| NEW YORK, April 6
NEW YORK, April 6 Mixed martial arts franchise
Ultimate Fighting Championship (UFC) is returning to the loan
market to raise US$100m of incremental debt to back a potential
earnings-based payout tied to its 2016 buyout, sources said.
Proceeds from the new debt are slated to back a payment due
to the sellers if certain financial targets are hit. The buyout
included two future payments of US$175m and US$75m if the
company hit specific milestones. The first payment may be due
during the second half of 2017.
The new loan will be led by KKR Capital Markets, which took
the lead financing role from Goldman Sachs in January when UFC
went to the market to reprice the loan.
Goldman Sachs led the original first-lien loan to back the
company’s 2016 buyout by private equity-backed talent agency
WME-IMG. As reported, federal regulators warned the bank about
the deal because of aggressive earnings before interest, tax,
depreciation and amortization (Ebitda) add-backs included.
This allowed KKR to step into the lead role on the
first-lien loan, as KKR is not subject to the federal leveraged
lending guidance that Goldman Sachs is required to follow. The
guidelines were put in place in an effort to limit highly
leveraged loans considered risky.
Deutsche Bank led a US$425m second-lien loan backing the
original buyout. This debt was not repriced.
"This is certainly an example of UFC being aggressive
(again) with their add-backs," said an investor who has looked
at the deal. "I had heard the company got some push-back from
regulators, so I am mildly surprised to see them back so soon."
Total net leverage at UFC will stand at 5.8 times following
the additional debt raise with first-lien net leverage at 4.5
times, according to an investor presentation.
S&P affirmed its B+ rating on the first-lien debt Thursday,
as well as the CCC+ rating on the second-lien loan. S&P has the
company on negative outlook due to the significant leverage,
which the ratings agency puts above 8 times.
Management Ebitda for 2016 climbed to US$226m from US$192m
in 2015, according to the presentation. However, the investor
noted that the company is marketing the deal using adjusted
Ebitda of US$320m “without providing much detail on the bridge
between the numbers.”
The company notes that it achieved US$10m of cost savings in
2016 from reducing labor, marketing and third-party cost and is
on schedule to generate US$55m of cost savings this year.
Despite concerns from regulators, investors have been eager
to own the loan, which was trading at approximately 101,
according to Thomson Reuters LPC data.
The add-on loan is expected to price with the same terms as
the existing first-lien loan, which puts the spread at 325bp
over Libor with a 1% floor. The loan originally priced at 400bp
over Libor in August 2016. The commitment deadline for lenders
is Thursday after launching on Wednesday.
KKR declined to comment.
(Reporting by Jonathan Schwarzberg; Editing By Lynn Adler and