DraftKings (NASDAQ: DKNG) has announced syndication for a planned $600 million senior secured term loan B credit facility, with the intention of using the proceeds to repurchase convertible bonds.
The gaming company has stated it will utilize the net proceeds from the term loan to repurchase “a portion” of the $1.15 billion convertible notes issued in 2021. The repurchases will be made based on availability and market conditions, with DraftKings also considering using the loan proceeds for other corporate purposes.
It is advantageous for DraftKings to buy back portions of the convertible notes as the bond holders have the option to convert the debt to common equity in the sportsbook operator at $70 a share, more than double the current stock price, in 2028.
Convertible bonds are hybrid securities, combining equity and fixed income characteristics. The term “convertible” signifies that this type of corporate debt can be converted by creditors into shares of the issuing company.
DraftKings Enhancing Its Revolving Credit Facility
DraftKings has also unveiled commitments for a new $750 million revolving credit facility maturing in 2031, which will replace a smaller revolver.
“DraftKings has launched syndication of, and secured commitments for, a new $750 million senior secured revolving credit facility maturing in 2031 to enhance liquidity and provide additional financial flexibility, which will replace its existing $500 million senior secured revolving credit facility maturing in 2029,” according to a statement.
The gaming company noted that the proceeds from the new revolver can be allocated to “general corporate purposes,” with the expectation that it will be “substantially undrawn at closing.”
With a “BB+” rating from Fitch Ratings and a “BB” rating from S&P, both indicating non-investment-grade status, DraftKings remains a solid investment option.
DraftKings Maintaining Strong Financial Position
Following the announcement of the $600 million senior secured term loan B credit facility and the increased credit revolver, S&P has affirmed its rating on DraftKings with a “stable” outlook, suggesting that the company can manage the additional borrowings without significant impact on its credit standings.
“We expect DraftKings’ credit metrics will have good cushion compared to our downgrade threshold for the rating following its proposed $600 million incremental term loan and proposed $250 million upsize of its revolving credit facility,” said the ratings agency.
With $1.4 billion in accessible cash, DraftKings has a strong financial position. S&P also highlighted the company’s prediction market initiatives and acknowledged the competition from existing prediction platforms.
By leveraging its user base, DraftKings aims to optimize customer acquisition costs and drive profitability. Its diverse gaming ecosystem provides a competitive edge over pure-play prediction platforms.