The financial close of the Wembley Stadium financing against the backdrop of a global banking crisis is good news for the UK project finance market – but it is not a gauge of market appetite for new deals. First, Wembley is a refinancing. Second the deal has been in the works since March 2008 and is structured by banks very familiar with the credit. Nevertheless, that the deal managed to get done at all in the deathly global financial climate of the week it closed is still remarkable.

Wembley National Stadium Ltd, a subsidiary of the Football Association, successfully negotiated the volatile debt markets to complete its £342 million ($607 million) refinancing on 26 September.

Whereas the original deal suffered from concerns about the underlying asset which led to a protracted almost open-ended bank syndication, for the refinancing the underlying asset was perceived as strong – although market liquidity was worsening daily.

The refinancing was jointly led by WestLB – the lead bank for the original financing package – and Barclays. Royal Bank of Scotland (RBS) and Lloyds TSB joined as mandated lead arrangers and Bank of Ireland and Banco Espírito Santo came in at a lower level. All the banks, except RBS, were present on the original deal. The deal was done as a club to avoid the syndication market.

The refinancing relates to the remaining loan of £341.5 million from the original £426.4 million financing package secured in September 2002. The latest arrangement secures a more favourable interest rate on the debt starting at 165bp over Libor for the first three years and stepping up twice to 225bp for the final five years. The minimum debt service cover ratio is healthy, at over 1.3x.

This refinancing will result in savings of approximately £3 million per year. The loan is gradually amortizing and extends the term of the original deal from 2018 to 2023 (a tenor of 15.5 years).

The original facility priced at 250bp over Libor with a 16.5 year term, and was backed by 16 banks. One of the borrower's principal aims was to pare down the size of the bank group to a more manageable number, while keeping the club large enough to avoid a syndication phase.
The deal is a true refinancing in the sense that the security (and the agent bank, WestLB) are unchanged. The original financing had to contend with the highly publicised delays in construction, but the majority of the costs were borne by EPC contractor Multiplex.

In the 18 months Wembley has been open the stadium has hosted 50 major events and welcomed over 3.5 million visitors. The original deal met lenders' base case assumptions overall, with revenues higher than expected but offset by an increase in operating costs.

Despite the complexity of stadium financings due to their multifaceted revenue streams and operating risks, both Wembley Stadium deals illustrate the benefits of their use to the sponsor. The FA was protected by cost overruns caused by the delay in construction by an EPC contract, while a levered non-recourse structure allowed the FA to invest more money in grassroots football development.

The refinancing draws comparisons with Arsenal's Emirates stadium financing. However where the club franchise of Arsenal was large enough, with visible enough revenue streams to bank a greenfield stadium as a whole business securitisation (WBS), the original Wembley deal was banked as a pure project finance structure. The refinancing is a WBS-project finance hybrid, and it is possible that within two years Wembley could be refinanced again as a pure WBS to further capitalise on revenue streams. The sponsor benefits of WBS over a project structure are that the covenants are generally looser, although project financings can be more highly levered.

One of the strengths of Wembley being a national stadium compared with club stadiums is that it is backed by long-term contracts to host international sporting events and financiers do not have to model base case scenarios to take into account the consequences of league relegation on revenues.

A Wembley WBS refinancing will depend on the continued establishment of Wembley Stadium as a standalone business with visible and predictable revenue from national, international games, concerts and associated revenues. Under a new CEO, the FA plans to move from its West End base to be headquartered at Wembley. It is possible that more of the FA's revenue is rolled in, such as shirt sales and other merchandising revenue, to make a pure WBS more viable.

Other stadium financings in the pipeline include the Lille and Le Mans stadia in France (both very near to close), a stadium in Mexico and the Sports Hub in Singapore. Both Lille and the Sports Hub will be banked as PPPs with Lille's revenues 80/20 based on availability payments and stadium income respectively.

One could argue that the Lille Stadium is a completely different credit; as a French PPP it should carry less risk than a privately financed stadium in the UK. However at least one bank in the Wembley financing said it looked at the deal but was not interested because, despite the reduced risk, price talk was close to 100bp, whereas it was looking to book debt at around 200bp.

Wembley National Stadium Limited (WNSL) refinancing
Status: Financial close 26 September
Description: £342 million stadium refinancing
Sponsor: English Football Association (FA)
Mandated lead arrangers: WestLB (agent, documentation); Barclays Commercial; RBS; LloydsTSB
Arrangers: Bank of Ireland; Banco Espírito Santo
Sponsor legal counsel: Allen & Overy
Lender legal counsel: Shearman & Sterling
Technical consultant: WSB
Model auditor: PKF