A new report says the powerful talent agency faces financial headwinds from Hollywood’s strikes—but its outlook remains stable.
The sale of a majority stake in the talent agency CAA by the private equity firm TPG at a $7 billion valuation to Artémis, the investment firm controlled by French luxury goods billionaire François-Henri Pinault, is going to leave CAA with significant credit risk, according to a report issued yesterday by Moody’s Investors Service. Pinault, the 61-year-old CEO of Kering (which controls Gucci, Saint Laurent and Balenciaga, among other brands), and his family are worth $34.8 billion.
TPG first invested in CAA in 2010 and, in 2014, increased its stake to 53% in a deal valuing the agency at $1.1 billion. CAA is noted for representing some of the biggest stars in film, television, theater, music, video games, publishing and fashion—including Steven Spielberg, Reese Witherspoon and Pinault’s wife, actress Salma Hayek. Its sports division has been the world’s most valuable sports agency for nine consecutive years.
The ratings agency assigned a B2 Corporate Family Rating (CFR) and B2-PD Probability of Default Rating (PDR) to Creative Artists Agency, LLC (CAA). The B2 rating on the existing term loan and revolving credit facility (which will be upsized by $76 million to $271 million) was affirmed and will be moved to CAA. Moody’s also assigned a B2 rating to CAA’s proposed $425 million term loan. Moody’s says the rating outlook is stable.
Obligations rated B2 are considered speculative and are subject to high credit risk. The report states, “CAA’s B2 CFR reflects the high leverage level and Moody’s expectation that operating results will decrease in the near term until the WGA and SAG strikes are resolved but will recover relatively quickly as a significant portion of impacted revenue are realized in future quarters.”
After the deal, CAA’s leverage will increase to 5.6 times operating income (in the sense of earnings before interest, taxes, deprecation and amortization) from 4.6x times as of June 30, 2023. “Leverage will increase in the near term as EBITDA declines as a result of the impact of the Writers Guild of America (WGA) and Screen Actors Guild (SAG) strikes, but Moody’s expect a significant portion of the impact on operating performance will be recovered when the strikes end due to the continuing demand for high quality content,” according to the ratings agency.
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