S&P Global and Moody’s Investors Services downgraded CAA Holdings on Monday after the company raised $75 million in a debt sale as the ratings agencies said canceled and postponed live events and shrinking agent commissions could impact revenue.
The outlook is stable, however, meaning, in the case of S&P, that “CAA will maintain sufficient liquidity to service all of its debt obligations and that productions and live events, including sports and music, will gradually return to pre-pandemic levels toward the end of fiscal year 2020 into 2021.”
CAA insiders said the loan from investors was not necessary but the terms and timing were opportune and that the firm considered a cash cushion prudent given the current situation.
Moody’s specifically referenced the $75 million in fresh cash for CAA, which adds to a previous $1.15 billion term loan and a $125 million revolving credit facility. It said the downgrade was due to a combination of the fresh debt and the fact that the pandemic has limited the ability to hold live events and complete media production as anticipated.
“While some events will be rescheduled to future quarters, others will be cancelled due to the pandemic. As a result, CAA’s leverage levels will increase for as long as media production and live events continue to be impacted by the coronavirus. However, contractual revenue streams and strong demand for media content are projected to provide some stability to performance,” Moody’s said.
The net proceeds of the new term loan will be used for general corporate purposes and support CAA’s existing liquidity position.
Many companies in media and entertainment have raised cash in various ways over the past six weeks, most commonly through debt sales.
S&P Global also noted that outbreak has led to cancellation or postponement of live events from sports to music concerts to festivals and forced major studios to indefinitely suspend production of almost all TV and film projects.
Music and sports are the hardest-hit areas.
“The majority of CAA’s represented talent are being directly affected by these disruptions because they are not receiving compensation. This, in turn, prevents CAA from collecting its agent commissions, which leads us to anticipate that its credit metrics will be materially weaker than we previously expected in fiscal year 2020,” S&P said.