“The ratings downgrade and negative outlook reflect the increased potential for a default due to extremely high leverage levels and approaching debt maturities in 2023,” Moody’s said in its ratings note. “While multimedia, ticketing and licensing revenues have started to recover relatively quickly from the pandemic, contracted multimedia rights fees also rose rapidly and negatively impacted profitability in FY 2022.”
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The ratings agency dropped Learfield’s corporate family rating one notch to Caa2, which is in the lower half of its “non-investment grade” levels on Moody’s scale. A rating in the Caa range is defined by the agency as “judged to be of poor standing and subject to very high credit risk.” Learfield’s first lien credit facility had its rating dropped one level to Caa1, while the rating for its second-lien term loan—which means it is further back in the legal order of who gets paid—was lowered to Ca, from Caa3. The outlook for the business was also shifted from stable to negative.
“Learfield is experiencing record revenue growth,” the company said in an emailed statement. “Our transformative, integrated business model across events, licensing, fan connectivity and brand promotion is providing our partner institutions with unmatched opportunities within the collegiate landscape. Moody’s report reflects both the business impacts from the global pandemic as well as significant revenue recovery. Learfield’s continued investments in data infrastructure, branded content, direct-to-fan platforms and NIL development position the company for continued growth, sustainability and the ability to meet our partners’ needs.”
The company added that it provided updates to credit agencies last week in keeping with its standard business practices.
Learfield has a number of positives, according to Moody’s, including its significant position in college athletics, the strong college fanbase and the potential for media rights growth in college compared to pro sports. Cost-saving measures planned by management and the continued post-pandemic recovery in multimedia are also positives, the agency said.
However, Learfield is saddled with a heavy level of debt; the agency said the business carries debt that is more than 30 times its earnings before interest, taxes, depreciation and amortization (EBITDA) for the year that ended June 30. (The EBITDA figure itself isn’t disclosed by Moody’s.) In the most recent annual report of part-owner Endeavor Group, it disclosed Learfield had a net loss of $164.3 million in calendar 2021 on revenue of $1.09 billion. From 2019 through 2021, Learfield posted net losses of $1.8 billion.
In addition to the high ratio of debt, the business has $183 million due in September 2023 on two loans, with additional loans due in December 2023 and December 2024, according to Moody’s. The rising interest rate environment presents a risk that Learfield may not be able to refinance some or all of the debt at advantageous rates, according to the ratings note. Paying off the debt as scheduled would require diverting cash from other activities in a competitive business environment.
“Despite Learfield’s strong position in the industry, competition for collegiate sports rights will remain high and colleges will continue to seek increased fees for their media rights,” Moody’s said.
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