New York, May 20, 2020 -- Moody's Investors Service (Moody's) downgraded Learfield Communications,
LLC's (Learfield) Corporate Family Rating (CFR) to Caa1 from B3 and Probability
of Default Rating (PDR) to Caa1-PD from B3-PD. The
first lien credit facility (including a $125 million revolver and
term loan B) and the second lien term loan ratings were downgraded to
B3 from B2 and Caa3 from Caa2, respectively. The outlook
remains negative.
Learfield's ratings were downgraded due to an expectation of weak
operating performance arising from the impact of the coronavirus outbreak
which has limited the ability to hold sporting events and reduced overall
advertising spending. As a result, already very high leverage
levels will increase substantially and liquidity will deteriorate for
as long as college sporting events continue to be disrupted by the pandemic.
Downgrades:
..Issuer: Learfield Communications, LLC
.... Probability of Default Rating,
Downgraded to Caa1-PD from B3-PD
.... Corporate Family Rating, Downgraded
to Caa1 from B3
....Senior Secured First Lien Bank Credit
Facility, Downgraded to B3 (LGD3) from B2 (LGD3)
....Senior Secured Second Lien Bank Credit
Facility, Downgraded to Caa3 (LGD5) from Caa2 (LGD5)
Outlook Actions:
..Issuer: Learfield Communications, LLC
....Outlook, Remains Negative
RATINGS RATIONALE
Learfield's Caa1 CFR reflects very high leverage of almost 10x as of December
30, 2019 (excluding Moody's standard lease adjustment), which
Moody's expects will increase further while liquidity deteriorates
in the near term due to weak operating performance. The coronavirus
outbreak has exacerbated a difficult environment given the inability to
hold college sporting events until the pandemic subsides and lower advertising
spending amidst a weak economic environment. Following the merger
with IMG College in December 2018, Learfield was already facing
a challenging environment from higher multimedia rights costs and lower
than anticipated sponsorship revenue after an extended regulatory review
process that slowed sponsorship sales.
Learfield also has a substantial amount of guaranteed payments over a
multiyear period with its college media rights partners and a relatively
high level of fixed costs, although the company is likely to attempt
to convert many of its fixed obligations to a more variable model going
forward. Learfield has limited tangible assets with the company's
value driven largely by the intellectual capital of management,
long term business relationships, and contracts with college athletic
programs and organizations. College football and basketball account
for a significant amount of revenue and Learfield's performance
would be substantially impacted by a cancellation or delay of the season
of either sport. Despite the smaller size of many competitors,
competition for collegiate sports rights has been high and colleges have
sought increased fees for their media rights historically which can pressure
profitability if the higher costs are not offset with growth in 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 and provided revenue and cost
synergies, 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 will be disrupted
until the impact of the pandemic subsides.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The sports industry has
been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment. More specifically,
the weaknesses in Learfield's credit profile have left it vulnerable to
shifts in market sentiment in these unprecedented operating conditions
and Learfield remains vulnerable to the outbreak continuing to spread.
Moody's regards the coronavirus outbreak as a social risk under our ESG
framework, given the substantial implications for public health
and safety. Today's action reflects the impact on Learfield of
the breadth and severity of the shock, and the broad deterioration
in credit quality it has triggered.
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 be focused on preserving liquidity and improving
operations. Learfield is a privately owned company.
Moody's considers Learfield's liquidity position as weak due
to the expectation of negative free cash flow for as long as college sporting
events are disrupted. Cash on the balance sheet was $40
million and Learfield has access to a $125 million revolving credit
facility due December 2021 with $70 million outstanding as of December
31, 2019. Free cash flow, which has been negative since
the acquisition of IMG College, is seasonal with the strongest results
posted during the quarters ending in December and March of each year.
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 rights partners in the near term. Learfield has also
taken steps to reduce costs and is projected to remain focused on managing
liquidity. The company's liquidity position is projected
to deteriorate over the next several quarters and Moody's expects
that additional sources of liquidity may be needed if the pandemic continues
to restrict the ability to hold sporting events.
The revolver has a springing first lien net leverage ratio of 7.5x
if more than 35% of the revolver is drawn. The first and
second lien term loans are covenant lite. Moody's projects the
cushion of compliance with the covenant to tighten over the next few quarters
and Learfield may need an amendment to its financial covenant going forward.
The negative outlook reflects Moody's expectation that liquidity,
revenue and EBITDA will decline due to the coronavirus outbreak's
impact on the ability to hold college sporting events and lower sponsorship
revenues in the near term which elevates the risk of a default.
An inability to hold the college football season as scheduled would also
have a substantial impact on performance and liquidity and increase the
need for additional sources of funding.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of Learfield's ratings is not likely in the near term due to
the very high leverage level and challenging economic conditions due to
the coronavirus outbreak. However, ratings could be upgraded
if Learfield had an adequate liquidity position with leverage sustained
below 7.5x (as calculated by Moody's). All approaching debt
maturities would also need to be extended.
Ratings could be downgraded further if there was insufficient liquidity
which elevated concerns about Learfield's ability to service its debt
from issues stemming from the pandemic's effect on operations or
if there was a distressed exchange. An inability to obtain an amendment
to the financial maintenance covenant applicable to the revolver or extend
the maturity of the revolver (matures December 2021) well in advance of
the maturity date could also lead to negative rating actions.
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. 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/research/Business-and-Consumer-Service-Industry--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.
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At least one ESG consideration was material to the credit rating action(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.
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Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
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