Credit rating agency Moody’s changed Formula One’s outlook from positive to negative on Thursday to reflect the impact of the coronavirus crisis on a global sport that has yet to race in 2020.
Moody’s did not rule out a full wipeout of the season and said F1 had the resources to withstand that eventuality.
“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,” it said in a statement.
The Liberty Media-owned motor racing series cancelled its 15 March Australian opener, with May’s showcase Monaco Grand Prix also axed, and six other races have been postponed as countries go into lockdown.
F1 bosses and the 10 teams hope to fire up the engines some time in the European summer with a reduced schedule of 15-18 races, but that remains uncertain as the virus spreads.
Former champions McLaren on Wednesday became the first F1 team to furlough staff and put drivers and senior management on reduced wages.
Moody’s said it had affirmed the B2 corporate family rating and B2-PD probability of default rating of Alpha Topco Ltd, F1’s holding company whose components generated revenues of $2 billion in 2019.
It said the rating reflected expectations for weakened earnings and cash flow generation, higher leverage and liquidity erosion, as well as the company’s cost flexibility and low capital spending.
F1 has resilient cash flows due to multi-year contracts, added the note, as well as a track record of increasing its fanbase.
Other factors included the timing of television contract renewals and the outcome of talks to renew the confidential ‘Concorde’ commercial agreement with teams and governing body that expires at the end of 2020.
“Moody’s considers that Formula One is relatively well placed to recover post-coronavirus crisis, underpinned by its contracted revenue nature, strong franchise, large fanbase and high cash conversion,” the statement continued.
Moody’s said a downgrade of the rating could happen if further disruption to the race calendar caused concerns about liquidity, or if a renewed Concorde agreement was negotiated with materially adverse terms for the company.