NEW YORK--(BUSINESS WIRE)--
Fitch Ratings affirmed the 'A' rating on Major League Baseball's(MLB)
ClubTrust Securitization's$500 million senior secured credit facility.
Fitch also affirmed the 'A' rating on the outstanding $995.85 million
term notes (series 2 - 16 maturing through 2025). The Rating Outlook is
The rating reflects the core underlying business fundamentals including
stable fan base as well as a unique operating model and environment,
which continue to perform positively including during the recent
economic downturn. New television contracts went into effect in 2014 at
extremely favorable levels corresponding to near-term projected leverage
of 2.0x (based on each individual club's share to allowable debt under
the facility) and decline over the medium-term . Additionally, the
diversity of MLB revenues from Major League Baseball Advanced Media
(MLBAM) and revenue sharing has bolstered individual team financial
health also strengthens the credit profile. The rating also reflects the
discretionary spending nature of sports, potentially leaving the credit
sensitive to macro-economic trends.
KEY RATING DRIVERS:
Solid Underlying League Economics: Debt service supported by large
contractual revenue streams from investment grade counterparties. MLB's
current collective bargaining agreement (CBA) runs through 2016 and
includes some additional strengthened core elements that promote
financial stability and competitive balance. MLB continues to maintain a
stable domestic fan attendance and viewership base and growing
international fan base.
League Oversight and Governance: League's demonstrated willingness to
step in and aid 'distressed' franchises. For example the league assisted
the Texas Rangers and Los Angeles Dodgers during ownership issues.
Solid Legal Covenants and a Demonstrated Bankruptcy Remote Structure:
Structural provisions ensure timely debt service. The MLB Club Trust
structure utilizes a bankruptcy-remote securitization of pledged
revenues consisting of long-term national broadcast partners in place
through 2021. Noteholders benefit from the bankruptcy remote structure,
which eliminates team related risks; however, they remain subject to all
the fundamental operational risks of MLB.
Long History of Television Contracts: MLB has long-term television
contracts with ESPN (Disney; rated 'A' with a Stable Outlook), FOX
Broadcasting Company (NewsCorp.; rated 'BBB+' with a Stable Outlook) and
Turner Broadcasting System (TBS) (Time Warner, Inc; rated 'BBB+' with a
Stable Outlook). The contracts which took effect in 2014 and run through
2021 represent a 100% increase in annual rights fees from the previous
contract and deliver $12.4 billion in combined revenue.
Refinancing Risks Expose Teams to Potentially Higher Costs: The bullet
maturities associated with the notes and bank renewals associated with
the revolving credit facility expose the teams to potentially higher
-- A significant decline in national television contact rights fees, due
to the termination of the existing agreement and no new broadcast
partner or lower renewal rates, although unlikely, could negatively
impact the financial profile and metrics of the borrowing programs
resulting in rating pressure.
-- A substantial change in individual and corporate spending on MLB
related content could materially weaken the credit and result in
negative rating action.
The notes and revolving credit facility of the MLB Club Trust
Securitization rank pari-passu and are secured by, among other things,
rights to receive certain payments shared among MLB clubs, including,
primarily, the aforementioned national broadcast revenues from national
and international media contracts, and, to a lesser degree, revenues
under licensing and sponsorship received by Major League Baseball
MLB national television agreements with Fox, Turner, and ESPN which took
effect in 2014 will deliver a combined $12.4 billion through the term of
the contract which represents more than a 100% increase in annual rights
fees to MLB compared to the previous contracts. The contracts run
through the end of the 2021 season. The contracts provide further
stability for both the senior secured credit facility and term notes.
MLB increased the allowable per team borrowing limit to $100 million,
subject to league approval on a team by team basis, following the
increase in national television revenues.
The current CBA between MLB and the Major League Baseball Players
Association (MLBPA) runs through 2016 and essentially guarantees 21
straight years of labor peace when combined with previous agreements.
The CBA includes a number of the economic and competitive fundamentals
from prior agreements including a salary structure that includes a
'competitive balance tax' system, free agency structures and a high
level of revenue sharing among member clubs. The competitive balance tax
system has been slightly altered. The tax will decline to 17.5%, from
22%, of the actual dollars spent for clubs exceeding the threshold for
the first time, but the tax as applied to repeaters will increase to 50%
of that same figure for clubs that have spent above the predetermined
level at least four consecutive years. An increase in the minimum salary
will also be implemented.
MLB clubs are now subject to the aforementioned debt service reserve
(DSR) based earnings before interest taxes depreciation and amortization
(EBITDA) during the most recent year. Under the new agreement, the rule
for leverage is 8 times (x) EBITDA (and 12x EBITDA for any club which
has incurred stadium-related debt to finance construction of a new
ballpark or major renovation in the last 10 years). Under the prior
agreement MLB's debt service rule of 10x and 15x EBITDA, respectively,
was viewed as high. Fitch views the lower leverage thresholds and the
oversight of the Commissioner's Office to enforce compliance with the
MLB's performance during the recent economic recession is a testament to
the expected stability and demand for professional baseball in the U.S.
and internationally. In 2013 attendance declined slightly by
approximately 1.1% to 74 million following an increase of 2% in the 2012
season. Overall, 2014 season attendance is currently projected to be
flat, up 0.1%, demonstrating the stability of the games fan base. Fitch
notes the positive endeavors MLB has undertaken to enhance the fan
experience and distribution of the game through MLBAM products as well
as the continued development of MLB Network and World Baseball Classic.
In addition, Fitch considers MLBs efforts in youth baseball paramount to
cultivating the future generations of baseball fans.
Fitch favorably views MLB's economic model and financial policies,
although a wide disparity exists between the revenues generated by the
largest and smaller teams. A team's reliance on local revenues, which
fluctuate significantly between small and large markets, and their
discretion to spend unreservedly on player salaries can result in
greater financial disparity among MLB teams. This disparity has the
potential to lead to a less competitive framework for MLB. However,
Fitch acknowledges that this disparity is partially mitigated by a
revenue sharing transfer in excess of $355 million for 2013.
Additionally, Fitch recognizes MLB's long history of viability in good
and bad economic times and, more recently, the diversity of MLB clubs
that have participated in the postseason since 2000 as important
mitigating factors. Furthermore, Fitch notes, despite the range of
financial disparity among participating clubs, noteholders are insulated
from team level operations given their rights to national broadcast
contracts to service debt prior to distributions to teams for operations
which was tested and validated in the recent bankruptcy proceedings of
the Los Angeles Dodgers and Texas Rangers.
While some teams are facing increased financial pressure due to weak
economic conditions impacting attendance levels as well as corporate
spending levels on sponsorships and advertising, those teams may be
partially insulated in the near term by the long-term national
television contracts and local broadcast contracts which provide a
sizable portion of overall team revenues. Additionally, to a lesser
extent, the high percentage of multi-year contractually obligated
stadium-based revenues such as luxury suites, club seats, sponsorship
and advertising agreements partially offset volatility associated with
game day ticket sales. Nevertheless, potentially lower renewal levels of
key revenues at the league and individual team levels, should economic
conditions worsen may financially constrain the league and member teams.
A key offset to the risk of softening stadium revenue growth includes
recently signed new and/or extended local broadcasting agreements which
provide additional revenues to support underlying financial stability.
The MLB Trust is a bankruptcy-remote Delaware statutory trust
established and owned by the member Clubs of MLB that choose to
participate in the MLB Club Trust Securitization. MLB currently has 30
teams in major metropolitan areas in the U.S. and Canada, of which 22
participate in the MLB Club Trust Securitization.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Rating Criteria for Infrastructure and Project Finance' - 12 July
--'Rating Criteria for U.S. Sports Facilities' - 9 Aug. 2012.
Applicable Criteria and Related Research:
Rating Criteria for Infrastructure and Project Finance
Rating Criteria for U.S. Sports Facilities, Leagues, and Teams
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Elizabeth Fogerty, +1 212-908-0526
Source: Fitch Ratings