Zuffa Announces New $100M Term Loan
October 1, 2009
- Las Vegas-based mixed martial arts sporting event promoter and producer Zuffa LLC announced a proposed $100 million incremental term loan due 2015.
- We are assigning our ‘BB-‘ issue rating and ‘4’ recovery rating to this loan, and revising our recovery rating on Zuffa’s existing credit facilities to ‘4’ from ‘3’.
- We are affirming the ‘BB-‘ corporate credit rating on the company.
- The stable rating outlook reflects our belief that Zuffa’s ability to successfully market UFC events will continue to generate strong revenues and cash flow.
UPDATED: Preliminary Highlights from the Complete report now available here.
NEW YORK, Oct. 1, 2009–Standard & Poor’s Ratings Services said today it assigned its issue-level and recovery ratings to the proposed $100 million senior secured incremental term loan being issued by Zuffa LLC. The loan was rated ‘BB-‘ (at the same level as the corporate credit rating on the company) with a recovery rating of ‘4’, indicating our expectation of average (30% to 50%) recovery for lenders in the event of a payment default.
At the same time, we revised our recovery rating on Zuffa’s existing senior secured credit facilities to ‘4’ from ‘3’.
“The revised recovery rating reflects a revision of our expected emergence multiple to 4.5x from 5.0x, in addition to the greater amount of debt outstanding in the capital structure,” said Standard & Poor’s credit analyst Ben Bubeck.
We also affirmed our issue-level rating on these loans at ‘BB-‘ (at the same level as the ‘BB-‘ corporate credit rating on the company), in accordance with our notching criteria for a ‘4’ recovery rating. (To see the complete recovery analysis, see Standard & Poor’s recovery report on Zuffa LLC, to be published as soon as possible on RatingsDirect following this report.)
Net proceeds from the proposed incremental term loan will be used to repay the outstanding balance under the company’s revolving credit facility and to fund a dividend to the owners. Leverage will increase moderately as the result of this transaction. However, our rating affirmation reflects solid operating results in recent quarters given consistently strong EBITDA margins and continued success in improving the profitability of international operations, which meaningfully improved credit measures. Pro forma for the proposed transaction, credit measures remain in line with the current rating.
The ‘BB-‘ rating on Zuffa reflects the risk of revenue and cash flow volatility given the company’s primarily event-driven business model, its vulnerability to changing consumer tastes or the effect of weak economic conditions on consumer discretionary spending, a relatively short operating history, and management’s aggressive financial policy. Zuffa’s well-recognized Ultimate Fighting Championship (UFC) brand, healthy free cash flow conversion given strong EBITDA margins and modest capital intensity, and moderate debt leverage partly offset these risks.
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor’s public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.