Sixth Street balm for COVID-bruised Legends

Article posted by Coliseum, January 19^th, 2021

Image: Sixth Street, Legends & NY Yankees

The San Francisco-based (US) global invest firm Sixth Street has become the new majority owner of food, beverage, merchandise retail and stadium operations giant, Legends (headquartered in New York City, US). The same was confirmed by Legends on January 12^th who informed that it has struck a deal in this regard.

Financial terms of the deal were not disclosed, but multiple reports state it values Legends at $1.35bn (£992.6m/€1.11bn). Media reports stated that Sixth Street will own 51 percent of Legends following the close of the transaction, which is expected in the first quarter of the year.

Sixth Street will spearhead the Legends partnership group alongside co-founders YGE Holdings, an affiliate of Major League Baseball (MLB) club the New York Yankees, and Jones Concessions, an affiliate of the National Football League (NFL) American football team the Dallas Cowboys. The Yankees and Cowboys will reportedly split the remaining 49 percent stake.

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As per US credit rating agency Fitch Ratings, Legends is seeking to raise up to $500m (£366.6m/€412.3m) to help it come out of the woods as its business has been significantly affected due to COVID-19 which continues to spin the United States in its vicious vortex.

Fitch said the refinancing transaction is being executed concurrently with a proposed equity investment by Sixth Street.

Remarked Alan Waxman, Co-Founder-cum-CEO, Sixth Street, “The Legends commitment to excellence, instilled from its inception, enabled it to grow a new category of holistic sports and entertainment services, and we are excited to be joining their culture of ‘winning together’,” Added Waxman, “Legends will continue to stay on offense with an industry-leading management team doing what it does best: Delivering value-creating projects and operations, innovating new technology-enabled service offerings, and creating immersive customer experiences.”

In March 2020, the Yankees and Cowboys were reportedly assessing the sale of Legends, which they formed in 2008. In May 2017, New Mountain Capital acquired a minority stake in the New York-headquartered company. The investment fund reportedly secured about one-third of Legends with the deal said to have valued the company at more than $700m at the time.

US-based New Mountain Capital is an alternative investment manager with private equity, credit, public equity and net lease strategies. New Mountain’s aggregate assets under management total over $30 billion across all investment strategies.

New Mountain acquired the shareholding that was previously held by Goldman Sachs and then by the Checketts Partners Investment Fund. It will bow out from Legends as part of the Sixth Street deal.

Shervin Mirhashemi, President and CEO, Legends, opined, “The desire to live, play, and experience has never been greater. Sixth Street’s transformational investment is going to help drive our next phase as the comprehensive partner of choice for the world’s leading sports and entertainment organizations.”

Mirhashemi added, “While this has been a challenging year for the sports and live entertainment industry, we passed the test and are now positioned for stronger, even more resilient growth due to our unmatched 360-degree platform across planning, sales, partnerships, hospitality, merchandise, and technology solutions.”

Fitch findings

According to Fitch, Legends is seeking to sell $350m in senior secured notes and create a $150m revolving credit facility, which it has the option to access. With the proposed $500m worth of financing deals, Legends would have $625m in total debt.

This would consist of the four-year $150m credit facility, the $350m in five-year senior secured notes and a six-year unsecured payment-in-kind loan of $125m. In its report, Fitch detailed the impact that the global pandemic has had on Legends’ business model.

Fitch observed, “The onset of the pandemic coincided with the beginning of the Major League Baseball (MLB) season as well as the start of peak entertainment months for live performances which resulted in restrictions or prohibitions on fan attendance and, in many cases, event cancellations. While attendance has increased in recent months due to the kick-off of the NFL season in September 2020, Fitch’s rating case assumes attendance will remain below 25 percent of capacity through the first half of 2021 as municipalities remain vigilant in containing the virus while vaccines are distributed.”

Fitch further noted, “Legends’ meaningful exposure to major metropolitan areas in New York and California, where containment measures like lockdowns and occupancy restrictions have been more aggressive, will be a drag on recovery as the economies in these areas could take longer than anticipated to rebound, impacting the tourist-driven attractions business.”

While FCF (free cash flow) is expected to remain negative through 2022, Fitch believes the company’s liquidity position is sufficient to carry the company through to 2023 when FCF is expected to return to neutral, though it added there remains “significant uncertainty” as to the pace of the industry’s recovery.”

Looking forward, Fitch said that while COVID-19 has resulted in customers not very eager to attend live events, it expects that over the medium term, the shift in consumer spending from products to experiences is likely to resume and “provide a tailwind” for Legends.

The agency noted Legends’ reputation as a provider of premium services and its track record of improving growth in customer spend has enabled the company to win key contracts in many high-profile projects, including the stupendous SoFi Stadium, the new home of the NFL’s Los Angeles Rams and Chargers, and the management of LaLiga football club Real Madrid’s omnichannel retail operations.

The credit rating agency added that while Legends competes with several larger, better-capitalized companies in its core hospitality segment, including Aramark, Compass Group and Sodexo, it often leads in its other segments, including planning and partnerships.

With this in mind, Fitch believes the company has “ample opportunities for growth” despite the limited inventory of stadiums and arenas that keeps the company’s financial wheels well-oiled. It said that of the company’s over 200 clients at the end of 2019, fewer than 21 percent employed more than one of Legends’ services, providing “meaningful opportunity” to expand within its existing client base.

It also added that less than one percent of Legends’ 2019 revenue was derived from international operations.

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