Live Nation is one of several companies being allowed by lenders to roll over profits from 2019 to avoid potential debt breaches amid the COVID-19 pandemic.
The live entertainment industry has been decimated by coronavirus and Live Nation, among other companies from varying sectors, have made adjustments in order to avoid potential debt breaches.
The Ticketmaster parent company said in April it would suspend covenants, a condition in a commercial loan or bond issue that requires the borrower to fulfil certain conditions, for a couple of months before using its 2019 earnings figures to calculate its net leverage covenant from the fourth quarter of 2020 until the second quarter of 2021.
In May, the entertainment giant reported a 21 per cent year-on-year drop in revenue for its first quarter to $1.37bn, with ticketing down 16 per cent. It also announced plans to raise $1.2bn in a new debt offering after the US Federal Reserve began its corporate bond buying program.
In April, Live Nation also announced a $120m revolving credit facility loan and plans for $500m in cost cuts this year, including chief executive Michael Rapino forgoing his $3m salary.
“It is not very common to substitute in past EBITDA,” said one Live Nation loan holder, according to the Financial Times. The investor reportedly said that if current profit figures were used, the entertainment company would be unable to access its revolving credit facility.
A spokesperson for Live Nation said the switch “will allow us the flexibility to manage our business during the disruption it is experiencing this year.”
When covenants are breached in normal times, lenders are usually at liberty to demand repayment, or even trigger restructurings and take control of assets.
However, in the current climate, with live events being at almost a complete standstill since March, lenders are accepting these old earnings figures to provide firms with time to recover.
“Bondholders are willing to accept these changes because they’re temporary and because they can see a route through this,” said Thomas Leys, investment manager at Aberdeen Standard Investments, the Financial Times reports. He also said imposing default after a broken covenant might leave lenders holding assets that were hard to offload.
ESMA, Europe’s markets regulator, said companies should avoid this tactic as it would “not faithfully present issuers’ overall financial performance.”
Live Nation’s share price is down around seven per cent to 43.33 today on the New York Stock Exchange, which is its lowest point for a month.