Moody’s Cuts Formula One as $1 Billion Bond Sale Boosts Leverage
Moody’s Investors Service cut the ratings on Formula One’s debt a single step after the auto- racing series started raising $1 billion of private high-yield bonds to pay its owners a dividend.
The ratings firm reduced the London-based company’s loans to B1 from Ba3 and assigned a B2 corporate family rating to its parent Delta Debtco Ltd., citing the “materially increased leverage” after the debt placement and a “more aggressive financial strategy” after a share sale in May was abandoned, according to a report.
Formula One’s lenders agreed to a two-year loan extension and the $1 billion dividend earlier this month, raising the amount it will distribute to shareholders this year to $2.2 billion, according to Moody’s. Moody’s estimates the company’s debt to be more than six times its earnings before interest, tax, depreciation and amortization, and for leverage to increase further next year.
“Following the company’s aggressive distribution steps in 2012, the ratings are initially weakly positioned at the B2 level,” analysts led by Olivier Beroud wrote in the report. If Formula One’s leverage were to climb to more than seven times Ebitda or it generates negative free cash flow, the rating would come under negative pressure, Moody’s said.
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