New York, June 21, 2021 -- Moody's Investors Service ("Moody's") affirmed
Learfield Communications, LLC's (Learfield) Caa1 Corporate Family
Rating (CFR), B3 first lien credit facility, and Caa3 second
lien term loan rating. The outlook was changed to stable from negative.
Learfield's Caa1 CFR was affirmed and the outlook was changed to stable
due to the contribution of $242 million in common equity from existing
equity investors that will provide the company liquidity to recover from
the pandemic and additional funding to invest in new growth initiatives.
While Moody's expects leverage will remain at very high levels,
performance is projected to improve as health restrictions continue to
ease and the economy recovers from the recession. Learfield also
executed an amendment which will extend the maturity of the $125
million revolving credit facility and SPV receivables facility to September
2023.
Affirmations:
..Issuer: Learfield Communications, LLC
.... Corporate Family Rating, Affirmed
Caa1
.... Probability of Default Rating,
Affirmed Caa1-PD
....Senior Secured First Lien Bank Credit
Facility, Affirmed B3 (LGD3)
....Senior Secured Second Lien Bank Credit
Facility, Affirmed Caa3 (LGD5)
Outlook Actions:
..Issuer: Learfield Communications, LLC
....Outlook, Changed To Stable From
Negative
RATINGS RATIONALE
Learfield's Caa1 CFR reflects the extremely high leverage as a result
of negative EBITDA (excluding Moody's standard lease adjustments)
as of LTM March 31, 2021 due to the impact of the pandemic on collegiate
sports and increased debt levels. Moody's expects operating
results will improve in the near term as health restrictions continue
to ease and allow for greater attendance levels during the upcoming college
football and basketball seasons. Advertising spend will also improve
significantly over the next two years as the economy rebounds from the
recession, but Moody's believes that it will take time for
sponsorship revenues to return to prior levels and that leverage will
remain high through at least fiscal 2023.
Learfield also has a substantial amount of guaranteed payments over a
multiyear period with its college media rights partners with a relatively
high proportion of fixed costs, although Learfield has taken steps
to minimize the amount and manage the timing of payments to its media
rights partners. Despite Learfield's strong position in the
industry, Moody's expects competition for collegiate sports
rights will remain high and that colleges will continue to seek increased
fees for their media rights. Higher media rights costs can pressure
profit margins if increased costs are not offset with additional sponsorship
revenue.
Learfield benefits from the strong fan base for college sports and the
underpenetrated nature of college media rights compared to professional
sports. The merger with IMG College materially increased the size
of the college multimedia rights division, but results following
the merger were weaker than projected due in part to the uncertainty caused
by an extended regulatory review process. Learfield has had good
renewal rates with its university base historically, long contract
periods, and a substantial amount of pre-sold ad inventory,
but operations are projected to take time to recover. Learfield
will also be focused on expanding revenue in digital media content,
data attribution analysis, name and likeness opportunities,
e-sports, sports betting services, digital signage
as well as other growth initiatives.
Moody's analysis has considered the effect on the performance of
leisure and entertainment spending from the recession and a gradual recovery
of economic activity for the coming months. Although an economic
recovery is underway, it is tenuous and its continuation will be
closely tied to containment of the virus. As a result, the
degree of uncertainty around Moody's forecasts is unusually high.
Moody's regards the coronavirus outbreak as a social risk under
our ESG framework, given the substantial implications for public
health and safety.
A governance consideration that Moody's considers in Learfield's credit
profile is its aggressive financial policy historically. Learfield
has operated with elevated leverage levels and has pursued several acquisitions
including the IMG college merger. In the near term, Moody's
expects the company will continue to be focused on managing liquidity
and improving operations. Learfield is a privately owned company.
Moody's expects Learfield will have adequate liquidity following the $242
million equity contribution. The proceeds will help the company
manage through the recovery from the pandemic and provide funding for
investment in new growth opportunities. Pro forma cash on the balance
sheet is expected to be over $400 million, but a portion
of the cash is projected to be used to repay the $124 million drawn
on the $125 million revolving credit facility. Moody's
expects free cash flow will continue to be negative in FY 2022,
before turning modestly positive in FY 2023. Operating cash flow
is seasonal with the strongest results posted during the quarters ending
in December and March of each year.
The maturity of the revolving credit facility will be extended to September
2023 as part of the recent amendment. Learfield also has a fully
drawn $58 million receivables-based SPV facility with a
maturity that was also extended to September 2023 as part of the amendment.
Learfield is required to make future minimum payments to the universities
that it has multimedia rights contracts, but the company has taken
steps to minimize the amount and manage the timing of payments to its
multimedia partners.
Learfield completed an amendment that provides a covenant waiver period
until the new maturity of the revolving credit facility in 2023,
but subjects the company to a $10 million minimum liquidity requirement.
The first and second lien term loans are covenant lite.
The stable outlook reflects Moody's expectation that Learfield's
liquidity position will be adequate to manage through the recovery from
the pandemic. Moody's projects that revenue and profitability
will improve substantially during the upcoming college football and basketball
seasons as a result of less health restrictions and stronger economic
growth, but remain below pre-pandemic levels as it's
likely to take time for sponsorship revenue to fully recover. Competition
for college multimedia rights will remain high and colleges are likely
to continue to seek higher fees for their multimedia rights. Moody's
expects leverage to decline to the 8.5x range (excluding Moody's
standard adjustments) by the end of FY 2023.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A ratings upgrade could occur if Moody's expected leverage levels
to decline below 7.5x (as calculated by Moody's) with an
adequate liquidity profile and no near term debt maturities.
A ratings downgrade could occur if there was elevated concerns about Learfield's
ability to service its debt or due to lost multimedia rights contracts
that negatively impacted the company's ability to return to pre-pandemic
performance levels. The inability to refinance approaching debt
maturities well in advance of the maturity date also has the potential
to lead to negative rating pressure.
Learfield Communications, LLC (Learfield) (dba Learfield IMG College)
is an operator in the collegiate sports multimedia rights and marketing
industry. Atairos Group, Inc. acquired the company
in December 2016 from Providence Equity Partners, Nant Capital,
and certain members of management. In December 2018, Learfield
completed a merger with IMG College and the combined company is now owned
by Endeavor Group Holdings, Silver Lake Partners, and Atairos
Group. The company is headquartered in Plano, TX with satellite
sales offices located on or near college campuses across the country.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
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Scott Van den Bosch
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
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