublin (Merrill and substitute Mediafiction, as les- month lire LIBOR. Following a Lynch Dublin). see, under the leases and exploit bankruptcy of Finmavi, the initial ➢ Merrill Lynch Dublin has borrowed the library if the base rentals re- hedge agreement will be replaced the money from a special purpose ceived by MLCMB fall below the by another agreement between vehicle — Films. minimum guaranteed amount in Films and MLCMB (the second ➢ Films is an Irish public company any collection period, the overcol- hedge agreement). The terms of which has issued the rated notes in lateralization ratio falls below 1.56x, the hedge provide for films to pay a the Euro markets and has agreed to and Finmavi is declared bankrupt. fixed rate of 7.08% annually to limit its recourse to Merrill Lynch ➢ Merrill Lynch Milan can then sell MLCMB in exchange for the three- Dublin to the amounts received by the base rentals, and Films can sell month lire LIBOR plus a spread of Merrill Lynch Dublin from the base shares of Films Italia in the open 1% annually. In the event of an early rentals or recovered with respect to market. Two independent valu- repayment of the notes, Films must the security pledges. ations of the library must be ob- pay a breakup fee to MLCMB. The ➢ The notes issued by Films pay a tained before disposal. payment of the breakup fee, how- floating interest rate quarterly in- ➢ Following the insolvency of Fin- ever, is subordinated to payments dexed to three-month lire LIBOR. mavi and/or Tiger, or the occur- due to investors. The final legal maturity is March rence of other termination events, 2005. There will be a two-year lock- Merrill Lynch Milan can exercise its The obligations with respect to the licensed out period.