UFC Holdings, LLC issues credit facility, given ‘B’ rating, outlook ‘negative’ per S&P Global

July 23, 2016

Per a Standard & Poor’s Global press release Friday UFC Holdings, LLC will issue a $1.45 billion first lien credit facility.  The company was assigned a ‘B’ rating on the WME-IMG acquisition.  The outlook is projected as negative per the Standard & Poor’s Global Ratings report.

The financing for the deal to acquire the UFC will consist of the $1.45 billion credit facility which will consist of a $150 million revolver due 2021 and a $1.3 billion term loan B due 2023.

S&P Global Ratings assigned its ‘B’ corporate credit rating to UFC Holdings, LLC.  It issued a ‘B+’ issue-level rating to the company’s $1.45 billion credit facility.

The negative outlook reflects significant leverage with the UFC which is based on EBITDA growth to reduce leverage over the next few years (i.e., revenue is predicted to grow to offset the debt load currently taken on).

Recognizing that the revenue from its events fluctuate throughout the yar, the rating is given to ensure the “UFC can reduce total lease and preferred stock-adjusted debt to EBITDA to below 8x” before revising the outlook to stable.

Per S&P Global Ratings credit analyst Emile Courtney, “The ‘B’ corporate credit rating reflects very high anticipated adjusted leverage to complete the acquisition, partly offset by good EBITDA coverage of cash interest expense and an adequate liquidity profile.”

Analysts believe that the company’s EBITDA has a “plausible and robust growth path.”  Similar to the SBJ article, the belief is that future media rights revenue will increase with the next television deal.

Notably, the opinion of analysts is that “the risk of marquee fighter injuries, which caused a significant more than 40% decline in EBITDA in 2014, will likely be partially mitigated in future periods due to “a strategy of marketing multiple fights at events and planning back-up matches and fighters in the event of injuries…”  The report also states that “remedial training and safety actions” have taken place so that less injuries occur.

Payout Perspective:

The report essentially rates UFC Holdings, LLC the way it does because the acquisition by WME-IMG is predicated on loans and the speculation that the UFC revenue (which remains volatile, yet optimistic) will increase.  What is interesting is that the report is bullish on UFC events.  While the volatility of the events (i.e., injuries causing cards to change or fights cancelled) have been a concern with its credit rating in the past, this report implies that the UFC has changed its strategy by promoting multiple fights on a card as well as promoting more safety precautions in training.  The UFC has invested in helping fighters train smarter.  Despite the need to shift fights due to injuries (and now USADA flagging fighters), the report seems to believe that it has improved upon making changes last minute.  The underlying notion here is that the UFC brand is much stronger than the individual fighters.

SBJ provides details of UFC deal

July 21, 2016

The Sports Business Journal took a deep dive into the UFC’s sale to WME-IMG.  The article looks into the revenue drivers that had the acquisition price of $4 billion.

The purchase price of $4 billion represents a 22 multiple of the UFC’s earnings before interest, taxes, depreciation and amortization.  On $600 million in gross revenue from 2015, UFC’s EBITDA is $180 million.  $180m x 22 =$3.96 billion.  The hope is that with a new media rights deal, the multiple will lower to 13-14 range which would make it a much better purchase.

Media rights, according to the UFC, could grow to $115 million per year to an average annual payout of more than $400 million starting in 2019.

The media rights do not contemplate PPV or UFC Fight Pass revenue.  The UFC is set to start renegotiating in 2018 and believes it will have some leverage as other sports media rights deals run into 2020s.

The other revelation from the SBJ article is that ESPN, Fox and Time Warner all considered purchasing the UFC.  The other potential purchasers included China Media Capital and Dalian Wanda Group.

But the concern from the potential buyers was that pay-TV distributors would not feel compelled to increase their affiliate fees which would generate the profit for media companies.

Yet, the UFC was an attractive acquisition here because of its media rights, it owns all of its content and the belief that they can build out the company’s “sponsorship sales and other content opportunities.”  So while there is speculation as to whether distributors would facilitate an increase in fees, the opportunity to utilize the UFC’s assets were too good to pass up.

In order to make the acquisition, there is a plan in place to borrow a big portion of the money as part of the acquisition.

According to the Sports Business Journal.  Currently, the UFC has approximately $500 million of debt that will be retired as part of the $4 billion acquisition.

Payout Perspective:

The article is a very thorough, detailed analysis of the deal.  There is speculation that the deal might sour fall through due to the recent bad press concerning Brock Lesnar and Jon Jones.  But, I would think that it might be posturing to obtain favorable concessions rather than actually backing out of the deal.  The financing involves higher risk, higher interest bonds which is likely due to a number of factors involving the company’s current finances as well as the way WME-IMG would like to structure the deal.

WME-IMG to acquire UFC per official release

July 11, 2016

As we all knew last night, the announcement was made official this morning.  WME-IMG announced the acquisition of the UFC per its own press release.

The release is below:

BEVERLY HILLS, CA (July 11, 2016) – WME | IMG today announced the acquisition of UFC, the world’s premier professional mixed martial arts (MMA) organization.

A global leader in entertainment and sports with a portfolio of more than 800 owned, operated and/or commercially represented events, WME | IMG will also serve as UFC’s operating partner. WME | IMG, which has a proven track record of building leading sports brands, will focus on accelerating the sport’s popularity and presence around the world. Silver Lake Partners and KKR will join WME | IMG as new strategic investors, along with MSD Capital, L.P. and MSD Partners, L.P. which will provide preferred equity financing.

“We’ve been fortunate over the years to represent UFC and a number of its remarkable athletes,” said WME | IMG Co-CEOs Ariel Emanuel and Patrick Whitesell. “It’s been exciting to watch the organization’s incredible growth over the last decade under the leadership of the Fertitta brothers, Dana White and their dedicated team. We’re now committed to pursuing new opportunities for UFC and its talented athletes to ensure the sport’s continued growth and success on a global scale.”

Founded in 1993, UFC is one of the largest and fastest growing sports brands in the world, particularly among millennials. The organization produces more than 40 live events annually and is the largest Pay-Per-View event provider in the world, broadcast in over 156 countries and territories, to nearly 1.1 billion television households worldwide, in 29 different languages. UFC continues to capitalize on digital distribution platforms via its wholly-owned subscription over-the-top service, FIGHT PASS, delivering exclusive live events, thousands of fights on-demand and original content to fans around the globe.

UFC held its much-anticipated UFC 200 event in Las Vegas on July 9. Since its centennial event in 2009, UFC has undertaken a number of measures to increase awareness among fans globally, expanding its presence in Europe, Latin America and Asia, and adding women’s divisions. The organization has also led the way among sports in promoting athlete safety. UFC is one of the largest contributors to the Cleveland Clinic’s Professional Fighters Brain Health Study, and it has the most robust drug testing program in professional sports administered by the U.S. Anti-Doping Agency (USADA).

“No other sport compares to UFC,” remarked Dana White, UFC’s President who will continue in that role. “Our goal has always been to put on the biggest and the best fights for our fans, and to make this the biggest sport in the world. I’m looking forward to working with WME | IMG to continue to take this sport to the next level.”

Lorenzo J. Fertitta, Chairman and CEO, UFC, said: “We’re confident that the new ownership team of WME | IMG, with whom we’ve built a strong relationship over the last several years, is committed to accelerating UFC’s global growth. Most importantly, our new owners share the same vision and passion for this organization and its athletes.”

Upon closing, Lorenzo Fertitta will step down from day-to-day operations, but Frank Fertitta III and Lorenzo Fertitta will both retain a passive minority interest in the organization.

WME | IMG’s strategic investment partners include leading global investment firms Silver Lake and KKR who have a track record of growing strong business enterprises in diverse industries together.

Silver Lake first made a strategic minority investment in WME in 2012 to support the company’s development of new business models and distribution channels leveraging the convergence of content creation and technology. Silver Lake subsequently reinvested in WME and supported its management team in the company’s 2014 acquisition of IMG.

Since 2015, WME | IMG and Silver Lake have completed a number of acquisitions to expand WME | IMG’s capabilities and client services globally and to broaden its owned event portfolio and content offerings through properties like the Professional Bull Riders, Inc. (PBR). The PBR Built Ford Tough Series has broken ten event attendance records and increased television viewership over 20% in 2016 following WME | IMG’s acquisition. As part of WME | IMG’s platform, UFC will leverage the same global relationships and capabilities to accelerate its growth trajectory.

In addition to its sports marketing and global events portfolio, WME | IMG also represents a  diverse roster of artists and content creators across every entertainment vertical, including motion picture, television, music, books, digital and theater. Its sports client roster ranges from professional athletes to sports federations and leagues to more than 200 collegiate institutions. The company also works with top-100 global advertisers to develop meaningful consumer platforms and helps new and iconic brands optimize their licensing potential.

 

Each year, IMG produces more than 52,000 hours of sports programming and arranges to distribute an additional 32,000 hours on behalf of more than 200 clients including major sports leagues and associations like The All England Lawn Tennis and Croquet Club (Wimbledon), the National Football League, Premier League, Major League Soccer and Euroleague. The company also operates one of the largest sports training institutions in the world, IMG Academy.

The UFC transaction is subject to customary closing conditions. Terms of the transaction were not disclosed.

Paul, Weiss, Rifkind, Wharton & Garrison LLP, Kirkland & Ellis LLP, Simpson Thacher & Bartlett LLP, and Proskauer Rose LLP served as legal advisors to the buying group and Freshfields served as legal advisor to MSD Capital. Barclays, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., affiliates of Goldman, Sachs & Co., and KKR Capital Markets LLC (in alphabetical order) are acting as the buyers’ financial advisors and are providing financing for the transaction.

The transaction was led for the sellers by UFC CFO Nakisa Bidarian, with Milbank, Tweed, Hadley & McCloy LLP as legal advisors, and The Raine Group and J.P. Morgan as financial advisors.

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