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(Corrects 16th paragraph to show Miramax securitization involved more than 700 films, not 100)
By Adam Tempkin
NEW YORK, Nov 30 (IFR) - The largest-ever brand-licensing US so-called whole-business securitization for Iconix Brand Group closed this week. Barclays led the $600 million transaction, the first such deal broadly distributed in the 144A market.
Iconix owns 28 high-profile brand trademarks and licenses them out to strategic partners, including Target and Walmart.
The company is using a portion of the proceeds to pay for its recent acquisition of the Umbro brand from Nike, which cost $225 million. That deal also closed this week.
Formed in 2005, Iconix owns brands including Mossimo, Starter, the "Peanuts" cartoon characters, Joe Boxer, London Fog, Ed Hardy, Sharper Image, and Zoo York. The brands are worth US$13bn in retail sales, according to the company.
When Iconix first started out, it had little money and borrowed against the handful of trademarks it had at the time. Those first deals were in the range of $20 million.
"But as we built this company, we were taught about whole business securitizations and we viewed it as an optimal financing engine for us," Neil Cole, the founder and CEO of Iconix, told IFR. "It offers us incredible flexibility. A traditional deal would have all sorts of covenants.
"We can use it as a warehouse facility, and it will continue to be our growth engine," Cole said. Iconix will be adding a 29th brand to its portfolio of trademarks in the near future.
Whole business, or "operating asset" securitizations are more complicated than traditional securitizations which only rely on cashflows from a specific pool of financial assets such as mortgages or auto loans.
In whole-business deals, which have typically been more popular in Europe because of its more creditor-friendly laws, the cashflows of an entire business unit -- including intangible assets such as cashflows from intellectual property, royalty income, franchise fees, licenses, and trademarks -- are securitized.
Moreover, unlike a traditional asset-backed security, an operating-asset securitization does not have to sell the assets securitized to a special purpose vehicle and therefore the borrower can retain operational control.
Whole business deals make sense for companies that have assets, such as brand licenses, which cannot be reflected on balance sheet, and can provide stable and steady income streams.
Most whole-business securitizations from the pre-crisis boom era had Triple A wraps from monoline insurers, such as MBIA and Ambac. However, now that the monolines no longer offer such guarantees, recent transactions have carried top ratings in the Triple B range.
Investors' ongoing quest for yield in a long-term low interest rate environment has renewed interest in these non-traditional ABS deals, which often allow companies to attain more efficient financing relative to corporate bank/bond alternatives.
Barclays, which absorbed Lehman Brothers' "esoteric ABS" team when Lehman dissolved in 2008, has been the leader in structuring these unique deals.
In March, Barclays structured the largest post-crisis operating-asset securitization for Domino's Pizza. The $1.675 billion deal, which was a refinancing of a franchise royalty-fee securitization that it originally issued in 2007, was the highest-ever rated whole business securitization without bond insurance.
Late last year, the bank also structured the first-ever film library securitization in the US for Miramax. The collateral for the $500 million transaction comprised a library of more than 700 films including such titles as Pulp Fiction, Good Will Hunting, and No Country for Old Men.
Barclays sold the deal to corporate, high-yield, and ABS investors.
And this past October, outdoor advertising company Fairway Media Group priced a $257 million whole business securitization backed by billboard revenues. Barclays structured and executed the deal, enabling Fairway to refinance its entire capital structure and pay a substantial dividend to shareholders at an all-in yield of 5.6%.
Only 23 of the brand trademarks owned by Iconix were linked to the securitization that closed this week.
The offering, Iconix 2012-1, was increased in size from $500 million, had a weighted average life of 5.5-years, and priced inside guidance of 4.50% at a yield of 4.25%.
The success of the deal "speaks to the strength and stability of the non-traditional ABS market," said Cory Wishengrad, the co-head of ABS at Barclays. "The company has a unique business model, which is perfectly suited for securitization."
S&P rated the deal BBB and signed off on a borrowing base of $1.1 billion. However, only $700 million was issued, including $600 million in debt and $100 million in variable funding notes.
The balance, $400 million, can be accessed by the company in the future from a master trust structure without getting permission, or "rating agency confirmation", from S&P. In other words, no refreshed rating would be needed for the company to draw down the $400 million. Investor consent would not be needed either.
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