The National Basketball Association is selling $193.2 million in senior secured notes today, as teams tap national media rights flows for working capital.
The NBA’s Hardwood Funding LLC subsidiary is selling four tranches of debt in uneven portions of $60 million, $93.5 million, $20.8 million and $18.9 million. Based on disclosures by Fitch Ratings, which rates the debt A-minus with a stable outlook, the proceeds probably represent amounts being taken by four individual franchises, but that isn’t certain. The names of teams involved aren’t disclosed. The NBA declined to comment.
Hardwood Funding, along with a separate league-wide credit facility, is backed by national media revenues, which flow first to meet debt obligations before being distributed to the teams under the NBA’s revenue sharing plan. Teams can elect to take advances of up to $275 million from the league against the flows, according to information contained in reports by Fitch Ratings.
Overall, the NBA has $6.7 billion in debt with today’s sale, according to Fitch, and based solely on the amount rated by Fitch, the league has been adding to its debt burden to weather the pandemic. A year ago, the league had $5.4 billion in outstanding debt, when Hardwood Funding raised $457 million in four unequal tranches. In 2019, the league debt level was $4.5 billion, according to various Fitch debt ratings reports.
New York-based Fitch is one of a handful of companies that rate corporate debt, a risk evaluation typically required by institutional investors who buy debt. A rating of A-minus indicates a low risk of default and is one of the factors that helps set the price of the debt—that is, the interest rate the NBA pays—in the sale. The league rating benefits from a series of factors: its long-term media contracts with the Walt Disney Company and WarnerMedia’s Turner Broadcasting, its growing popularity, the player salary cap, as well as demonstrated willingness of the NBA to assist distressed franchises, according to Fitch. The NBA rating is similar to the other major pro leagues in North America, although Major League Baseball and the National Football League maintain lighter debt-to-annual revenue levels of about two-to-one, while the NBA’s debt level right now is about three-to-one, according to Fitch.