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I AGREE
20 Jan 2011
Approximately $425 million of debt instruments affected
New York, January 20, 2011 -- Moody's Investors Service assigned a Ba2 rating to Speedway Motorsports,
Inc.'s (SMI) proposed $150 million senior unsecured
notes due 2019. SMI intends to utilize the proceeds from the notes
as well as drawings under its credit facility or any other borrowings
available to SMI to redeem the $330 million of outstanding 6.75%
senior subordinated notes due 2013 and pay related fees and expenses.
The rating on SMI's existing $275 million 8.75%
senior unsecured notes due 2016 was downgraded to Ba2 from Ba1 due to
the removal of the loss-absorbing cushion currently provided by
the subordinated notes once they are redeemed. SMI's Ba1
Corporate Family Rating (CFR) and stable rating outlook are not affected.
Assignments:
..Issuer: Speedway Motorsports Inc.
....Senior Unsecured Regular Bond/Debenture,
Assigned Ba2, LGD4 - 64%
Downgrades:
..Issuer: Speedway Motorsports Inc.
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba2, LGD4 - 64% from Ba1, LGD3
- 38%
RATING RATIONALE
The refinancing favorably extends the maturity profile of $100
million of debt and is expected to lower cash interest expense modestly.
Moody's anticipates the company will utilize its free cash flow
largely to reduce debt and refrain from material acquisitions over the
next 12-18 months.
The proposed notes are guaranteed on a senior unsecured basis by the company's
material domestic subsidiaries. The covenant package is similar
to the existing 2016 notes and includes a change of control put at 101%
of par and a limitation on liens that covers all assets with carve-outs
permitting up to $450 million of credit agreement debt to be secured,
or secured debt if the senior secured leverage ratio does not exceed 2.5x
(approximately 1.1x estimated for FY 2010 pro forma for the proposed
refinancing). Moody's estimates approximately $700
million of debt cushion within the minimum 2.0x fixed charge coverage
debt incurrence ratio, although capacity within the credit facility
financial maintenance covenants is considerably lower.
The existing credit facility is guaranteed by material domestic subsidiaries
and is secured only by the stock of subsidiaries. Moody's
believes the stock pledge on the credit facility provides limited support
to the revolver guarantee, and the credit facility and senior notes
are ranked the same in Moody's loss given default notching model.
However, the mandatory paydown 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 in the
credit facility provide protection to the lenders that is not afforded
to the senior note holders. Moody's therefore utilizes a
one notch override discretion of the loss given default modeling template
implied outcome to rate the senior notes Ba2, which is one notch
below the Ba1 model implied rating for the notes. Moody's
will withdraw the Ba2 rating on the $330 million senior subordinated
notes when the bonds are redeemed.
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 Moody's 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.
The qualitative factors discussed above limit the likelihood of an upgrade
to investment-grade. However, 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
pressure.
The last rating action on SMI was a downgrade of its speculative grade
liquidity rating to SGL-3 from SGL-2 on March 30,
2010. Moody's also commented on December 13, 2010 that
SMI's amendment to its revolver to increase covenant headroom did
not affect the company's Ba1 CFR, SGL-3 rating,
or debt instrument ratings.
For additional information on SMI's ratings, please see the
credit opinion posted to www.moodys.com.
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.
REGULATORY DISCLOSURES
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
Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
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independent third-party sources. However, Moody's
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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
and accurate data may not be available. Consequently, Moody's
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.
New York
John E. Puchalla
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns Ba2 rating to Speedway Motorsports' proposed senior notes
No Related Data.
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