Standard & Poor’s has issued a new credit report on November 17 that upgrades Zuffa’s credit rating from negative to stable based on their improved pay-per-view business from last year.
S&P is one of the Big Three credit reporting agencies. It assigns credit ratings for debtors, which is used by lenders to determine the debtors ability to pay back a loan or the likelihood of default.
The outlook revision for Zuffa reflects Standard & Poor’s “expection that 2015 EBITDA (Earning Before Interest Taxes Depreciation and Amortization) will recover to above 2013 levels after a significant decline in 2014, primarily driven by strong pay per view (PPV) buys and event ticket sales because of strong interest in marquee fights.”
Thanks to this improved business Standard & Poor’s estimates that the UFC’s adjusted debt to EBITDA will decline to the low- to mid-3x area at the end of this year. They also assume that Zuffa’s total revenue increases in the “high-20% area” while EBITDA margins are projected to rebound to the mid-20% area this year.
Based on our previous methods of estimating the UFC’s revenue, debt, and earnings it looks like the UFC will have over $650 million in total revenue, an EBITDA in the $151 million – $171 million range, and cash flow earnings above $100 million for 2015. No surprise then that Lorenzo Fertita has called this “pretty much the best year in the history of the company.”
Standard & Poor’s expects Zuffa to pay a majority of its free operating cash flow as distributions to members. In addition, they project modest debt amortization payments of about 1% annually under the senior secured term loan (an estimated $4.7 million) as well as some moderate capital spending needs.
How big a difference a year makes. Last year’s Standard and Poor’s downgraded their rating following a 40 percent decline in their EBITDA due to poorer than anticipated ticket and payperview. The string of lost main events from injuries is suspected as being the primary culprit behind this.
S&P forecasts that the UFC will likely continue their positive trajectory into the next year. Standard & Poor’s expects both Zuffa’s total revenue and EBITDA to continue growing “in the low- to mid-single-digit percentage area in 2016 due to continued momentum in PPV buys, combined with an increase in contractual media rights fees.” EBITDA margins and funds from operations are also projected to remain in the mid-20% area next year, while estimates for their funds from operations (FFO) to debt are that they also remain mid-20% area in 2016.
They also view the closure of the Federal Trade Commission investigation as a positive event for the UFC.
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