Endeavor's Credit Rating Gets Downgraded on Live Events Exposure

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Endeavor CEO Ari Emanuel

The firm has a $4 billion-plus debt burden owed to Silver Lake Partners and other private equity investors and massive investment in live-events businesses.

S&P Global Ratings on Monday reduced its credit rating for Endeavor Operating Co. over concerns for its high-borrowing strategy and exposure to the bottom dropping out of its live events market as a result of a global pandemic.

"Federal guidelines in the U.S. for social distancing will remain in place at least until April 30, extending the possibility for a prolonged downturn for event- and entertainment-based businesses," the ratings agency warned in an investors note.

Endeavor — with a $4 billion-plus debt burden owed to Silver Lake Partners and other private equity investors and massive investment in live-events businesses — remains highly vulnerable to the COVID-19 crisis restrictions, given live-event franchises like UFC, which it does not wholly own, the Miss Universe Organization and Professional Bull Riders, the ratings agency argued.

S&P Global said Endeavor began this calendar year with a high debt load, which means an "anticipated significant drop in revenue in 2020 could potentially result in an unsustainable capital structure." Endeavor CEO Ari Emanuel and executive chairman Patrick Whitesell already have announced that they are forgoing the remainder of their compensation for the year, and a planned buyback of equity shares for WME partners has been postponed indefinitely.

The ratings agency downgraded Endeavor's overall credit rating to CCC+, from B, with a negative outlook, while also reducing the issue-level credit rating for WME IMG Holdings LLC's first-lien credit to CCC+, from B.

Both ratings are also on negative credit watch over uncertainty around their live-events schedule in 2020. "We believe the level of financial risk could motivate the company to seek a distressed debt restructuring if coronavirus containment does not occur by midyear so that revenue can begin to recover," the agency added about Endeavor.

The ratings downgrades are a comedown from Endeavor's high-risk, high-return strategy pursued last year when it sought to become Hollywood's first company with a talent agency to go public. But amid doubt over its ability to achieve its $8 billion target valuation, Endeavor changed course on the eve of its intended IPO.