As the COVID-19 crisis crunches companies with high debt, major ratings agencies are keeping track. A tally by S&P Global this week showed 107 companies across sectors put on negative credit watch or downgraded since the virus struck, including 22 in media and entertainment from Endeavor and UFC to Live Nation, AMC Entertainment, Cinemark, ViacomCBS parent National Amusements and Walt Disney.
S&P said it’s putting Endeavor and UFC on so-called CreditWatch with negative implications reflects pressure on revenue due to the spread of the coronavirus, S&P anticipates a mid-teens percent drop in events, media, and services revenue and a substantial decline in UFC’s live ticketing revenue. Extended government and private voluntary restrictions on travel and out-of-home entertainment could put additional pressure on cash flow and raise leverage higher this year.
“The leisure and entertainment economy is currently disproportionately hurt by fears of public gatherings. Endeavor owns, operates, or represents a number of events and entertainment properties, including Professional Bull Riders, Fashion Week, Fortnite competitions, and several European soccer leagues,” S&P said. The events, which make up half of total revenue, “are sensitive to consumer demand for out-of-home entertainment, as well as sponsorship and advertising.”
Insiders at Endeavor have said they hope to weather a storm that hasn’t been seen before and doesn’t have a stop date. Raises and bonuses were paid right before the crisis and Endeavor president Mark Shapiro days ago told agents that expense accounts were frozen, along with travel. These are moves made in some form or other by all major agencies, but Endeavor’s live event exposure puts it in a particularly tough spot.
Ironically perhaps, the diversification was meant to shield the agency after it and competitors were rocked by the 100-day Writers Guild strike in 2007 by providing an alternative revenue stream. But it took lots of cash and debt to get there – including the $4 billion paid for UFC, and that debt must be serviced whether or not the cash register rings.
(Talent agencies in general have already been squeezed by the current, prolonged battle with the Writers Guild over packaging and affiliated production companies that led to writers firing their agents at the Big 4.)
S&P said it views UFC as “strategically important to Endeavor” and expects the two entities could provide temporary liquidity support to each other. It cited $300 million in dividends from UFC to its owners – including Endeavor – of which $129 million has been paid.
S&P also said it thinks UFC’s sizable EBITDA (earnings before interest, taxes, depreciation and amortization) base of recurring media rights revenue could help mitigate a spike in financial risk for both UFC and Endeavor. It noted that UFC plans to relocate upcoming bouts to its Las Vegas APEX facility, which has full production capabilities and can broadcast fights and enable UFC to receive media rights fees. It also expect Endeavor’s and UFC’s respective revolvers could provide liquidity for approximately six months.
On Tuesday, another big ratings agency Moody’s outlined the massive financial hit Disney is taking in the pandemic with the biggest punch coming from the parks, experiences and products division that’s 34% of total revenue. Disneyland in California, Walt Disney World Resort in Orlando, and Disneyland Paris Resort are shuttered at least through the end of the month on top of closures in Hong Kong, Shanghai (partially reopened) and Tokyo over the last few months. Cruises are suspended. TV and film production is shut down major film releases have been postponed, Moody’s is watching but said the company has enough cash to weather the downturn.
Last week, S&P highlighted concerns about National Amusements. It put the Redstone family holding company on negative credit watch after shares of ViacomCBS – which NAI uses as debt collateral – skidded so low the that the parent was in technical default on a bank loan.
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