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03 Dec 2019
London, 03 December 2019 -- Moody's Investors Service ("Moody's") has today
affirmed the B2 corporate family rating (CFR) and B2-PD probability
of default rating (PDR) of Alpha Topco Limited (Formula One or the company)
and the B2 rating of the senior secured facilities (Term Loan B &
Revolving Credit Facility) issued by the company's subsidiary,
Delta 2 (Lux) S.a.r.l. The outlook has been
changed to positive from stable.
Today's rating action reflects:
• The company's strong trading in 2019 and expected growth
in 2020 driven by new contract wins
• The resilient nature of the company's cash flows driven by
multi-year contracts and the strength of the Formula One franchise
• Expectations of a satisfactory renewal of the Concorde Agreement
with the competing teams and the FIA
• Strong cash conversion and high free cash flow to debt metrics
The B2 CFR is supported by the company's: (1) highly recognised
leading motorsport franchise and well-established global fan base;
(2) very strong cash conversion because of low capital spending and tax
costs; (3) multi-year contract structures that offer a strong
level of revenue predictability; (4) consistent operational track
record; and (5) expected deleveraging in 2019 and 2020 from earnings
The rating also reflects the company's: (1) high Moody's-adjusted
gross debt/EBITDA of 6.5x as at 30 September 2019; (2) renewal
of the current Concorde Agreement, expiring in December 2020,
between the company, the competing racing teams and the FIA,
the sport's regulator and governing body; (3) dependence on a relatively
small number of key events and broadcasting contracts; and (4) need
to balance higher-income pay-TV agreements with larger access
Following the acquisition of Formula One by Liberty Media Corporation
in 2017 the company has undergone a period of investment focused on strengthening
commercial development, enhancing the digital strategy and increasing
the attractiveness of the sport. This has driven improved trading
performance in 2019, alongside the benefits of a substantial increase
in broadcasting income following the start of a new contract with Sky
Limited (A3 stable) in the UK. Further growth is expected in 2020
driven by new contracts wins over which there is strong contractual visibility.
The company may face some revenue challenges in 2021 due to the timing
of TV contract renewals however the strength and attractiveness of the
Formula One franchise provides some protection in the context of wider
broadcasting market challenges.
The company is in advanced stages of negotiating a new Concorde Agreement,
the term used to describe the series of bilateral agreements between the
company, the competing teams and the sport's regulator,
the FIA, which set out the parameters of how the sport currently
operates and is governed. A key component of the agreements are
the rules governing how the prize fund paid to the competing teams is
determined and allocated. Currently, the prize fund distributed
to the teams is equivalent to around 70% of Formula One's
pre-team share EBITDA. Once finalised, Moody's
does not expect a renewed Concorde Agreement to result in a less favourable
economic outcome for the company. Nevertheless there remains a
degree of execution risk until a new agreement is signed.
Governance considerations, which Moody's take into account
in assessing Formula One's credit quality, relate primarily
to its financial policies. The company's target leverage
is in the range of 5.0-5.5x net debt to company adjusted
EBITDA. Moody's would expect surplus cash to be distributed
by way of dividends and as EBITDA grows for the company to releverage
back to its target level.
Formula One has recently announced its plans to become carbon neutral
by 2030. The company aims to cut its emissions by between 20 and
50 per cent by 2030 through a range of actions which are likely to include
running cars on biofuels, eliminating single-use plastic
at events and reordering the race calendar to reduce distances between
races. In the recently published regulations for 2021, the
sport has announced its intention to retain the current 1.6-litre
turbocharged hybrid engines for the time being.
Formula One's liquidity profile is good. As of 30 September
2019, the company had $354 million of cash on balance sheet
and access to an undrawn committed $500 million revolving credit
facility available until 2024, under which there is ample headroom
under its leverage covenant. There are no material debt maturities
until 2024 and Moody's expects the company to remain solidly cash
generative with Moody's-adjusted FCF/debt of around 10%.
The senior secured facilities at Delta 2 (Lux) S.a.r.l.
are rated B2 in line with the corporate family rating, given the
pari passu capital structure following the full repayment of the second-lien
term loan in July 2017.
The positive outlook assumes that the company will delever towards 6.0x
on a Moody's-adjusted basis during 2020 through mid to high single
digit percentage growth in revenue and EBITDA. The rating also
assumes that negotiation of a renewed Concorde Agreement is satisfactorily
concluded, covering the sport from 2021, on a broadly similar
economic basis for the company. The outlook also assumes that there
are no significant debt-financed acquisitions or distributions
that would prevent the company from deleveraging in line with expectations.
WHAT COULD CHANGE THE RATING UP / DOWN
The rating could be upgraded if Moody's-adjusted debt/EBITDA
falls sustainably below 6.0x, with Moody's-adjusted
free cash flow/debt remaining in at least high-single digit percentages.
An upgrade would also require the company to achieve further revenue and
EBITDA growth and satisfactorily conclude the Concorde Agreement negotiations,
whilst maintaining good liquidity.
The rating could be downgraded if Moody's-adjusted debt/EBITDA
increases towards 7.0x, or if there are signs of weakening
operating performance, cash flow generation or liquidity.
In addition a downgrade could occur if a renewed Concorde Agreement is
negotiated with materially adverse terms for the company, such as
a higher total prize fund paid to the teams (when measured as a percentage
of EBITDA before team payments).
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
Alpha Topco Limited is the holding company for the group of companies
that exploit the commercial rights to the FIA Formula One World Championship.
In 2018, the companies owned by Alpha Topco Limited generated revenue
of $1.8 billion. Alpha Topco — through its
holding companies Delta Debtco Limited and Delta Topco Limited —
is controlled by Liberty Media Corporation.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
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Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Martin Robert Hallmark
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
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Moody's Investors Service Ltd.
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JOURNALISTS: 44 20 7772 5456
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No Related Data.
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