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Moody’s downgrades F1 outlook, McLaren furloughs staff

Chase Carey, CEO and executive chairman of Formula One Management (Photo by Mark Thompson/Getty Images)

Credit rating agency Moody’s has downgraded its outlook for the Nasdaq-listed Formula One motor racing series to ‘negative’ from ‘positive’.

Moody’s said the downgrading reflected the impact of the Covid-19 pandemic on the sport, which has so far resulted in the postponement of the first eight races this season. The series has said it intends to run a reduced season this year, with 15 to 18 races.

Moody’s company did not rule out a cancellation of the entire 2020 F1 season, although said the company had the resources to withstand this. Reuters reported that the agency said: “Formula One has strong liquidity and a sufficiently flexible cost base to manage through a severely curtailed 2020 season, which Moody’s consider would likely be able to support a full cancellation.”

Moody’s said the downgraded rating reflected expectations for weakened earnings and cash flow, higher leverage, and liquidity erosion. But the agency also said there were positives for the series in its resilient cash flows due to multi-year contracts and proven ability to increase its fan base. It said F1 “had substantial liquidity headroom of around $900 million, comprising $400 million cash balance and $500 million undrawn committed revolving credit facility”. This was expected to be enough “to absorb cash outflows from potential refunds of advance payments from promoters, sponsors and broadcasters, team payments, other overheads and interest costs in the event that the 2020 season is cancelled.”

Overall, the agency said: “Moody’s considers that Formula One is relatively well placed to recover post coronavirus crisis, underpinned by its contracted revenue nature, strong franchise, large fan base and high cash conversion.”

F1 is owned by media group Liberty Media. At the time of writing, F1’s share price was $23.21, down from $44.02 at the start of the year.

The ongoing pandemic has helped surface a variety of broader business concerns for F1, shaking the property to its core.

UK-based McLaren has become the first F1 team to furlough staff. It has also imposed pay cuts on drivers Lando Norris and Carlos Sainz, as well as senior management. The measures are to take effect for three months.

Reuters reported that McLaren said: “These measures are focused on protecting jobs in the short-term to ensure our employees return to full-time work as the economy recovers.”

The staff in the McLaren group that are working on a project to manufacture ventilators to support healthcare providers during the pandemic are not affected by the pay cut.

McLaren employs 3,700 people in total across its various arms, including its luxury car brand. Its F1 team accounts for 850.