“According to S&P, Endeavor and UFC “have significant exposure to live events, entertainment and content production, which are at risk of closure in the near term due to the spread of the coronavirus.” S&P placed all ratings on Endeavor and UFC, including the “B” issuer credit rating, on CreditWatch with negative implications. In other words, the junk bond ratings for both Endeavor and UFC could be lowered. S&P cited concerns over EBITDA (earnings before interest, taxes, depreciation and amortization) and liquidity.
To date, UFC management is holding off employee layoffs and even planning for a live event in mid-April. [Update: the live event has now been cancelled, as per April 10, 2020 news reports]
Nonetheless, we note that the 2026 Term Loan held by the only BDC with exposure – Oaktree Strategic Income (OCSI) – is trading at a (12%) discount. At year-end 2019, the $4.9mn in debt was carried at par.
The downgrade and the latest valuation are enough for the BDC Credit Reporter to place UFC on the Under Performers List. We are initiating coverage with a Corporate Credit Rating of 3. That means we’re still hopeful full recovery is more likely than not and keeps up from trying to estimate what any loss might be.
As we see, BDC exposure is modest and income at risk even more so given that UFC’s parent has several billion dollars in debt. That may be just as well given that UFC could be impacted for many more weeks to come by the abandonment of all public events. In the short run, a further downgrade by the BDC Credit Reporter – and others – is more likely than an upgrade. Longer term we are more optimistic.