Morningstar DBRS Confirms FCT Olympique Lyonnais StadCo's BBB Credit Rating With Stable Trends

DBRS Ratings GmbH (Morningstar DBRS) confirmed its Issuer Rating on FCT Olympique Lyonnais StadCo (StadCo) and its Senior Notes (the Notes) credit rating at BBB with Stable Trends. The confirmation reflects StadCo's solid financial performance in F2024 and the expectation for continued strength in F2025 based on stronger matchday revenues resulting from the Club's participation in the 2024-25 season of Union of European Football Associations (UEFA) Europa League (EL). The credit rating confirmations also acknowledge the Direction nationale du contrôle de Gestion's (DNCG; regulator of professional football clubs in France) announcement that Olympique Lyonnais (OL or the Club) is provisionally relegated to Ligue 2 from Ligue 1 for the 2025-26 season. Morningstar DBRS expects the Club owners to raise funds from a number of sources to prevent any such outcome.

KEY CREDIT RATING CONSIDERATIONS
On 15 November 2024, the DNCG announced that the Club would be provisionally relegated for the 2025-26 season because it expects the Club to end F2025 with a cash deficit and put the Club's status as a going concern into question. Despite the Club's history of generating significant gains from player sales, the DNCG did not consider this potential source of revenue in the upcoming winter transfer window of January 2025. The Club and its majority owner, John Textor, have highlighted that this cash deficit will be addressed through the following options (1) player sales (at OL or Botafogo, the Brazilian football Club owned by the Club's HoldCo: Eagle Football Holdings (EFH or HoldCo)); (2) proceeds from sale of its 45% share of Crystal Palace Football Club; (3) proceeds from the initial public offering of EFH; and/or (4) an equity injection from shareholders. Morningstar DBRS' view is that the Club will fund the cash deficit through a combination of the first three options, and any remaining difference will be covered through equity injection from shareholders, considering that the deep-pocketed owners have every incentive to ensure that the Club remains in Ligue 1.

Per the plan outlined by the owners, HoldCo could generate (1) up to EUR 75 million from equity contributions and sale of players by December 2024, (2) up to EUR 200 million from its stake sale in Crytal Palace, and (3) up to EUR 100 million in early 2025 from its initial public offering.

StadCo's financial performance for the approximately last six months of F2024 was robust with total revenues of EUR 52.8 million, supported by the growth in general admission ticketing and merchandise. F2025 is expected to be stronger than in Morningstar DBRS' initial base case forecast because of stronger than expected sporting performance with the Club qualifying for the UEFA EL in the 2024-25 season potentially leading to strong ticketing revenues. In Morningstar DBRS' base case, the forecast minimum debt service coverage ratio (DSCR) will be 3.51 times (x) in F2026 in line with initial estimates.

Morningstar DBRS will continue to monitor the liquidity situation but could take a negative credit rating action if the liquidity challenges are not remedied by the end of Q1 2025.

CREDIT RATING DRIVERS
If the Club is unable to address its liquidity challenges by Q1 2025, StadCo's credit ratings could be pressured. Per the bond covenants, a relegation from Ligue 1 could also be an event of default on the Notes if the secured revenue forecast (50% of sponsorship, merchandise, general admission ticketing, VIP seating, and other events revenue) is such that the project DSCR is less than 1.25x. A positive credit rating action is unlikely over the medium term.

EARNINGS OUTLOOK
Under the flow of funds, 100% of the secured revenues are available for debt service prior to any unrestricted distributions to the Club. Morningstar DBRS expects that in F2025 secured revenues will be stronger than in our initial base case forecast for F2025 because of OL qualifying for the UEFA EL in the 2024-25 season.

In F2026, Morningstar DBRS expects revenues to remain in line with our initial base case forecast if the Club averts the provisional relegation from Ligue 1 but a failure to do so will result in a sharp decline in ticketing revenues.

FINANCIAL OUTLOOK
Morningstar DBRS' medium-term forecast is for the Club to qualify for the EL in each season, major sponsorship contracts to be renewed with inflationary adjustments upon expiration, attendance to remain in line with historical trends, and ticket prices and suite premiums to increase with inflation.

Based on the outstanding Note issuance of EUR 320 million, Morningstar DBRS' updated base case assumptions provide a projected minimum DSCR of 3.51x in F2026.

CREDIT Rating rationale
The credit ratings are based on OL's popularity and brand strength, the strong economic fundamentals in the City of Lyon (Lyon; rated AA (high), Stable, by Morningstar DBRS), and StadCo's diversified revenue streams and high degree of contractually obligated income. The credit ratings also consider the importance of on-field performance; the competition for fans, ticket sales, and sponsorships from other football clubs; and an expected lack of support from Ligue 1 if the Club goes through a period of financial distress.

OL is one of the top football teams in Ligue 1, France's premier football league. The Club has been consistently successful, winning Ligue 1 seven times and qualifying for the UEFA Champions League in 16 of the last 23 seasons. The Club has a large, passionate fanbase and the third-highest attendance among Ligue 1 clubs over the last 22 years.

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 Factors in Credit Ratings (13 August 2024) at https://dbrs.morningstar.com/research/437781.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors 
In the analysis of StadCo, the relative weighting of the BRA factors listed in the Sports Infrastructure and Stadium Financings section of the methodology was approximately equal. 

(B) Weighting of FRA Factors 
In the analysis of StadCo, the following FRA factor listed in the Sports Infrastructure and Stadium Financings section of the methodology was considered more important: DSCR.

(C) Weighting of the BRA and the FRA 
In the analysis of StadCo, 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 and Sports Media Rights Financings (12 November 2024),
https://dbrs.morningstar.com/research/442774

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 methodology and criteria has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024), https://dbrs.morningstar.com/research/437781

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 StadCo's audits, the Note Purchase Agreement, TeamCo Facility Agreement, financing term sheet, financial model, StadCo presentations, Press Release presentation (dated November 2024), and discussions with management and their advisors. 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://www.dbrsmorningstar.com/research/443502.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Gaurav Purohit, Vice President
Rating Committee Chair: Michael Goldberg, Senior Vice President, Sector Lead
Initial Rating Date: 20 October 2023
Last Rating Date: 8 December 2023

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

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