Madison Square Garden unit expects liquidity issues through 2024

By William Gullotti

Buffalo, N.Y., Dec. 5 – Sphere Entertainment Co., a subsidiary of Madison Square Garden Entertainment Corp., gave a liquidity update om its parent and sister companies’ credit facilities, according to an 8-K filing with the Securities and Exchange Commission.

Reported cash and liabilities

As of Sept. 30, Sphere reported unrestricted cash and cash equivalents of $433.5 million, up from $132 million as of June 30. However, that figure included approximately $123.1 million in advance cash proceeds and $114 million of cash and cash equivalents at MSG Networks, which amounts are predominantly unavailable.

The majority of the cash advance proceeds came primarily from ticket sales, most of which are expected to be used to pay artists and promoters. The cash and cash equivalents at MSG Networks are unavailable for distribution in order to maintain compliance with the covenants under those entities’ $1.35 billion five-year credit facilities.

Sphere’s restricted cash balance was $18.2 million on the reporting date.

Also as of Sept. 30, the company had $428.1 million of accounts payable, accrued and other current liabilities, including $224.8 million of capital expenditure accruals primarily related to Sphere construction. The company does not expect to pay a significant portion of the latter balance as a significant portion is reportedly in dispute.

The company’s principal outstanding debt was approximately $1.2 billion, including $932.3 million of debt under the MSG Networks’ facilities. Under those facilities, $103.1 million in required quarterly amortization payments are due between Sept. 30, 2023 and maturity (including a quarterly amortization payment of $20.6 million that was made on Oct. 2) and the remaining outstanding borrowings under the facility of $829.1 million are due at maturity on Oct. 11, 2024.

Credit facility impact

The collective Madison Square Garden Co. entities that comprise MSG Networks will be unable to generate sufficient operating cash flows over the next year to settle the outstanding balance when they become due. Sphere and its associated subsidiaries are not party to the 2019-signed agreement.

Similarly, none of the MSG Networks-related entities are party to the $275 million five-year senior secured term loan facility that was signed in 2022 by MSG Las Vegas, LLC and guaranteed by MSG Entertainment Group, LLC. The secured facility matures Dec. 22, 2027.

The company intends to refinance the MSG Networks facility prior to maturity but cannot assure that it will be successful due to its “highly leveraged” debt. In the event MSG Networks is unable to refinance the amount scheduled to mature or secure alternative sources of funding through the capital and credit markets on acceptable terms, the lenders would have the right to exercise their remedies under the facility indentures, which would include, but not be limited to, declaring an event of default and foreclosing on the MSG Networks business. MSG Networks may also seek bankruptcy protection prior to the lenders exercising their rights.

New York-based Madison Square Garden builds sports, media and entertainment brands.

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