Blackstone Capital Partners recently notified NBCUniversal that it had exercised its right of first refusal and was offering to sell its 50% stake in Universal City Development Partners, the owner of the Universal Orlando theme park, to NBCU. Moody’s Investors Service doesn’t see the move as impacting NBCU’s credit ratings, but it will be a significant transaction.
Exactly what price Blackstone has named as its offer to sell the 50% stake isn’t publicly known, but the deadline for NBCU to accept is June 12th. Moody’s believes that there could be minor rippling repercussions for Comcast Corporation, the controlling shareholder of NBCU, as well. “However, we believe that even under the most credit negative scenarios, whereby NBCU would purchase the Blackstone stake and finance it with debt, that NBCU has the ability to absorb the impact and within 12 to 18 months return leverage to targets that are reasonable for current credit ratings,” stated Neil Begley, a Moody’s Senior Vice President.
There certainly are positives for NBCU in taking the deal. Moody’s believes full ownership of Universal Orlando by NBCU, which owns or receives license fees for other Universal branded theme parks around the world, rather than in a 50-50 joint venture with a private equity firm would clarify the long-term strategic position of the company to NBCU.
“Moody’s believes that the worst case credit scenario would be for NBCU to acquire the stake and refinance all of the Universal Orlando debt at the NBCU level. This would give NBCU full access to the Universal Orlando cash flows, and would save interest cost on the existing outstanding debt, but it would incur higher leverage and interest costs overall at NBCU. We believe that leverage could climb but would likely not materially impact NBCU or its credit rating, as leverage would decline rapidly back to under 3.0x within 12 to18 months assuming free cash flow is used to reduce debt. Moody’s notes that under this scenario, there would be a ripple effect on Comcast as NBCU will have either higher leverage or less cash on hand to help fund Comcast’s purchase of the remaining NBCU stake held by General Electric over the coming seven years. However, Moody’s believes that Comcast can easily accommodate the additional capital requirement and maintain its metrics by funding the additional cash cost with free cash flows, though perhaps repurchasing slightly less of its stock or utilizing some of its financial flexibility,” the ratings agency said.
If NBCU declines Blackstone’s offer, then Blackstone has 270 days to solicit bids for the entire company (including NBCU’s stake, which is potentially “dragged along” in any sale process). If Blackstone is successful in finding a third party buyer that wishes to purchase all of the company (and not just the Blackstone stake), the NBCU Parties would be obligated to accept the sale terms only if the cash purchase price was at least 90% of the amount of Blackstone’s original offer to the NBCU Parties. Such a scenario could result in NBCU receiving a previously unanticipated cash windfall that we believe would be stockpiled to help fund the buyout of GE and reduce the amount needed to be contributed in the future by Comcast, and increasing financial flexibility. “We also believe that if NBCU exits ownership of the Orlando park may mean that the other theme park interests are also non-core and could be sold in the future as well, however, we believe that there is a good possibility that a third party would wish for NBCU to remain a stake holder in Universal Orlando for strategic reasons,” added Begley.