KBRA Assigns its BBB+ Preliminary Rating to Olympique Lyonnais’ EUR305 Million Financing for the Groupama Football Stadium
25 Oct 2023 | Dublin
KBRA Europe (KBRA) releases a report and assigns a BBB+ preliminary rating on Olympique Lyonnais’ (OL or the Club) Groupama Stadium financing. The project financing plan consists of a single tranche of fixed rate, fully amortising senior notes with an initial principal amount of EUR305 million with a final maturity in 2044. The Outlook is Stable.
The notes are mainly being raised to refinance existing debt, mostly associated with the development of the Groupama Stadium (Stadium) and loans received from the French government during the Covid-19 lock-down period. The Stadium is situated across 15 acres and officially opened in January 2016 at a cost of approximately EUR415 million. In addition to being OL’s home stadium, this multi-use facility hosts a wide variety of events such as major concerts and sporting occasions, generating a diversified revenue stream for OL.
OL is an iconic football club located in Lyon which is the capital city of France’s Auvergne-Rhone-Alpes region. A key presence in the French sports sector, OL is the third most successful club in France, having won several trophies over a long and successful period. The Club was acquired in December 2022 by its new owners, Eagle Football, the investment fund led by American businessman, Mr John Textor.
The notes will be issued by FCT OL StadCo, a newly established fonds commun de titrisation (FCT) and proceeds of the notes will be loaned (the FCT Loan) to the Club, with Stadium revenues flowing back to StadCo to service its debt obligations. Noteholders will benefit indirectly from an assignment by the Club to StadCo over all current and future secured revenues granted by the Club and a mortgage over the Stadium. The Club agrees to host all senior men’s home games at the Stadium and relocation would trigger a breach of the FCT Loan. The notes will also be used to fund a DSRA from proceeds at financial close which is sized to cover six months average annual debt service. Although the technical form of the project does not follow a traditional approach, KBRA considers the structure to be consistent with appropriate and customary ring-fenced provisions in typical project financings.
Primary secured revenues include ticket sales (general, season and VIP), sponsorship (50% retained by StadCo), merchandising, food and beverage, and events. StadCo will also benefit from some ancillary revenues such as parking. These revenues are assigned on a gross basis, which KBRA views favourably since operating, maintenance, and other expenses remain a direct obligation of the Club.
Key Credit Considerations
(+) Competitive Position
OL is the only major football club in Lyon. It benefits from a high profile with a large and loyal fanbase, playing in Ligue 1 – the senior football league in France and one of the top leagues in Europe. This makes the Club one of the most valuable football teams. There is a requirement for all senior men’s home games to be played in the Stadium. Lyon is in a wealthy part of France with a growing economy as the center for the technological and pharmaceutical industries, resulting in a strong corporate presence.
(+) High Quality Stadium
The Stadium opened in 2016. The new stadium provides a good quality experience for visitors with seating capacity of around 59k, making it the third largest stadium in France and placing it in the top 35 stadiums in Europe by size. It is a UEFA Category 4 facility, making it eligible to host the most significant UEFA matches. The stadium has also established itself as a high-quality and well-located venue for concerts and international sporting events.
(+) Construction Risk
The stadium is fully operational with no construction risk associated with the project.
Consistent operating cashflow supported by a debt service reserve account funded at financial close of EUR13.2 million which is sized to six-months debt service.
(+) Interest Rate & Refinancing Risk
Interest costs are fixed from date of issuance. The notes are fully amortising with a final maturity in June 2044.
(+) Transaction Structure
The proposed transaction structure is robust with noteholders benefiting indirectly from a security package which includes a French law assignment by way of security (dailly) over the secured revenues, a French law mortgage over the stadium, a French law assignment by way of security (dailly) over insurance claims related to the secured revenues and stadium and controlled specially dedicated accounts (convention de compte à affectation spéciale). Operational/maintenance costs remain with the club, deemed a credit positive as typically these would sit with the Issuer.
(+) Diverse Secured Revenues
OL generates proven revenue streams from several sources including sponsorship, matchday ticketing, events, and other ancillary revenues such as merchandising, food and beverage, and parking. There are also around 500 corporate events organized each year at the stadium alongside major concerts and sporting events.
(+/-) Changing European & French Football Rules
The Club operates in an environment where changing rules could have an impact on financial performance – both positive and negative. While these are uncommon, there have been instances in the past where both the Ligue de Football Professionnel and UEFA have made changes to competition rules which have been outside the control of the Club.
(-) OL Performance
OL has a long track record of success on the field including a period in the early 2000s when the Club won seven Ligue 1 titles in a row. However, in recent seasons their performance has not been as strong, finishing lower in the league and failing to qualify for European football. While the Club is taking steps to improve, an extended period of poor performance could have an impact on its ability to generate matchday and commercial revenues. Poor performance could also result in relegation to a lower league. In mitigation, to date there has been limited evidence to suggest matchday attendances closely follow on field performance with OL generally ranking third in French league attendances even during seasons without European football. Also, event revenues (eg concerts, rugby matches) are not influenced by team performance.
(-) Macroeconomic Exposure to Ticket Sales
There is potentially a degree of exposure to the discretionary spending of fans attending matches and tourists. Matchday revenues are somewhat linked to local and global macroeconomic factors, albeit historically, this does not appear to have had a significant impact on attendance numbers and is further mitigated by the region’s affluence.
An upgrade is unlikely as the issuer and relatedly the club are indefinitely exposed to the risk of relegation from Ligue 1, which ultimately acts to constrain the rating. In addition, OL’s ability to continue growing its revenue streams as planned is dependent on remaining popular with its broader fan base and attractive to corporate sponsors, which in KBRA’s opinion is influenced by long term performance on the pitch.
A rating downgrade could occur in the event of any of the following:
- Any change in ownership, poor performance in Ligue 1 or otherwise which leads to relegation and/or future StadCo revenues being diminished including lower attendances, sponsorship opportunities, events, or merchandising.
- A deterioration in the credit quality of OL which has a material impact on the project’s ability to generate revenues.
- Any changes to the commercial strategy which negatively impacts the future revenues to StadCo.
During the 2021/2022 season, OL was certified as a “Committed Club” by Fair Play for Planet, due to efforts to reduce its environmental impact. This included focusing on: energy and water consumption; transport and accessibility; and waste management.
The Groupama Stadium is used to support social projects, making the stadium a valuable, regional resource as a Community Innovation Centre. The stadium regularly hosts employment forums and job seeking events in partnership with Pole Emploi, the French national employment office, and Nes & Cite, a company that promotes social integration.
The Club has a reputation for strongly supporting the development of women’s football, establishing the women’s team in 2004. The team has won the Division 1 Feminin competition every year since 2006/2007 (except 2020/2021 when it was 2nd) and has also won eight Champions League titles since 2010/2011. It is currently ranked second by UEFA.
OL is owned by Eagle Football Group which acquired 77% of the share ownership from Mr Jean Michel Aulas in 2022. Eagle Football are an experienced football club owner, with various stakes across clubs in several countries. Notably, 2.84% of OL Groupe is traded publicly on the Euronext Paris, which provides a more stringent level of oversight than some privately owned teams. The remaining ownership consists of 1.23% Treasury Shares and an 8.23% minority shareholding by Mr Aulas via his holding company, Holnest.
Under KBRA’s rating and stress cases, the assigned revenues are sufficient to repay debt service. The rating is based on a KBRA Project Risk Score (KPRS) of Strong and a sound financial risk profile. Under the KBRA rating case, aggregate average and minimum debt service coverage ratios (DSCR) are 3.10x and 2.61x, respectively, which along with fully amortising debt and strong cashflow resiliency supports a BBB+ rating on the notes.
The Stable outlook reflects OL’s position as a well-established team in France with a history of strong performance. It is the only major club located in Lyon, a wealthy region which KBRA anticipates will allow the stadium to continue to generate an adequate revenue stream from a loyal fanbase and corporations even during periods of poor performance, further supported by a track record of hosting significant sporting and entertainment events. The stable outlook considers a degree of potential cashflow volatility which may apply in certain downside scenarios. An upgrade is unlikely given the Club’s indefinite exposure to relegation risk. A downgrade could occur if the Club is relegated and/or ceases to attract external events and this has a material impact on the stadium’s ability to generate revenues.
To access rating and relevant documents, click here.
Click here to view the report.