KBRA Releases Report Assigning BBB+ Rating to Olympique Lyonnais’ EUR320 Million Financing for the Groupama Football Stadium
8 Dec 2023 | Dublin
KBRA Europe (KBRA) releases a report assigning its BBB+ rating to Olympique Lyonnais’ (OL or the Club) Groupama Stadium financing. The project financing plan consists of a single tranche of 5.83% fixed rate, fully amortising senior notes with an initial principal amount of EUR320 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 lockdown 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 multiuse 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 John Textor.
The notes will be issued by fonds commun de titrisation (FCT) OL StadCo, a newly established 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 debt service reserve account (DSRA), which is initially sized as 12 months of debt service until it is mathematically impossible for relegation to occur in that season, at which point the DSRA is reduced to a rolling six-month 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 fan base and plays 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 centre for the technological and pharmaceutical industries, resulting in a strong corporate presence.
(+) High-Quality Stadium
The stadium opened in 2016. This new stadium provides a good-quality experience for visitors with seating capacity of around 59,000, 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 cash flow supported by a DSRA funded at financial close, initially sized to cover 12 months of debt service. This will be reduced to six months of debt service in the event it becomes mathematically impossible for relegation to occur.
(+) 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 transaction structure is robust with noteholders benefitting 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, and 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). Operations and maintenance costs remain with the club, which is 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 organised 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 impact financial performance, both positive and negative. While uncommon, there have been instances in the past where both the Ligue de Football Professionnel and UEFA have made changes to competition rules that 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 impact 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 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, although historically this does not appear to have significantly impacted 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 view 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 that 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 that 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 2006-07 (except 2020-21 when it was second) and has also won eight Champions League titles since 2010-11. It is currently ranked second by UEFA.
OL is owned by Eagle Football Group, which acquired 77% of the share ownership from 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. KBRA understands there are no immediate plans to delist OL Groupe. 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 3.01x and 2.54x, respectively, which along with fully amortising debt and strong cash flow resiliency support 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 that KBRA anticipates will allow the stadium to continue to generate an adequate revenue stream from a loyal fan base and corporations even during periods of poor performance, further supported by a track record of hosting significant sporting and entertainment events. The Outlook considers a degree of potential cash flow 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.