Churchill Downs (CHDN) Costs $500 Million Loan. Might Interest Prices Rise?
Churchill Downs Incorporated (NASDAQ:CHDN) priced a $500 million senior secured time period mortgage due in 2033 on September 17. The borrowing carries curiosity on the Secured Overnight Financing Rate, or SOFR, plus 175 foundation factors. Its 99.875% challenge worth implies $499.375 million earlier than charges and bills.
Proceeds are supposed to repay current Term Loan B and revolving loans, cowl transaction prices, and assist working capital and normal company functions. Separately, Churchill Downs Incorporated (NASDAQ:CHDN) plans to redeem its 5.50% notes due in 2027 utilizing revolver borrowing.
The firm intends to challenge a conditional redemption discover focusing on reimbursement 30 days after issuance. The announcement itself will not be that discover, and the brand new time period mortgage stays topic to customary gaming regulatory circumstances.
Bull Case
The financing might enhance the reimbursement schedule. Churchill Downs Incorporated (NASDAQ:CHDN) reported an current Term Loan B maturity in 2028. Replacing that borrowing with debt due in 2033 would give administration extra time to generate money and fund operations.
The new mortgage’s credit score unfold additionally matches the SOFR-plus-175-basis-point pricing disclosed for the prevailing Term Loan B within the June-quarter submitting. Extending maturity with out widening that unfold is helpful, though the difficulty low cost and transaction charges have an effect on the general value.
Repaying revolving loans with a part of the proceeds might initially restore obtainable credit score. Completing the separate be aware redemption would deal with a nearer maturity and scale back dependence on accessing debt trading floors near the reimbursement deadline.
Bear Case
Refinancing doesn’t itself scale back debt. The necessary rate-exposure change comes from the deliberate change from fixed-rate notes to floating-rate revolver borrowing. The current time period and revolving loans already carried floating charges.
At June 30, Churchill Downs Incorporated (NASDAQ:CHDN) had $600 million of the 5.50% notes excellent, representing $33 million in annual coupons. If changed totally with unhedged floating-rate borrowing, every one-percentage-point improve within the benchmark would add roughly $6 million to annual curiosity on that alternative debt, assuming an unchanged steadiness and lending margin.
The revolver’s June pricing was SOFR plus a 10-basis-point adjustment and a 150-basis-point margin. At these phrases, a 3.90% benchmark would produce a said borrowing price equal to the notes’ 5.50% coupon, earlier than charges and any hedging results. The margin can change with leverage.
