S&P Global Inc. has downgraded Live Nation Entertainment Inc.’s credit rating to junk bond status with a negative outlook and rated the company’s proposed $800 million issuance of senior secured notes at junk level.
The rating service also lowered the secured debt of the Beverly Hills-based live event ticket seller and the music industry’s largest promoter further into the junk bond range.
“Live Nation Entertainment Inc. will experience dramatic revenue declines during the coronavirus outbreak due to postponed and canceled live music events,” S&P Global analysts David Snowden and Jawad Hussain wrote in their May 13 report, “and we expect the company to generate negative EBITDA in 2020 as its cost management initiatives will not fully offset revenue declines.”
The proposed $800 million in senior secured notes is intended to improve the company’s liquidity during this period of lower revenues, Snowden and Hussain said.
Live Nation had canceled or postponed all of its concerts, both domestically and abroad, in mid-March in the face of social-distancing restrictions and limitations on public gatherings.
The S&P report is the latest challenge to the company as it tries to stabilize its finances.
The company and its Ticketmaster Entertainment Inc. subsidiary were hit with a federal class-action suit in April for failing to issue full refunds for shows they canceled due to the pandemic.
At first, Live Nation said it would not give refunds for its postponed or rescheduled events. The company backpedaled after public outcry, but the plaintiffs took issue with the announced plan to give fans 30 days to request a refund for shows after the rescheduled date is announced.
They argued that proposal would give Live Nation use of their money until the company chooses to act.
On the other hand, Live Nation received a vote of confidence when Saudi Arabia disclosed in an April Securities and Exchange Commission filing that its sovereign wealth fund had purchased 5.7% of the company’s common stock for nearly $500 million.
The fund has been an opportunistic investor in companies whose stocks appear to have hit lows. Live Nation’s shares had plummeted to about half their value from a recent high of about $76 in February.
Saudi Arabia made its investment in mid-April, about one month after the price plummeted and just three days after Live Nation announced steps to boost its finances that received a positive review by one Wall Street firm.
On April 13, Live Nation revealed a new $120 million revolving credit facility, as well as plans for $500 million in cost cuts this year. The company has since undertaken staff reductions, rent renegotiations and cuts to executive compensation.
“We believe concerns over Live Nation’s liquidity and debt covenant have been eliminated with (the) … announced amended credit agreement and cost containment measures,” Cowen Inc. analysts Stephen Glagola and Doug Creutz wrote in a report issued the same day as the Live Nation announcement. “Uncertainty around when normalcy can return to live events is now the primary concern.”
After news on May 18 of progress on Covid-19 vaccines and further relaxations of lockdown rules in various states, Live Nation’s stock price rose 5.2% to close at $46.15, significantly above the S&P 500’s increase that day of 3.15%.
“(W)e believe the company is aggressively managing its variable cost structure,” the S&P analysts said. “However, even with these cost and cash management initiatives, we believe the company’s EBITDA and free cash flow generation will be substantially negative in 2020.”
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