OREANDA-NEWS. Fitch Ratings has assigned an 'A-' rating to the National Basketball Association's (NBA) approximately \$50 million senior notes (privately placed through its affiliate Hardwood Funding, LLC) consisting of \$25 million series 2011 J (seven-year) and \$25 million series 2011 K (seven-year).

Fitch also affirms the NBA's outstanding \$2.3 billion senior notes (issued through Hardwood Funding, LLC) at 'A-'.

The Rating Outlook for all debt is Stable.

Rating Rationale
The 'A-' ratings reflect the underlying core economic model of the NBA, which is based on a solid revenue sharing mechanism and a collective bargaining agreement (CBA) that fosters competitive balance through its soft salary cap. The material reduction in overall leverage on the notes and facility stemming from the NBA's recently renewed television contracts, which saw the average annual value of the national TV contracts increased approximately 3x, was key to Fitch's rating upgrade on Jan. 21, 2015. The league's recent strong attendance record through uncertain economic times in the U.S., solid viewership and formidable international growth are additional supporting factors driving the rating and recent upgrade.

KEY RATING DRIVERS
Solid Underlying League Fundamentals: The NBA has a strong economic model that includes equal distribution of multi-year national television contract revenues and significant revenue sharing among member teams. Debt service is supported by large contractual revenue streams from investment grade counterparties. The current collective bargaining agreement (CBA) between the NBA and NBA Players Association includes solid core elements that promote financial stability and competitive balance. Domestic fan attendance and viewership remain stable and the league continues to grow its existing large international fan base.

Long History of Television Contracts: The NBA's current television contracts run through 2016 with Walt Disney Company (Disney rated 'A' with a Stable Outlook by Fitch) (ESPN & ABC) and Turner Broadcasting System (Turner, subsidiary of Time Warner rated 'BBB+' with a Stable Outlook) (TNT/TBS). On Oct. 6, the NBA announced expanded partnerships with both Turner Broadcasting System, Inc. and the Walt Disney Company. Under the new nine-year television rights agreements, ABC and ESPN and TBS will televise NBA games beginning with the 2016-17 season running through the 2024-25 season. The new contract represents a roughly 3x increase in average annual rights fees inclusive of payments made to support NBA marketing initiatives for WNBA and the NBA Development League.

Positive League Oversight and Governance: The league maintains significant resources and has demonstrated a willingness to step in and aid 'distressed' franchises. For example, the NBA successfully assisted the New Orleans Hornets (now New Orleans Pelicans) during ownership issues and ultimately bought the team and facilitated a sale at a higher valuation. The league's role in the recent Los Angeles Clippers sale further illustrates the league's ability to deal with ownership issues.

Strong Liquidity and Coverage but Team Exposure: Structural provisions ensure timely payment of debt service, as national television revenues flow into an account established by the NBA to meet debt service obligations, including funding of interest and labor contingency reserves, before distribution to the participating teams. The risk of individual team bankruptcy causing disruption in debt service payments is mitigated by the agreement of all NBA teams to allow a bankrupt team's national television revenues to continue to flow to the lenders to cover debt service and the league's oversight and governance.

Refinancing Risks Expose Teams to Potentially Higher Costs: The bullet maturities associated with the notes and the necessity of bank renewals associated with the revolving facility expose the teams to potentially higher interest costs. This risk is partially mitigated by the league's recent effort to increase the ratio of long-term fixed-rate debt-to-revolving facility borrowings and take advantage of the current low interest rate environment.

Peers: The NBA's leverage under the league-wide program is projected to be below 3.0x when the new television contract increases become effective and is consistent with the other 'A' category ratings including the NFL (G-3/G-4 programs rated 'A+' with a Stable Outlook and NFL Leaguewide [Football Funding and Football Trust rated 'A' with a Stable Outlook]) and MLB (Club Trust Securitization rated 'A' with a Stable Outlook). The NFL's Football Trust and Funding currently have leverage around 2.0x (\$200 million in league allowed debt under the facility divided by \$100 million per team national television contract (not including DirecTV)) and MLB's current leverage is also around 2.0x but additionally benefits from the securitization features.

The NBA's national television contract length run similar to those of the NFL, MLB and NHL while the CBA is similar to the NFL and NHL (MLB's expires in 2017). The NBA's soft salary cap is slightly weaker than those of the NFL and NHL but is slightly stronger than that of MLB, where player salaries have some restrictions but owners can elect to go above predetermined levels by paying a 'tax'.

RATING SENSITIVITIES
Negative: A significant decline in national television contract rights fees, which given the current trend is unlikely, could negatively impact the financial profile and metrics of the facility.

Negative: A further increase in the league permitted debt per team in the near term would increase leverage on a per-team basis inconsistent with the current rating.

Positive: Given near-term projected leverage under the borrowing program, additional near-term positive movement is unlikely. A material reduction in leverage under the facility could potentially move the rating positively.

Transaction Overview
The NBA issued \$50 million of senior notes consisting \$25 million of series 2011 J and \$25 million series 2011 K (through Hardwood Funding LLC) as part of their league-wide borrowing program.

For more information on the NBA's credit and Hardwood Funding LLC and Basketball Funding LLC, please see Fitch's press release 'Fitch Rates NBA's Notes and Revolving Facility 'A-'; Outlook Stable' dated March 31, 2015 and 'Fitch Upgrades NBA's Notes and Revolving Facility to 'A-'; Outlook Stable' dated Jan. 21, 2015.

The revolving facility and notes are parity obligations secured by participating teams' national television contract revenues and other assets. The NBA currently has 30 teams in major metropolitan areas in the U.S. and Canada, of which 20 participate in the league lending facilities.