Item 1.01 Entry into a Material Definitive Agreement.
MSG Sphere Credit Facility
On December 22, 2022, MSG Las Vegas, LLC (“MSG LV”), an indirect, wholly-owned subsidiary of Madison Square Garden Entertainment Corp. (the “Company”), entered into a credit agreement with JP Morgan Chase Bank, N.A., as administrative agent and the lenders party thereto, providing for a five-year, $275 million senior secured term loan facility (the “Sphere Facility”). All obligations under the Sphere Facility are guaranteed by MSG Entertainment Group, LLC (“MSGE Group”). All capitalized terms not defined herein have the meaning set forth in the Sphere Facility.
The Company is currently pursuing its plans for MSG Sphere – state-of-the-art venues that will combine cutting-edge technology with multi-sensory storytelling to deliver immersive experiences on an unparalleled scale. The first MSG Sphere is currently under construction in Las Vegas (the “Las Vegas Sphere”) and is on track to open during the second half of calendar year 2023. The Sphere Facility will enable the Company to further fund the development of content, including original attractions, which the Company expects will generate significant revenue for MSG Sphere.
The Sphere Facility includes financial covenants requiring MSG LV to maintain a specified minimum debt service coverage ratio and requiring MSGE Group to maintain a specified minimum liquidity level. The debt service coverage ratio covenant begins testing in the fiscal quarter ending December 31, 2023 on a historical basis and, beginning with the first fiscal quarter occurring after the date on which the first ticketed performance or event open to the general public occurs at the Las Vegas Sphere (the “Opening Date”), is also tested on a prospective basis. Both the historical and prospective debt service coverage ratios are set at 1.35:1. In addition, among other conditions, MSG LV is not permitted to make distributions to MSGE Group unless the historical and prospective debt service coverage ratios are at least 1.50:1. The minimum liquidity level for MSGE Group is set at $100 million, with $75 million required to be held in cash or cash equivalents, which amounts, prior to the Liquidity Covenant Reduction Date (as defined below), must be held in an account pledged as collateral for the Sphere Facility until its release upon the Liquidity Covenant Reduction Date (the “Pledged Account”), before stepping down to $50 million, with $25 million required to be held in cash or cash equivalents, once the Las Vegas Sphere has been substantially completed and certain of its systems are ready to be used in live, immersive events (the “Liquidity Covenant Reduction Date”). The minimum liquidity level is tested on the closing date and as of the last day of each fiscal quarter thereafter based on MSGE Group’s unencumbered liquidity, consisting of cash and cash equivalents and available lines of credit, as of such date. In the event the Company completes the spin-off of its traditional live entertainment business currently under consideration (the “MSGE Spin-off”) and retains an economic interest in the live entertainment company (the “Live Entertainment Company Retained Interest”), the Live Entertainment Company Retained Interest will be pledged to secure the Sphere Facility until the pledge is released upon the Liquidity Covenant Reduction Date, and a portion of the value of the Live Entertainment Company Retained Interest may also be counted toward the minimum liquidity level.
The Sphere Facility will mature on December 22, 2027. The principal obligations under the Sphere Facility are due at the maturity of the facility, with no amortization payments prior to maturity. Borrowings under the Sphere Facility bear interest at a floating rate, which at the option of MSG LV may be either (i) a base rate plus a margin of 3.375% per annum or (ii) Adjusted Term SOFR (i.e., Term SOFR plus 0.10%) plus a margin of 4.375% per annum.
All obligations under the Sphere Facility, including the guarantees of those obligations, are secured by all of the assets of MSG LV and certain assets of MSGE Group (collectively, “Collateral”) including, but not limited to, MSG LV’s leasehold interest in the land on which the Las Vegas Sphere is located, a pledge of all of the equity interests held directly by MSGE Group in MSG LV and, until the Liquidity Covenant Reduction Date, the Pledged Account and a pledge of the Live Entertainment Company Retained Interest following the consummation of the MSGE Spin-off. Under certain circumstances, MSG LV is required to make mandatory prepayments on the loan, including prepayments in an amount equal to the net cash proceeds of casualty insurance and/or condemnation recoveries (subject to certain reinvestment, repair or replacement rights), subject to certain exceptions.
