In depth analysis to follow, but the highlights from the latest report:
- COMPANY REMAINS EVENT DRIVEN – Revenue breakdown remains at 75/25 event (pay-per-view, gate) to non-event (television rights fees, sponsorships, etc), but the successful launch of the video game as well as recent improvement in the sponsorship portfolio has the potential to improve that ratio.
- MORE CONSISTENT MARGINS – EBITDA margins have stabilized as the company’s international operations have improved.
- STRONG CASH FLOW – Cash flow remains strong, however, the company’s $25M credit revolver was fully drawn as of June 30, 2009.
- AGGRESSIVE DIVIDEND PAYMENTS – Dating back to the company’s original loan, dividend payments to the owners have been an issue for creditors and they are limited by a restricted payment basket in the terms of the loan. The initial dividend was characterized as quite aggressive and the current dividend payment (roughly $75M) would “consume a large portion of [the] current basket,” however, the basket has the potential to increase each quarter.
- RECOVERY OUTLOOK REMAINS STABLE – “Given management’s relatively aggressive posture toward dividends, an outlook revision to positive or ratings upside potential is limited over the intermediate term, despite the likelihood for some improvement to credit measures over the next several quarters.”
Look, they’re taking cash out of the company for themselves while choosing to borrow for working capital needs. What does this tell you? The business is still very risky and they’re taking no chances. It’s still a high yield rating and they’re probably paying short-term Libor plus 400 bps.
They do not mind eroding their operating margin by borrowing at these rates for a junk-rated company. All this is because their business is very risky: it could be gone in one wrong moment when someone gets slammed on his head and gets paralyzed. The regulators can kill this business any time, despite the 4-eyed ex-regulator Zuffa hired to soften the NSAC.