Credit rating agency Moody’s changed Formula One’s outlook to negative from positive on Thursday to reflect the impact of the coronavirus crisis on a global sport that has yet to race in 2020.
Moody’s did not rule out a full wipe-out of the season and said Formula One had the resources to withstand that eventuality.
“Formula One has strong liquidity and a sufficiently flexible cost base to manage through a severely curtailed 2020 season, which Moody’s consider would likely be able to support a full cancellation,” it said in a statement.
The Liberty Media-owned motor racing series cancelled its March 15 Australian opener, with May’s showcase Monaco Grand Prix also axed, and has postponed six other races as countries go into lockdown.
Formula One bosses and the 10 teams hope to fire up the engines some time in the European summer with a reduced schedule of 15-18 races, but that remains uncertain as the virus spreads.
Former champions McLaren on Wednesday became the first F1 team to furlough staff and put drivers and senior management on reduced wages.
Moody’s said it had affirmed the B2 corporate family rating and B2-PD probability of default rating of Alpha Topco Ltd, Formula One’s holding company whose components generated revenues of $2 billion in 2019.
It said the rating reflected expectations for weakened earnings and cash flow generation, higher leverage and liquidity erosion as well as the company’s cost flexibility and low capital spending.
Formula One had resilient cash flows due to multi-year contracts, added the note, as well as a track record of increasing its fan base.
Other factors included the timing of television contract renewals and the outcome of talks to renew the confidential ‘Concorde’ commercial agreement with teams and governing body that expires at the end of 2020.
“As of 31 December 2019, Formula One had substantial liquidity headroom of around $900 million, comprising $400 million cash balance and $500 million undrawn committed revolving credit facility,” said the agency.
It expected that to be sufficient “to absorb cash outflows from potential refunds of advance payments from promoters, sponsors and broadcasters, team payments, other overheads and interest costs in the event that the 2020 season is cancelled.”
There remained however a degree of risk, rated as low, that liquidity would not be enough.
Moody’s said Liberty Media had substantial available resources to support Formula One but saw “a relatively high probability” F1 will breach a leverage covenant whose terms could be amended or waived.
“Moody’s considers that Formula One is relatively well placed to recover post coronavirus crisis, underpinned by its contracted revenue nature, strong franchise, large fan base and high cash conversion.”
It said a downgrade of the rating could happen if further disruption to the race calendar caused concerns about liquidity or if a renewed Concorde Agreement was negotiated with materially adverse terms for the company.