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Endeavor Gets 'Speculative' Credit Rating Prior To IPO

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Ari Emanuel and Patrick Whitesell may not have an easy time getting a rich valuation on the planned public offering for their company.

Today, S&P Global affirmed its “B” (speculative) credit rating for Endeavor, the U.S.-based sports, media and entertainment company Emanuel and Whitesell co-run that plans to complete an IPO of approximately 10% of its equity in the second half of 2019. It extends the rating S&P had prior to the announced IPO.

The ratings agency notes that the IPO “could raise proceeds of up to $1 billion for debt repayment, acquisitions and other corporate purposes. We expect the IPO would help the company to moderately reduce leverage from very high levels in 2018. As a result, we affirmed our ‘B’ issuer credit rating on Endeavor.”

I touched on the high debt of UFC, the mixed martial arts promotion owned by Endeavor, yesterday. This morning, David Lidsky wrote a provocative story that threw cold water on the IPO. Among his more astute observations: “I couldn’t help but think about how thoroughly the tech industry has overrun the entertainment business—and Endeavor knows it.”

For 2018, the company reports revenue of $3.6 billion and net income of $317 million. But Endeavor also shows an operating loss from “continuing operations” of $107 million.

Bankers like to talk EBITDA (earnings before interest, taxes, depreciation and amortization). Endeavor’s EBITDA margin was 15.3% in fiscal 2018. But during the first three months of this year, the margin was 8.3%, compared with 13% during the first quarter of 2018.

S&P says, “We expect modest EBITDA growth in 2019 driven by the representation segment and Ultimate Fighting Championship (UFC), but continued EBITDA margin compression because of the underperformance of European soccer rights contracts.”

Sounds to me like margins are under pressure.

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