Creative Artists Agency Debt Gets Downgraded

The latest victim of the pandemic among companies involved in sports and entertainment is Creative Artists Agency. This afternoon Standard & Poor’s Global Ratings lower the credit rating for the talent and sports agency, which has 2.000 employees, to “B” from “B+”.

In November, the Hollywood Reporter wrote that “CAA is in the process of raising about $393 million largely to buy back equity from agents and top executives,,,the agency’s goal is to borrow $1.15 billion in a seven-year loan in order to refinance at more favorable terms $757 million in debt while banking what remains to be used in a one-time share repurchase of employee shares.”

But of course that was shortly before the pandemic hit.

Obligors rated “BB” or lower are regarded as having significant speculative characteristics. Last May, CAA made a huge splash with it signed Zion Williamson, who is arguably going to be the NBA’s next mega-star. Among the agency’s notable roster of clients are Chris Paul of the Oklahoma City Thunder, Matt Ryan of the Atlanta Falcons, Yoenis Cespedes of the New York Mets and the Philadelphia 76ers’ Joel Embiid. Last summer, CAA purchased London’s Base Soccer Agency, marking its first foray into soccer.

S&P said it expects CAA’s adjusted leverage ratio to remain above its mid-5.0x downside threshold over the next 12 months due to the cancellation/postponement of music tours and sporting events and the temporary halt of substantially all film and TV production, due to the coronavirus pandemic.

According to the rating agency, “A portion of CAA’s represented clients will not be compensated as long as productions and live events remain suspended, which will materially affect the company’s earnings and adjusted leverage metrics in fiscal year 2020 (ending Sept. 30, 2020).” With today’s action, S&P lowered its issuer credit rating on CAA to ‘”B” from ”B+’ and its issue-level rating on the company’s first-lien term loan facility to “B” from “B+”, but kept its “3” recovery rating on the term loan unchanged.

But S&P kept the credit outlook for CAA “stable” because it believes the company will maintain sufficient liquidity to service all of its debt obligations, including generating a free operating cash flow-to-debt ratio of at least 5% over the next 12 months. The outlook also reflects S&P’s view that “the volume of productions and live events, including sports and music, will gradually return to pre-pandemic levels toward the end of fiscal year 2020 and into 2021, further supporting the company’s cash flow and liquidity.”

The lowering of CAA’s credit rating falls on the heels of hollywood agency Endeavor getting its credit rating lowered in mid-April.