Formula One: Intangible Asset-Backed Securitization

Abstract

This case examines a proposed $2 billion asset-backed securitization offering that is to be supported by F1's TV broadcasting rights. The case is written from the perspective of Steve Din, executive director of Securitization for Morgan Stanley Dean Witter, who is responsible for placing the securities in September 1998. The proposed Eurobond issuance for F1 follows a delayed IPO in 1997 that failed to materialize owing to disputes with the F1 teams. Students must recommend a course of action to meet the challenges of marketing the new issue. The case is designed for use in finance electives focusing on financing methods, investment banking, securitization, or other advanced topics in corporate finance.

Excerpt

UVA-F-1323

Rev. May 11, 2012

FORMULA ONE: INTANGIBLE ASSET-BACKED SECURITIZATION

Steve Din, executive director of securitization for Morgan Stanley Dean Witter (MSDW), slumped in his chair one day at the end of November 1998. The last two months had been tumultuous for the fixed income markets, and his proposed eurobond issuance for Formula One (F1) was not going as planned.

With the backing of its eccentric billionaire sponsor, Bernie Ecclestone, F1 auto racing had reached new heights recently, capped off by plans for an IPO in 1997. IPO plans, however, had been put on hold due to disputes with F1 teams. In the wake of the delayed IPO, MSDW replaced Salomon Brothers as Ecclestone's adviser in September 1998 and became lead manager on the $ 2 billion structured finance placement meant to bridge F1 to an IPO in the near future.

This $ 2 billion structured finance placement fell broadly under the category of an asset-backed securitization (ABS), where financial assets, such as mortgages, automobile loans, and trade or credit card receivables, were pooled together to support payments on a created security (bond), which in turn provided cash to the owner of the assets. The proposed F1 placement differed from an ordinary ABS in three ways.

. . .

Keywords: assets, debt policy