Churchill Downs Incorporated (CDI), famous for its US horse racing, has announced offering $600 million in senior notes for sale.
CDI plans to use the money for three main purposes, one of which is paying off debt.
Bonds are the latest move to improve CDI
CDI issued $1.2 billion in bonds in 2022 to help fund the purchase of Penninsula Pacific Entertainment, a racetrack and casino owner, as well as a poker room in New Hampshire and horse-racing tech firm Exacta Systems.
In April 2022, the company announced the launch of its paddock redevelopment project. Slated to cost $185 million to $200 million, the project will update the paddock area to be more fan-friendly. The paddock’s guest space will increase by 7,000 square feet, and the capacity inside the paddock will jump from 1,000 to 2,400 people.
Additionally, CDI will add 3,612 premium reserved seats to its track seating. Also, it will create 3,250 new standing-room-only tickets. In theory, the move could increase revenue and attendance at the Kentucky Derby and other horse races.
“This is one of the most significant construction projects in the history of Churchill Downs Racetrack because it significantly impacts what we consider to be the heart of the property,” CDI CEO Bill Carstanjen said.
What is a senior note and why is Churchill Downs selling them?
A senior note is a type of bond. Companies typically sell bonds to raise money for various projects and financial needs. Cities and municipalities also sell bonds as a way to raise capital to fund new initiatives.
Bonds usually have four key features: the bond amount, an interest rate, a maturity date, and a bond rating Here’s how those features look for CDI’s bonds:
- Bond amount: Unknown, but it’s likely high enough to be available only to institutional investors (not the average investor).
- Interest rate: 6.750%. This is what CDI will pay people who buy a bond, and it’s a relatively high rate.
- Maturity date: 2031. This is when CDI pays bond purchasers any remaining interest and the original bond purchase amount.
- Bond rating: B1/B+ (junk/speculative). This rating tells bond buyers how likely it is that CDI will be able to pay out the bond’s interest rate. In this case, CDI’s bonds get a low grade, which is why the interest is so high (more risk, more reward).
That CDI’s bonds are senior notes means if CDI runs into financial trouble, it’s required to pay its bondholders first ahead of other creditors.
What will CDI do with the $600 million?
According to CDI, the company plans to use its bond capital for three things:
- Pay off some of its debts
- Pay for the transaction fees and expenses related to that debt
- Generate working capital for the business’s operations and growth