$1.4bn `Bernie Bond' paves way for F1 float

Click to follow
The Independent Online
BERNIE ECCLESTONE, the motor sport entrepreneur, has raised $1.4bn from the City through a long-awaited and much delayed bond which is designed to pave the way for the flotation of his Formula One motor racing business within the next three years.

The "Bernie Bond", which has been placed with banks in the UK, and Western Europe, has taken nearly a year to get away. The decision to tap the bond markets follows the collapse last year of earlier attempts by Salomon Brothers to float the business after squabbling between Formula One and the racing teams over how to carve up the massive television revenues on which Mr Ecclestone's fortune rests.

The funds will go to a series of trusts controlled by Mr Ecclestone's wife and family.

Investors who baulked at the size of the issue last year were only persuaded to take the paper after WestDeutsche Landesbank, the aggressive German state-owned institution, muscled into what was originally a Morgan Stanley deal and persuaded them to cut the size of the issue from $2bn to $1.4bn, sweeten the terms and reduce the duration of the bond from 20 years to 10 years.

West LB has also taken a large amount of the issue - believed to be around 20 per cent - on to its books, as has Morgan Stanley as joint underwriter, although Morgan Stanley insisted yesterday there was a "strong investor appetite for the bonds" .

Morgan Stanley was joint lead and bookrunner and will remain the financial advisor for the flotation.

Robin Elizabeth Smith, who heads the bond team that WestLB poached from Deutsche Bank last year, said that it was clear when the bank first approached Morgan Stanley last year that the deal was "languishing" and needed to be repackaged in order stand a chance of success.

"My personal view was that selling 20 year future revenue bonds for $2bn with a single A rating was a very tall order. People were saying if you are planning to float the business in two to three years why do you need a 20 year bond? Why not put your money where your mouth is?" she said.

After changing the terms, the banks were able to get the top four rating agencies to rate the bonds. The bonds which will be listed shortly on the Luxembourg stock exchange now carry a coupon of 1.3 per cent over US$ six month's Libor (the London Interbank Offered Rate) for the first three years by which time the flotation should have gone ahead and the proceeds been repaid. If, by that stage, Mr Ecclestone has still not succeeded in getting the flotation away, the coupon rises sharply to 2 per cent over Libor for the next two years rising to 3 per cent after five years for the remaining lifetime of the bond, giving Mr Ecclestone a strong financial incentive to ensure the flotation takes place as planned. The original proposal was to pay a flat coupon of 1.5 per cent over Libor for the entire lifetime of the 20 year bond.

Mr Ecclestone said yesterday: "Now that we have successfully completed this transaction, we look forward to the future stock market flotation of this existing business. We can now build on the relationships we have established in the investment community."

Outlook, Page 22