Fitch Rates National Football League's $1.5B Secured Loan 'A'; Outlook Stable
2008-11-08 14:12:05 -
- Fitch Ratings has assigned an 'A' rating to the National Football League's (NFL, or the league) $1.5 billion senior secured term loan. The league's $1.5 billion 364-day revolving facility, issued through Football Funding LLC, converted pursuant to its term into the term loan on Oct. 31, 2008, and has a four-year maturity. The loan is scheduled to partially amortize in the third year and fully by year four; however, Fitch expects the loan to be refinanced prior to that. In addition, Fitch affirms the 'A' rating to the NFL's $1.3 billion in parity senior secured notes (a several obligation of participating teams) issued through Football Trust and the 'A+' rating on $1.1 billion in senior unsecured notes (league obligation)issued by the NFL. The Rating Outlook is Stable.
The parity senior secured notes were issued via private placement in various series between 1998-2008 through various Football Trusts and mature through 2018. The secured term loan and secured notes have been used by participating NFL franchises for general corporate purposes and to provide working capital. Proceeds of the senior unsecured notes were used by the NFL to provide additional private funding for the construction of new football stadiums through support of the NFL's G-3 Stadium Finance Program.
The 'A+' and 'A' ratings reflect the NFL's prominent position as a professional sports league in the U.S. The NFL has a strong and highly regarded economic model, which includes sizable multi-year television contracts, significant revenue sharing among member clubs, a proven track record of conservative financial policies, and a stable current collective bargaining agreement (CBA) with its players union which includes a 'hard' salary cap. Strong forecasted league-managed revenues, primarily national television contracts, provide the NFL with solid projected debt service coverage ratios.
In addition, the 'A+' rating on the senior unsecured notes recognizes the NFL's first-in-line access to league-managed revenues and team assessments, adequate legal provisions and covenants, and ample reserve levels. The 'A' rating on the secured term loan and notes reflects, in addition to the aforementioned league attributes, the mechanics of the lock-box account for the purposes of collecting national television revenues, which are the primary source of revenues that service the debt, prior to any distributions to individual franchises. Additionally, since each club receives an equal share of revenues, no franchise's share of the national television revenues is affected by its on-field performance. The 'A' rating also reflects the team-specific nature of the obligations and the lack of a corporate (joint and several) obligation of the NFL; however, Fitch considers the NFL's oversight and policy of supporting distressed franchises as a key mitigating factor.
The primary risk associated with these transactions is the NFL's current labor environment. In May 2008, the NFL clubs voted unanimously to exercise their option to shorten the labor agreement by two years (so that the term of the CBA will extend only through the 2010 season). For additional information see Fitch's press release 'Fitch Actively Monitoring NFL's Collective Bargaining Agreement' dated May 20, 2008, and 'Fitch Rates NFL's $500MM Sr. Unsecured Notes 'A+', Stable Outlook' dated June 30, 2008, available on the Fitch web site at www.fitchratings.com.
Current national and global economic conditions portend heightened risks for the NFL, as well as all of Fitch's sports ratings, as there will likely be increased pressure on individual and corporate discretionary spending levels and renewals of key sponsorship and advertising agreements. This is partially mitigated in the short term by the NFL's multi-year national television agreements with its network and satellite providers which currently run through 2011 and 2013 with ESPN, as well as its current multi-year sponsorship agreements which provide strong collateral for the transactions and to NFL clubs for operations. The NFL has historically had positive renewals of its national broadcast contracts and maintains stable television viewership levels.
Additionally, individual clubs may also be partially insulated in the near term given the high percentage of multi-year contractually obligated income generated at club stadiums from luxury suites, club seats and sponsorship and advertising agreements as well as the league's economic model which caps player expenditures - the largest club expense item - to a percentage of league revenues, which contributes to an individual club's strong underlying financial profile. Also, given an NFL's club 10-game (8 regular season, 2 pre-season) home schedule, Fitch assigns a higher level of demand to NFL games as compared to other sports leagues, thus a higher likelihood for continued strong attendance despite weakened economic conditions. Nevertheless, potential lower renewal levels of key revenues at the league and individual club level, should economic conditions worsen, would financially constrain the league and member clubs.
The NFL is a not-for-profit unincorporated association of 32 member teams and was originally founded in 1920 with 18 franchises. The NFL's senior unsecured debt was issued to support the league's G-3 Stadium Finance Program and to refinance borrowings under the Stadium Funding Credit Facility. The G-3 Resolution authorized the NFL to advance up to 50% (with a maximum advance of $150 million per club per stadium) of the total private contribution to a stadium construction project, as evaluated on a case by case basis. The G-3 program will have provided funding to 13 franchise stadium projects, and 21 teams participate in the league-wide term loan and senior secured notes.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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