Consent Solicitation Analysis: AS Roma Change of Control Put Right to Be Waived in Exchange for 4.5% Fee; Non-Consenting Noteholders Will Lose Put Right,Consent Fee If Proposal Obtains Simple Majority

Relevant Documents:
Consent Solicitation Release
OM - Senior Secured Notes Due 2022
Reorg Debt Explained Analysis

Italian football club AS Roma has launched a consent solicitation in respect of its €275 million 5.125% senior secured notes due 2024 (the 2024 notes) issued by ASR Media and Sponsorship S.p.A (the issuer). The primary aim of the consent solicitation is to facilitate the acquisition by Romulus and Remus Investments LLC (Romulus) of all the assets (except ASR CSM LLC) of AS Roma SPV LLC (the seller), including 86.6% of the equity interest in the AS Roma group by seeking a waiver to the change of control requirement under the notes and make related amendments.

The consent threshold level is holders with a simple majority of the outstanding amount of the 2024 notes. The consent solicitation process is expected to expire on 4 p.m. BST (5 p.m. CET) on Sept. 8 unless extended. Each consenting holder will be paid a fee of 4.5% of the principal amount of its 2024 notes. To be eligible to receive the consent fee, noteholders must provide a valid consent instruction in favor of the extraordinary resolution before the expiration of the consent solicitation. If the proposal is supported by investors holding a majority of the principal, non-consenting bondholders will also lose their put option.

Our analysis below is based on our review of the consent solicitation statement dated Sept. 2. It highlights the waivers and key amendments being requested by the issuer in connection with the acquisition. Overall, the effect of the waivers and the amendments on the bondholders is that the put right to exit the bond at 101% as a result of the acquisition will be waived. Only holders who vote in support of the requested waivers and amendments prior to the consent solicitation expiration time or at the meetings convened to pass the extraordinary resolutions will be entitled to receive the consent fee. The meeting of the noteholders is expected to be held on Sept. 17 (or Sept. 18 if quorum is not achieved at the initial meeting).

Background

On Aug. 5, the seller and The Friedkin Group, Inc. (indirect owner of Romulus) announced the execution of an equity purchase agreement in respect of the acquisition, which was completed on Aug. 17. Romulus' acquisition of 86.6% of the equity interests in the AS Roma group triggers a change of control under the notes indenture because the seller no longer directly or indirectly controls Associazione Sportiva Roma S.p.A. (TeamCo, a holding company of the issuer) and Brand Management S.r.l. (Brand Management), and James Pallotta no longer beneficially owns more than 50% of the managing member of the seller.

On the occurrence of a change of control, the issuer is required to offer to redeem the 2024 notes at 101%, plus accrued interest and other payable amounts. The issuer is seeking waivers and amendments (among others) to exempt it from such obligation. The 2024 notes are trading at 101.2 as of Sept. 2.

Related to the acquisition, Romulus is required under Italian law to make a tender offer for the publicly-listed shares of TeamCo which it does not already own. If it acquires more than 90% of TeamCo's shares after the tender offer and the remaining free float shares are insufficient to allow regular trading, Romulus may be required to delist TeamCo from the Borsa Italiana. If Romulus acquires more than 95% of the TeamCo’s shares, it will have the right to purchase the remaining shares for cash and delist TeamCo. If Romulus is not required to delist TeamCo and does not otherwise have the right to purchase its remaining shares and delist TeamCo, a delisting can only be achieved through a merger of TeamCo into a private company.

In connection with the foregoing, the issuer is also seeking consent to amendments to allow the merger of TeamCo into NEEP Roma Holding S.p.A. (the majority shareholder of TeamCo) or into a newly incorporated company controlled by Romulus.

Proposed Waiver and Amendments for Change of Control

A change of control will occur under the notes indenture if (among other triggers):

• seller does not directly or indirectly:

1. have the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to cast, or control the casting of, more than 50% of the maximum number of votes that might be cast at a general ordinary shareholder meeting (or equivalent) of TeamCo or Brand Management; or


2. hold beneficially more than 50% of the issued corporate capital or equivalent ownership interests of TeamCo or Brand Management (excluding any shares that do not give the holder the right to vote in an ordinary shareholder meeting (or equivalent) of TeamCo and/or hold beneficially the right to receive more than 50% of Soccer S.a.s. di Brand Management S.r.l.’s profits); or

• James J. Pallotta does not directly or indirectly hold beneficially more than 50% of the (voting and non-voting) issued share capital of the managing member of ASR SPV.

The acquisition will result in the seller ceasing to own and control majority of the voting shares of TeamCo and Brand Management (the sole guarantor of the notes), and James J. Pallotta will no longer hold any equity interest in the group (see the pre and post acquisition corporate charts below). A waiver is being sought to avoid the issuer’s obligation to make a change of control offer, which if it passes will apply to non-consenting noteholders as well.

In relation to the acquisition, amendments are also being requested to:

• the “Permitted Holders” definition to replace the seller and James J. Pallotta with Romulus and Remus Investments LLC (RRI) and Thomas Dan Friedkin, respectively.

• introduce a new beneficial owner trigger to the definition of “Change of Control”, under which a change of control would occur if any person (other than a permitted holder) acquired more than 50% of voting and non-voting ownership interest in RRI; and

• introduce a “Permitted Reorganization”definition to allow the merger of TeamCo and NEEP or any new company incorporated by a permitted holder to facilitate the delisting of TeamCo. As with TeamCo, the surviving entity will be outside the restricted group for the 2024 notes. Among other requirements, the surviving entity: must be incorporated in Italy; must assume the rights and obligations of TeamCo in respect of the notes and its other material agreements; grant equivalent security over any of TeamCo's assets that formed part of the notes collateral, including the bank account into which the UEFA funds are deposited and media and sponsorship contracts to which it is party (as required by the indenture); and no default or event of default exists or would occur upon the merger.

Proposed Waiver Priority of Payments Waterfall Provision

In respect of funds received by the issuer from Romulus in connection with the consent solicitation, the issuer also seeks a one-time waiver of the provision requiring it to deposit such funds into the cash inflows account. The issuer is required to deposit any and all revenue, cash or other amounts received or earned by it into the cash inflows account, which is an account required to be maintained by the issuer and is pledged for the benefit of the noteholders. The reason for the waiver is to exempt amounts contributed by Romulus to the issuer as reimbursement for expenses paid by the issuer in relation to the consent solicitation, from being paid into the cash inflows account or any other account of the issuer.

The consent solicitation anticipates that if Romulus pays the consent fee and other costs relating to the consent solicitation, the issuer would record an equivalent amount in the form of an equity contribution or subordinated shareholder funding from Romulus.

We don’t expect that this waiver should in any way negatively impact the noteholders as it simply shields amounts paid by Romulus to facilitate the consent solicitation from being deemed as revenue or other amounts earned by the group.

Proposed Amendment to facilitate delisting of TeamCo

In order to facilitate a delisting of TeamCo, amendments are also being requested to covenants on impairment of security interest and merger and consolidation. As a result of the potential merger of TeamCo into NEEP or a newly incorporated company, there will be an impact on the security currently provided to the noteholders by TeamCo. However, as required in the definition of “Permitted Reorganization”, equivalent security must be granted in replacement. The merger and consolidation covenant will exclude a “Permitted Reorganization” from the requirements of that covenant, which would have precluded TeamCo from merging or consolidating with another entity.

Our coverage of AS Roma is HERE.

Corporate chart pre-acquisition

Corporate chart post-acquisition

-- Temitope Adesanya