The National Basketball Association is raising $254 million this week backed by national media revenues, according to a ratings opinion issued by Fitch Ratings on Monday.
League subsidiary Hardwood Funding LLC is selling three uneven tranches of senior secured notes—about $137 million, $90 million and $26 million—using income from the media contracts to back the debt, according to Fitch. Based on prior disclosures, the debt is almost certainly meant to provide operating capital for three individual franchises, which aren’t disclosed. The NBA didn’t respond immediately to a request for comment.
The new fundraising brings the NBA’s total debt to at least $7.4 billion, per information disclosed by the ratings agency. To put that in perspective, the entire league is worth $77.5 billion, according to Sportico’s latest NBA franchise valuations. The NBA debt is rated at A-minus with a stable outlook, which is investment grade with a low risk of default. The debt is given a rating because most institutional investors who would be buyers of the NBA notes have requirements to stay within certain risk and credit quality parameters.
In the case of Hardwood Funding, its risk is mitigated because broadcast revenues flow into an NBA account to meet its debt service obligations before distribution to individual teams. This allows the broadcast revenue to flow to lenders even in most cases of a team bankruptcy, allowing the league to raise money at a better interest rate.
“The NBA’s business model and financial profile are consistent with the other A category ratings for the National Football League (NFL) and Major League Baseball (MLB),” said Fitch in its ratings note issued Monday morning. “In terms of league business model, the NBA has demonstrated perhaps the strongest global growth in popularity in recent years, and renewal risk for its broadcast contracts is similar to that of peer leagues.”