Morningstar DBRS Confirms FC Barcelona's Issuer Rating and Senior Secured Notes at BBB With Stable Trends

DBRS Ratings GmbH (Morningstar DBRS) confirmed FC Barcelona's (FCB or the Club) Issuer Rating and Senior Secured Notes (the Notes) rating at BBB with Stable trends.

The credit rating on the Senior Secured Notes applies to the following Private Place Numbers: E5444# AD6, E5444# AE4, E5444# AF1, E5444# AG9, E5444# AH7, and E5444# AJ3.

On 10 June 2024, Morningstar DBRS assigned a provisional credit rating of BBB with a Stable trend to FCB's media notes issuance (Series F) of EUR 85.6 million. The assigned credit rating is based on the credit rating of an already outstanding series of the above-mentioned debt instrument.

KEY CREDIT RATING CONSIDERATIONS
The confirmations reflect the on-time and on-budget progress of the Spotify Camp Nou (Camp Nou or the Stadium) renovation and the expected decline in the Club's matchday revenues as it played its 2023-24 season home games at a smaller venue. FCB had a successful 2023-24 season on the pitch, reaching the quarterfinals of the Union of European Football Associations (UEFA) Champions League (CL) and finishing as runners-up in the LaLiga standings. Despite the expected decrease in matchday revenues, operating revenues for F2024, excluding one-time capital gains and financial income, are expected to be similar to the EUR 860 million reported in F2023 becasue of higher revenues from player sales. Morningstar DBRS expects the Club to report a positive net income in F2024 resulting from management's continued focus on expense control, which will yield significant savings in player costs and the higher share of media revenues from the UEFA CL, owing to the Club's improved sporting performance. Morningstar DBRS expects overall financial performance during the year to be in line with its forecast, supporting the BBB credit ratings.

In the 2024-25 season, the Club will continue to play at the Olympic Stadium until the Spotify Camp Nou reopens at a reduced capacity, which is expected midway through the season. Morningstar DBRS expects revenues will be higher in F2025 compared with the previous year because of the return to Camp Nou and as a result of the new CL format. Morningstar DBRS expects profitability to improve because of UEFA's Financial Sustainability Regulations, LaLiga's squad cost limits, and FCB's corporate expense initiatives. Revenue and operating income should recover significantly in F2026 as the Camp Nou renovation will be mostly complete.

ESPAI BARÇA
In a separate transaction, FCB is undertaking a major stadium renovation (the Project). In April and May 2023, the Club-through Espai Barça, Fondo de Titulización (Espai Barça), a Spanish securitisation vehicle specifically established to finance the Stadium renovation-raised EUR 1.5 billion through a combination of notes and construction loans (the Project Financing; not rated by Morningstar DBRS), which are being used to upgrade Camp Nou and the surrounding campus over the next two years and pay certain financing costs. The renovation is progressing on schedule and budget, and the Club expects to return to Camp Nou with reduced capacity during the 2024/25 season. Structural completion of the third tier is on track for July 2025 and substantial completion of the Project is expected in the 2025-2026 season.

The Project Financing is ring fenced from the Club, and the lenders under the Project have recourse only to the new stadium revenues that were sold by the Club to Espai Barça under a Purchase and Sale agreement, including premium seating and sponsorship revenues. The lenders to the Project are not secured by a mortgage on Camp Nou.

The Project will expand the Stadium's capacity to 105,000, include a double VIP ring between the second and third seating tiers, add a new roof, and feature improved food and beverage options, among other developments on campus. The Project will significantly increase the Club's revenues from new stadium sponsorships, including the naming rights agreement with Spotify, as well as additional premium seating, restaurants, and museum admissions. Despite the Project's ring-fenced structure, Morningstar DBRS has taken the Project Financing into account in its analysis of the Club because the Club is incentivised to cure any defaults at the Project. As such, Morningstar DBRS uses F2026 as the basis for its financial risk assessment, when the revenue and cash flow from this investment begin to materialise.

CREDIT RATING DRIVERS
If credit metrics become stressed because of weaker-than-expected operating income or increased debt from cost overruns or schedule delays in connection with the Project Financing, or debt-financed player transfers, Morningstar DBRS may consider a negative credit rating action. Once the Stadium renovation is complete, and the Club has repaid some of the principal on the Notes and Project debt, Morningstar DBRS may consider a positive credit rating action.

EARNINGS OUTLOOK
Morningstar DBRS expects that FCB's earnings profile will strengthen following the completion of the Stadium renovation and be supportive of the current credit ratings. Morningstar DBRS forecasts that revenues will increase to more than EUR 1.0 billion in F2026, driven by matchday revenue growth associated with the Project, rising broadcasting contracts from LaLiga and UEFA, and new sponsorship agreements. Morningstar DBRS' revenue forecasts assume that the Club qualifies for the CL every year and reaches the quarterfinal stage. Morningstar DBRS expects that FCB's player costs will continue to remain at a more sustainable level at approximately EUR 500 million in F2025 and then grow in line with revenues thereafter. As a result, Morningstar DBRS believes that EBITDA, excluding gains on player transfers, will grow to more than EUR 200 million in F2026.

FINANCIAL OUTLOOK
In its consolidated debt assumption, Morningstar DBRS includes the Notes, EUR 1.5 billion Project-related debt, and approximately EUR 101 million of revolving credit facilities at the Club. On a consolidated basis, Morningstar DBRS expects debt-to-EBITDA to be approximately 9 times (x) in F2026 (2.5x excluding Project debt) and improve steadily thereafter because of growth in EBITDA as well as principal amortisation on the Notes and Project debt. While debt-to-EBITDA is high relative to peers in a similar credit rating category, Morningstar DBRS believes that FCB's low degree of debt relative to its franchise value, which Forbes estimates to be USD 5.6 billion (up from USD 5.5 billion a year ago), mitigates this risk.

CREDIT RATING RATIONALE
The credit ratings are based on the Club's iconic brand strength, its diversified sources of predictable revenue, the favourable market and geographic trends in Barcelona, and the future benefits from FCB's investment in its stadium renovation project. The credit ratings also consider the importance of on-field performance, the increasing costs and investment to remain competitive, project execution risk, and the Club's relatively high degree of financial leverage. The Notes are secured by a first-priority interest in FCB's media rights revenues and the bank account into which the media revenues are deposited. The Notes also have recourse to the Club on an unsecured basis.

FCB is one of the most popular franchises in the world's most popular sport. Founded in 1899, the Club has won a total of 83 national and international trophies, including 27 LaLiga titles and five UEFA CL titles. This success has led to a large and passionate global fan base with more than 140,000 members and more than 400 million social media followers worldwide. The Club plays its home matches at Camp Nou, the largest stadium in Europe with a capacity of 99,354.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) at https://dbrs.morningstar.com/research/427030.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of FCB, the relative weighting of the BRA factors was approximately equal.

(B) Weighting of FRA Factors
In the analysis of FCB, the relative weighting of the FRA factors was approximately equal.

(C) Weighting of the BRA and the FRA
In the analysis of FCB, the BRA carries greater weight than the FRA.

Notes:
All figures are in euros unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Sports Franchises, Leagues, and Stadium Financings (15 April 2024), https://dbrs.morningstar.com/research/431196

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (15 April 2024), https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following criteria has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024), https://dbrs.morningstar.com/research/427030

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyses corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The primary sources of information used for these credit ratings include annual reports as well as discussions with management and arrangers. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings to be of satisfactory quality.

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/434654.

These credit ratings are endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Gaurav Purohit, Vice President, European Corporate Ratings
Rating Committee Chair: Michael Goldberg, Senior Vice President, Sports Finance
Initial Rating Date: 10 August 2022
Last Rating Date: 10 August 2023

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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