DraftKings Selling $600M in Debt to Repurchase Convertible Bonds

DraftKings (NASDAQ: DKNG) announced syndication for a planned $600 million senior secured term loan B credit facility, the proceeds of which will be used to repurchase convertible bonds.

The gaming company said it will use net proceeds from the term loan to buy back “a portion” of the $1.15 billion worth of convertible notes it issued in 2021. Those purchases will be made “subject to availability and market conditions” with DraftKings adding proceeds from the loan sale could also be used for “other general corporate purposes.”

It behooves DraftKings to buy back portions of the convertible notes because holders of those bonds have rights to convert that debt to common equity in the sportsbook operator at $70 a share, or more than double the stock’s current price, in 2028.

Convertible bonds are hybrid securities, meaning they feature both equity and fixed income traits. The label “convertible” is derived from the fact that this form of corporate debt can be converted by creditors into shares of the issuing company.

DraftKings Upping Its Revolving Credit Facility

DraftKings also announced that it procured commitments for a new $750 million revolving credit facility maturing in 2031, which will be used to replace a smaller revolver.

The gaming company said proceeds from the new revolver can be used for “general corporate purposes,” but it expects it to “remain substantially undrawn at closing.”

DraftKings is rated “BB+” by Fitch Ratings and “BB” by S&P, both of which are non-investment-grade ratings.

DraftKings Has ‘Good Cushion’

On news of the planned $600 million senior secured term loan B credit facility and the upped credit revolver, S&P affirmed its rating on DraftKings with a “stable” outlook, noting the company can absorb the new borrowings with minimal threat to its credit grades.

Noting that DraftKings has $1.4 billion in accessible cash, S&P highlighted the company’s prediction market efforts while acknowledging there’s intense competition from incumbent yes/no exchanges.

“Leveraging the existing user base will likely optimize customer acquisition costs (CAC) and accelerate profitability,” adds S&P. “DraftKings possesses a massive repository of sports betting, iGaming, and daily fantasy sports (DFS) users whose metrics align closely with those of prediction market participants. By utilizing national marketing strategies and cross-selling, this efficiency provides a competitive advantage over pure-play prediction platforms that lack a diversified gaming ecosystem.”