Fitch Affirms $1.3B Major League Baseball Trust Securitization Facility at 'A-'
The rating affirmation reflects, among other things, additional protection to facility noteholders provided by a new long-term broadcast agreement with ESPN to televise certain MLB regular-season games across the ESPN networks through 2013 and the recent long-term extension of an agreement with Turner Sports to continue showing Atlanta Braves baseball games nationally on TBS through 2012. The affirmation also considers, to a lesser extent, incremental noteholder protection provided by expected revenues from the XM Satellite Radio broadcast agreement, which was not in place when Fitch originally assigned its rating to Major League Baseball Trust. Fitch also notes principal amortization of the revolving and term notes is consistent with Fitch's expectations, in addition to improving economics at the league level, as reflected, in part, by record-setting park attendance figures in 2005 and the aforementioned television contract renewals and extensions.
Fitch's analysis also took into consideration a number of quantitative and qualitative factors, including, among other things:
-- MLB's position as a leading professional sports league in the U.S., its economic model, and the benefits of the 2002 collective bargaining agreement (CBA). Although its economic model is not as strong as the National Football League's ('A+' senior unsecured rating by Fitch), Fitch considers the current CBA a step in the right direction from the previous agreement, but substantial room for improvement still exists. Key components of the CBA include enhanced revenue sharing, a new debt service rule, and a competitive balance tax. While Fitch has not assigned a formal senior unsecured rating to Major League Baseball, it would be lower than the rating of this transaction due to the structural benefits offered by the securitization facility.
-- Pledged shared revenues from national media contracts. Fitch's analysis of national media contract revenues takes into consideration the diversity and credit quality of current national media contract counterparties, the duration, and the staggered timing of the renewal dates of these contracts. Fitch's stressed debt service analysis assumed disruptions in these cash flows and renewals at rates lower than current (and historical) contract rates.
-- An interest expense reserve account that was fully funded upon closing that is available throughout the term of the facility to pay unpaid interest when due. Amounts on deposit may also be used to reduce the outstanding principal of the note upon acceleration of the notes. This reserve provides additional protection in the event of an unforeseen disruption in the playing of MLB games and the potential delay in receiving revenues from national media contracts in the event of the bankruptcy of a current or future media contract counterparty.
-- A labor contingency interest reserve that specifically covers interest expense in the event of a league-wide work stoppage. After expiration of any CBA, including the current CBA (which expires in December 2006), and until the execution of a new CBA, this reserve will be established in an amount sufficient to cover nine months interest expense.
-- The transaction's legal structure, which incorporates the use of bankruptcy remote entities. Legal opinions from counsel state that the transfer of rights and revenues is a true contribution and not a secured borrowing and that in the event of a participating club bankruptcy, a bankruptcy court would not order substantive consolidation of the assets and liabilities of any club trust or the issuer with those of any participating club. Furthermore, the rights and revenues would not be subject to the automatic stay provisions of the bankruptcy code.
Over the duration of the facility, Fitch will continually monitor MLB's economic model, future collective bargaining agreements, the terms and conditions of media contract renewals, and the credit quality of current and future media contract counterparties. Any material change in Fitch's assessment of these factors could affect the rating of the facility.