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03 Feb 2011
$250 million of debt instruments affected
New York, February 03, 2011 -- Moody's Investors Service assigned a Ba1 rating to Speedway Motorsports,
Inc.'s (SMI) new $250 million four-year credit
facility. SMI intends to utilize the proceeds from the term loan,
revolver draw downs and the recently completed $150 million senior
note offering to redeem its $330 million 6.75% senior
subordinated notes due 2013 and pay related fees and expenses.
SMI's Ba1 Corporate Family Rating (CFR), Ba2 senior unsecured
note rating, SGL-3 speculative-grade liquidity rating
and stable rating outlook are not affected, but the refinancing
improves the company's intermediate-term liquidity position
by extending maturities.
..Issuer: Speedway Motorsports Inc.
....Senior Secured Revolver, Assigned
a Ba1, LGD4 - 51%
....Senior Secured Term Loan, Assigned
a Ba1, LGD4 - 51%
The new credit facility consists of a $100 million revolver and
$150 million delayed draw term loan. Moody's expects
SMI will draw the term loan and approximately $60 million on the
revolver as part of the subordinated note redemption. The January
2015 expiration of the new credit facility and the February 2019 maturity
of the new $150 million senior notes result in a meaningful extension
of the maturity profile as the subordinated notes were to mature in 2013
and the prior credit facility expired in July 2012. The refinancings
will also favorably reduce annual cash interest expense by approximately
$7 million at a time when SMI's earnings remain depressed
by weakness in consumer and corporate spending on motorsports.
The financial maintenance covenants were relaxed in the new credit facility
(covenants tighten annually in the fourth quarter), and Moody's
projects the EBITDA cushion will be 10% or higher over the next
12-18 months. Moody's believes covenant cushion is
only adequate given the vulnerability of earnings to declines in motorsports
spending. This is the primary reason the speculative-grade
liquidity rating remains at SGL-3. The existence of the
term loan and the more significant revolver draw modestly weaken the company's
ability to address potential covenant amendments. Previously,
SMI had sufficient cash to repay the small remaining revolver draw ($20
million as of 9/30/10), which provided flexibility to terminate
the facility, if necessary, in the unlikely event it was unable
to obtain a covenant amendment. Moody's projects SMI will
generate sufficient free cash flow to comfortably fund the 10%
(or $15 million) required annual term loan amortization and the
company also maintains a sizable cash balance ($113 million as
of 9/30/10) to support liquidity.
The credit facility is guaranteed by operating subsidiaries and collateralized
only by the stock of subsidiaries. The stock pledge on the credit
facility provides limited support to the revolver guarantee, and
Moody's ranks the credit facility and senior notes the same in its
loss given default notching model. However, the mandatory
pay down of the revolver from 100% of net asset sale proceeds (subject
to a six month reinvestment window) and the lender control created by
financial maintenance covenants provide protection to the credit facility
lenders that is not afforded to the senior note holders. If negotiated,
the lender's could get a more comprehensive collateral package as
a credit facility of up to $450 million is a permitted lien within
the bond indenture.
SMI's Ba1 CFR reflects its strong market position within the motor sports
industry, high operating margins, and revenue supported by
entitlements to 13 NASCAR Sprint Cup races and other motor sports events
at SMI's facilities, broadcast rights under NASCAR's national TV
contract that runs from 2007 - 2014, and numerous multi-year
corporate sponsorships. Admissions, race-day spending,
and more discretionary corporate sponsorships are vulnerable to cyclical
downturns. SMI's debt-to-EBITDA leverage (3.5x
for the LTM period ended 9/30/10 incorporating Moody's standard adjustments)
is high for the rating and weakly positions the company within the Ba1
CFR. In our opinion, the revenue pressures are largely cyclical
and credit metrics are expected to improve as the economy recovers with
debt-to-EBITDA ultimately declining to a 3x or lower range.
SMI has a moderate revenue base, event risk related to future leveraging
acquisitions and development projects, and some weak qualitative
factors (shareholder-oriented governance and the willingness to
engage in non-core business activities such as bulk commodity trading)
that constrain the rating to speculative-grade.
The stable rating outlook reflects Moody's expectation that SMI
will continue to generate meaningful free cash flow, reduce debt,
and maintain an adequate liquidity position. Leverage is expected
to decline over the next 12-18 months as the company continues
to pay down debt and cyclical earnings pressure subsides.
Mitigation of the qualitative risks along with debt-to-EBITDA
sustained below 1.75x and free cash flow-to-debt
above 12.5% after incorporating potential acquisitions and
shareholder distributions, expansion of the revenue base,
and a strong liquidity profile could lead to an upgrade.
Debt-to-EBITDA leverage sustained above a 3x range due to
debt-financed acquisitions, cash distributions to shareholders,
major development projects, or a sustained decline in profitability
from a deterioration in spectator interest in NASCAR or motor sports,
extended cyclical downturn, or decline in fan attendance at sporting
events due to acts of terrorism or other disruption could negatively affect
the rating or outlook. Pressure on liquidity including failure
to maintain sufficient covenant headroom could also lead to downward rating
The last rating action was on January 20, 2011 when Moody's
assigned a Ba2 rating to SMI's proposed $150 million senior
unsecured notes and downgrade the existing unsecured notes to Ba2 from
For additional information on SMI's ratings, please see the credit
opinion posted to www.moodys.com.
The principal methodology used in this rating was Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
SMI's ratings were assigned by evaluating factors that Moody's considers
relevant to the credit profile of the issuer, such as the company's
(i) business risk and competitive position compared with others within
the industry; (iii) capital structure and financial risk; (iii)
projected performance over the near to intermediate term; and (iv)
management's track record and tolerance for risk. Moody's compared
these attributes against other issuers both within and outside SMI's core
industry and believes SMI's ratings are comparable to those of other issuers
with similar credit risk. The principal methodology used in the
instrument ratings was Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
SMI, headquartered in Concord, NC, is the second largest
promoter, marketer and sponsor of motor sports activities in the
US primarily through its ownership of eight major race tracks.
NASCAR sanctioned events account for the majority of SMI's approximate
$510 million revenue for the LTM ended 9/30/10.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
John E. Puchalla
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Ba1 rating to Speedway Motorsports' new credit facility
250 Greenwich Street
New York, NY 10007
No Related Data.
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