Thu 09/23/2021 10:24 AM
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Relevant Items:
Covenants Tear Sheet and Debt Document Summaries
Live Nation’s Debt Documents

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On Aug. 3, Live Nation Entertainment reported its financial results for the second quarter of 2021. The company reported a positive adjusted operating income, or AOI, of about $10 million for the quarter, after five straight quarters of negative AOI. Live Nation’s LTM AOI as of June 30, 2021, was approximately negative $706 million. Although Live Nation does not report EBITDA, its LTM EBITDA as of June 30, as calculated by Reorg, was approximately negative $870 million.

In its earnings release, the company stated that its second-quarter AOI was “well ahead of where we thought we would [be] for this quarter,” attributing the strong performance to a “faster than expected” pace of ticket sales and concert attendance as well as “cost discipline.” The company said it expects to see continued improvement in operating income this year, with “all segments returning to adjusted operating income profitability for the second half of the year, setting us up for a full-scale 2022.”

Live Nation’s debt includes a term loan, revolving facility and delayed-draw term loan facility, all under the same credit agreement, two series of secured notes, three series of unsecured senior notes and two series of unsecured convertible notes.

As discussed in detail in our prior coverage, Live Nation entered into covenant relief amendments to its credit agreement in April and July 2020, which modified the financial maintenance covenants under the agreement and imposed restrictions on access to certain debt, restricted payments and investments baskets. The restrictions will be lifted as the company demonstrates compliance with certain leverage tests.

A net leverage maintenance covenant, which is currently replaced by a liquidity covenant, will be reinstated on Dec. 31, 2021, and tested for the quarter ending on that date. The leverage covenant will initially be based on annualized EBITDA, weighted for seasonality.

Live Nation’s capital structure as of June 30, 2021 is summarized below:

Live Nation’s updated covenants tear sheet can be found HERE.
OCESA Acquisition

On Sept. 13, 2021, Live Nation announced its agreement to proceed with the acquisition of a controlling 51% interest in OCESA Entretenimiento, “a leading promoter in Latin America and owner of Ticketmaster Mexico” for approximately $444 million U.S. dollar equivalent. On Sept. 14, the company reported its launch of a $450 million common stock offering to fund the OCESA acquisition.

Live Nation had reached an agreement to acquire OCESA in June 2019 but notified the sellers that it was terminating the agreement in May 2020, relying in part on a material adverse effect provision under the purchase agreement.

Live Nation currently has limited investment capacity under its credit agreement due to restrictions imposed by the covenant relief amendments, and it cannot access leverage-based investments because of its negative EBITDA. While some of those restrictions may be lifted before the transaction closes, the agreement likely permits the OCESA acquisition under its existing investments basket, which is not subject to any covenant relief restrictions.

The existing investments basket allows investments “existing on, contractually committed or announced but unconsummated” as of Oct. 17, 2019, if identified on a nonpublic “Existing Investments” schedule, “and any extensions, renewals or reinvestments thereof,” as long as the “aggregate amount” of the investment is not increased above the amount of the investment existing on Oct. 17, 2019 (though other investment capacity may be utilized for any such increase).

The OCESA acquisition was “contractually committed” and “announced but unconsummated” as of Oct. 17, 2019, and is presumably identified in the “Existing Investment” schedule, since it predated the cutoff date. Though Live Nation did purport to terminate the agreement in May 2020, the basket does not exclude investments that are terminated but later revived, and it expressly covers “extensions” and “renewals” of existing investments. On the basis of the company’s disclosures, the nature of the investment - the acquisition of 51% of OCESA stock - has not changed.

According to the company’s disclosure, the total purchase price is the same as in the July 2019 agreement, but a portion of the consideration (approximately $45.5 million U.S. dollar equivalent) that was previously to be paid using Live Nation stock will now be paid in cash. Therefore, the “aggregate amount” of the investment has not increased.

Some of Live Nation’s recent statements regarding the OCESA acquisition characterize it as a continuation of the June 2019 transaction. For example, its Sept. 13 press release states that the company has “has agreed to proceed” with its previously announced acquisition, which had been “paused due to the pandemic.” Similarly, a prospectus supplement describes the June 2019 purchase agreements as having been “revived and amended, with the parties’ obligations reinstated, as amended.”

Under each of the company’s notes, the acquisition would be covered under a permitted investments basket allowing investments in entities that become restricted subsidiaries as a result of the investment. For notes issued after July 2019, the acquisition may also be covered by the existing investments basket.
Liquidity

As of June 30, 2021, Live Nation had approximately $4 billion in total cash and equivalents and $1.1 billion in “Free Cash,” an amount described as a “proxy” for “cash ... available to, among other things, optionally repay debt balances, make acquisitions and fund revenue generating capital expenditures.”

Free Cash is defined as Live Nation’s cash and equivalents, less ticketing-related client funds, event-related deferred revenue, accrued expenses due to artists and cash collected on behalf of others, plus event-related prepaid expenses. The relevant amounts, as of June 30, 2021, and at the end of the prior four quarters are set forth below:

Deferred revenue for events scheduled to take place in the next 12 months increased sharply in the second quarter, largely because of $877 million of ticket sales, up from $200 million in the first quarter of 2021 and $98 million in the fourth quarter of 2020.

The company’s total cash and equivalents also includes approximately $381 million of long-term event-related deferred revenue, reflecting revenue relating to shows that have been rescheduled more than one year after June 30, 2021. These amounts will be reclassified as current deferred revenue (which will reduce Free Cash) once the applicable event is less than one year from the calculation date.

The company previously characterized both current event-related deferred revenue and long-term deferred revenue as “part of our operating cash” that “provides … additional liquidity.”

In its second-quarter earnings report, Live Nation reported $2.1 billion of “available liquidity,” consisting of the company’s Free Cash plus $971 million in available capacity under its $630 million revolver and $400 million delayed-draw facility, each currently undrawn other than letters of credit under the revolving facility. The delayed-draw facility is available until Oct. 17.

The company stated that it “believes this level of liquidity will provide it with the runway it needs as more shows return.”
Updated Covenant Conclusions (as of June 30)

 

  • Financial covenant: Until the fourth quarter of 2021 (or earlier at the company’s option), a net total leverage financial covenant is suspended, and Live Nation is instead subject to a $500 million minimum liquidity covenant, with liquidity calculated as Free Cash (discussed above) plus revolver and delayed-draw availability, plus up to $250 million of event-related deferred revenue. The company’s liquidity for purposes of this financial covenant is approximately $2.3 billion, well over the required minimum.When the leverage covenant is reinstated, the calculation will be based on weighted, annualized EBITDA, extrapolated from post-reinstatement quarters only.



  • Debt and liens: Live Nation can incur approximately $1.35 billion of additional debt, consisting of $896 billion of first lien debt, which includes at least $746 million under the revolver and delayed-draw facility, and approximately $456 million of structurally senior debt. Alternatively, $154 million of the first lien capacity could be used to incur structurally senior debt.Live Nation’s secured debt capacity is capped by the debt and liens covenants under its unsecured notes due 2024 and 2026. Currently, these notes do not permit the company to draw the full amount available under its revolver and delayed-draw facilities.



  • Dividends: The company has no general-purpose dividend capacity until it can comply with the net total leverage covenant without relying upon annualized EBITDA.



  • Transfers to unrestricted subsidiaries: Until Live Nation delivers its financials for the first quarter in which it is again subject to the leverage covenant, the only available investment capacity that can potentially be used to transfer assets to unrestricted subsidiaries is a $300 million basket for investments in joint ventures. The company would also be permitted to transfer up to $300 million in value to existing unrestricted subsidiaries, though none are known to have been designated.



  • Prepayments: Until it can comply with the leverage covenant without relying upon annualized EBITDA, Live Nation can prepay up to $50 million of its outstanding senior unsecured and convertible notes.


--Mitch Oates
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