Legends Hospitality Taps Bond Market as Sixth Street Takes Control

Brendan Coffey
·3 min read

Legends Hospitality seeks to raise as much as $500 million in a credit facility and notes to help the firm wait out the severe disruption to live events caused by COVID-19.

Just days after striking a deal for investment firm Sixth Street to take majority control of the business, which was co-founded by the New York Yankees and Dallas Cowboys, Legends wants to sell $350 million in senior secured notes—a type of debt—and create a $150 million revolving credit facility, a line of credit it may or may not access, according to a note published by Fitch Ratings.

In a sign of the potential business turbulence Legends faces, Fitch’s rating is a first-time issuer default rating, or IDR, on the Legends business. An IDR rating is a situation where Fitch thinks through the possibility an issuer may default on its long-term debt. Legends’ IDR rating of B-minus means there is a material risk of default, but the business is meeting its financial obligations in a timely manner.

“While this has been a challenging year for the sports and live entertainment industry, we passed the test and are now positioned for stronger, even more resilient growth due to our unmatched 360-degree platform across planning, sales, partnerships, hospitality, merchandise, and technology solutions,” Shervin Mirhashemi, President and CEO of Legends, said in an email.

Ratings agencies like Fitch publish analysis and gradings of corporate debt issuers to help institutional investors gauge the usually remote risk of losing their investment. For that reason, ratings also influence how much a company like Legends will have to offer in interest payments to sell their debt to investors.

“Legends has faced severe disruption to its operations due to COVID-19,” Fitch said in its ratings note. “Venue capacity restrictions and event cancelations have resulted in significant FCF [free cash flow] burn which required the company to seek a liquidity infusion.” Fitch doesn’t project live event attendance will return to close to normal until 2022, when it assumes event attendance will be 90% of 2019 levels.

With the current $500 million worth of financing deals proposed, Legends would have $625 million in total debt: a four-year $150 million revolving credit facility, $350 million in five-year senior secured notes and a six-year, $125 million unsecured payment-in-kind loan. Substantially all of the domestic assets of Legends will secure the first two forms of debt. For that reason, the proposed credit facility has a superior BB-minus rating from Fitch, and the $350 million tranche has a B rating. In addition to its debt financing, Legends ended 2020 with $91 million free cash on hand.

Despite the negatives surrounding Legends at the moment, Fitch sees strengths in the business that should allow it to weather the pandemic. “While Legends competes with several larger, better-capitalised [sic] companies in its core hospitality segment, including Aramark, Compass Group and Sodexo, it often leads in its other segments,” the agency noted. “Of the company’s over 200 clients at the end of 2019, under 21% utilized more than one of Legends’ services, providing meaningful opportunity to expand within its existing client base,” Fitch added, noting just 1% of Legends’ business is outside North America, providing ample additional areas for the business to expand.

As Sportico first reported Monday, Legends will now be majority-owned by investment firm Sixth Street, with founding partners the New York Yankees and Dallas Cowboys each holding equal-sized minority positions. Another undisclosed investor owns about 9% of the business. The Sixth Street investment valued Legends at $1.35 billion.

(This story has been updated with a quote from Legends President and CEO Shervin Mirhashemi in the fourth paragraph.)

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