Standard & Poor’s – ASR Media And Sponsorship, a subsidiary of parent company AS Roma, issue rating has been lowered to ‘B’.
ASR Media And Sponsorship (MediaCo) is the main financing vehicle for Italian football club A.S. Roma (TeamCo). MediaCo services its bond issuances through media and sponsorship contract receivables. TeamCo depends on distributions from MediaCo to fund part of its operations.
STRENGTHS
- TeamCo has a long track record of participation in Serie A, Italian football’s top division.
- TeamCo’s brand represents MediaCo’s key business asset.
- Debt issued by MediaCo is structurally senior to TeamCo’s financial and operational expenses, including players’ salaries.
RISKS
- The team’s on-pitch performance has a significant effect on cash flows at MediaCo.
- MediaCo’s ability to repay its debt is somewhat dependent on TeamCo’s operations and financial conditions.
- Under Italian law, creating and perfecting security over future receivables (such as those future contracts that the MediaCos will enter into) is more onerous than in most other secured financings we rate.
A.S. Roma’s operations and financial conditions, on which MediaCo is dependent, have weakened in our view.
As of the first nine months of the financial year (FY) ended March 31 2020, A.S. Roma reported a drop in EBITDA, coupled with growing debt. The weakening financial conditions reflect the impact of the first team’s participation in the UEFA Europa League, which generated lower revenue than that arising from the UEFA Champions League during the previous year. They also reflect the early impact of the COVID-19 pandemic, which prevented the transfer of players to countries already affected by the pandemic during the winter transfer window. The lower revenue is only partially compensated by lower operating costs. We expect significantly weaker results in the fourth quarter of FY2020, due to the loss of match day revenue and lower broadcasting revenue collection than expected.
We have revised our approach to analyzing risks arising from the interdependent relationship between MediaCo and its parent TeamCo, correcting a previous misapplication of our criteria.
We view MediaCo as intrinsically intertwined with TeamCo. If the first team, managed and paid by TeamCo, is not competitive, MediaCo’s cash flow generation might suffer. In turn, if MediaCo does not collect on its receivables or if it is prevented from upstreaming cash, TeamCo might not have sufficient resources to service its operating costs and operations. To allow us to consider such unique credit characteristics, we rate the debt issued by MediaCo using our “Principles Of Credit Ratings” methodology. Our revised approach borrows from our corporate and project finance rating frameworks. The rating outcome reflects the weaker of the two possible assessments.
Our corporate-based approach allows us to assess MediaCo as a subsidiary of TeamCo.
Our corporate methodology and assumptions recognize the link between MediaCo and TeamCo through the analysis of these entities on a consolidated basis. The framework allows us also to consider the likelihood that a credit stress scenario for the group might impair MediaCo’s creditworthiness. Owing to the legal and structural protections in place, we consider MediaCo’s credit quality not constrained by that of the group and, as such, MediaCo’s bonds can be rated up to a category higher.
Our project finance-based approach allows us to assess the structural seniority of MediaCo’s lenders to TeamCo’s expenses with respect to broadcasting and sponsorship revenue.
MediaCo has priority access to the majority of TeamCo’s revenue and is only responsible for marginal operating costs. This, combined with limited principal amortizations ahead of the August 2024 maturity, leads to healthy debt service coverage ratios (DSCR). In order to assess and quantify the substantial refinancing risk to which MediaCo’s bonds are exposed, our analysis looks beyond their maturity and simulates debt refinancing via an amortizing instrument. Therefore, forecast DSCRs after 2024 are a better indicator of creditworthiness, in our view. Considerations regarding the importance of TeamCo’s continued operations for ongoing cash flows at MediaCo also remain at the core to our project-finance assessment. Our parent-linkage assessment captures these aspects and constrains our project finance-based rating outcome.
The negative outlook indicates that we could lower the issue-level ratings if we considered that the pandemic could cause permanent operational and financial damage to Italian football. This could occur, for example, if we were to expect a significant repricing of key contracts or if any key stakeholders took steps that demonstrated an elevated risk to TeamCo’s business model. Since MediaCo’s business is exposed to TeamCo’s performance, a change in our view of TeamCo’s credit quality would also lead us to lower the ratings on MediaCo’s bonds.
