Moody’s Investors Service assigned first-time ratings to Fanatics Collectibles Intermediate Holdco, Inc. while noting that the company’s revenue for the year ended December 31, 2022, exceeded $950 million.
Ratings assigned include a Ba3 corporate family rating (CFR) and a B1-PD probability of default rating (PDR). In addition, Moody’s assigned a Ba3 rating to the company’s proposed $100 million senior secured multi-currency revolving credit facility and a Ba3 rating to its proposed $300 million senior secured term loan A. The outlook is stable.
Proceeds from the proposed term loan A will repay a $300 million intercompany note to the parent company, Fanatics Holdings, Inc. (FHI), which it used to acquire The Topps Company, Inc.’s Sports and Entertainment (S&E) segment in December 2021. The acquisition accelerated the company’s ability to sell Major League Baseball (MLB) cards as Topps’ retained league rights that expire in 2025.
The Ba3 CFR assignment reflects governance considerations, particularly an expectation that Fanatics Collectibles will maintain balanced financial strategies and solid credit metrics under its current ownership, including its founder, with majority voting stock. At less than 1.5x for the year ended December 31, 2022, proforma Moody’s adjusted debt/EBITDA is low, and when considering the all first lien structure and inclusion of a financial maintenance covenant, recovery is above average. Moody’s ratings and outlook are subject to review of final documentation.
Moody’s wrote in its analysis, “Fanatics Collectibles’ Ba3 CFR reflects the company’s low financial leverage with pro forma debt/EBITDA of less than 1.5x for the year ended December 31, 2022, and its solid position in the domestic sports & entertainment (S&E) collectibles market and healthy geographic presence outside the US. The company benefits from Fanatics’ e-commerce capabilities which position the company well to benefit from the shift of consumer spending online. The exclusive long-term rights to sell cards for the MLB and exclusive rights with the NBA, NBPA and NFLPA (starting in 2026) further solidify Fanatics Collectibles as a valuable partner to professional sports leagues. Fanatics Collectibles’ very good liquidity reflects Moody’s expectations for strong free cash flow over the next 12-to-18 months, pro forma balance sheet cash of over $150 million at the close of the transaction, and access to an undrawn $100 million revolver. The Ba3 CFR also reflects the all-first lien structure and inclusion of a financial maintenance covenant, which along with the low leverage levels, drive a higher-than-average recovery estimate.
“The Ba3 CFR is constrained by the company’s small scale, its niche product focus, and the discretionary nature of its products. Fanatics Collectibles is also exposed to inherent cyclicality in the S&E collectibles industry, where demand can be impacted by the popularity of upcoming rookie athletes and sports tournaments, and pricing can be impacted by levels of supply. Interest in trading cards increased during the COVID-19 pandemic, with many consumers spending more time in their homes. Price appreciation in the secondary market has also been a driver of demand as well as the rise in popularity of Live Commerce (“breaking”). While a return to pre-pandemic operating performance is unlikely in the near term, Moody’s believes that the inherent cyclicality in the industry remains, which creates the potential for slower market growth or a potential temporary downturn in the future. Consumers will also face pressures from inflation, higher interest rates, and the lack of government stimulus. More normalized consumer spending patterns on other categories, such as travel, is also a risk given the more discretionary nature of trading cards. These credit negative factors are also the drivers of the assignment of a B1-PDR.
“The stable outlook reflects Moody’s expectations that Fanatics Collectibles will maintain strong credit metrics and liquidity over the next 12-to-18 months.”
Photo courtesy Fanatics Collectibles
