ELITE Basket Bond: funding for the future
Raising funding to enable growth can be a challenge for SMEs. ELITE Basket Bond provides an innovative approach that is favourable for companies and investors alike
In December 2017, ELITE launched the first Basket Bond, an innovative solution designed in partnership with Banca Finint to support access to funding for the high-growth, high-performing companies within the ELITE programme.
“Traditionally, small and medium-sized companies have found the resources necessary to support their business and investments through conventional banking channels,” explains Marcello Maienza, partner in the law firm Studio Legale RCC, which provided legal assistance for the first Basket Bond issue. “The financial crisis of recent years, which led to a contraction of loans from the banking system, has highlighted how important it is for companies to vary their sources of finance in order to secure the necessary capital to develop their business in times of stress.”
The €122 million ten-year bond is made up of ten ELITE companies: Damiano, Irritec, L. Molteni & C. dei F.lli Alitti, M.E.P. Macchine Elettroniche Piegatrici, Objectway Group, Peuterey, Radio Dimensione Suono, Svas Biosana, Tecnocap and Officine Metallurgiche G. Cornaglia. Each of the companies issued a bond with similar characteristics, such as tax rate and maturity date, but for different values. These individual bonds were grouped together under a securitisation transaction carried out by a Special Purpose Vehicle (SPV), which issued an asset-backed security with shares guaranteed by the issuing companies. The SPV was set up, structured and operated by Banca Finint, a market leader in arranging and managing securitisations.
A new financing model
As an alternative financing instrument, the Basket Bond has the potential to support business growth, bringing growing enterprises closer to the stock market. The first issue brought together companies from seven regions, each from a different sector, with a total of more than 4,000 employees and an aggregate value of €1 billion.
Many of the companies in the bond are long-established firms with a proud legacy. One of these is the automotive parts manufacturer Cornaglia Group, which was founded in 1916. “For a traditional company, joining Elite means you want to change something,” says CEO Tommaso Cornaglia. “From a funding point of view, we have always been traditional too. We believed that our relationships with banks were the core of our financing strategy, and taking loans was the most extreme thing we did. When we joined ELITE, we realised that we were capable of doing something different.”
A key feature that makes the Basket Bond different from traditional fundraising vehicles is the mutual guarantees offered by the companies taking part, as Marcello explains. “Each ELITE issuing company guarantees not only its payment obligations but also those of the other issuing companies. This feature has enabled considerable mitigation of the credit risk of the basket and consequently long-term financing has been obtained at a profitable cost for each company,” he says.
Stars of tomorrow
For Cornaglia Group, the Basket Bond offered not only access to capital funding, but other, less tangible benefits too. “This was something that was new not just to us, but to the market – something unique,” Tommaso says. “We’re not interested in going public at this time, and the level of financing offered was sufficient for our growth. ELITE offers something different to companies like ours that want to grow our reputation and gain visibility in the market. For us, it was the perfect tool.”
There are compelling benefits for investors, too: not least access to a diversified portfolio of ELITE companies. The ELITE Basket Bond structure builds on the excellence of entrepreneurial companies, reinforcing their value and their international capital markets presence. It is a unique opportunity for investors to fund the business stars of the future.
The platform provided by Elite to assist Elite companies in meeting their funding needs is operated by Elite Club Deal Limited. Issued by Elite Club Deal Limited, The London Stock Exchange, 10 Paternoster Square, London EC4M 7LS. Authorised and regulated by the Financial Conduct Authority (FRN 761002) . Incorporated in England No. 10274181. If contemplating an investment service, potential customers must seek independent advice or make his/her own decisions as to the suitability of the service. Potential investors should take their own independent advice to assess the suitability of investments.