Fitch Rates National Basketball Association's Revolving Facility & Sr Notes 'BBB+'; Outlook Stable.

NEW YORK -- Fitch Ratings has assigned a 'BBB+' rating to the following issues for the National Basketball Association (NBA):

--$1.12 billion league-wide revolving facility borrowings (renewed annually through its affiliate Basketball Funding, LLC);

--$200 million senior notes consisting of $75 million of senior notes due 2014 and $125 million of senior notes due 2016 (privately placed through its affiliate Hardwood Funding, LLC in March).

Fitch also affirms the rating on Hardwood Funding, LLC's $660.5 million outstanding parity senior notes maturing between 2010 and 2013. The facility and notes are parity obligations secured by participating teams' national television contract revenues and other team assets. Proceeds from the revolving facility and senior notes may be used by participating NBA teams for general corporate purposes and to provide working capital. The Rating Outlook is Stable.

The 'BBB+' rating reflects the NBA's strong position among professional sports leagues, both in the U.S. and globally, and its large and growing fan base. The NBA has a strong economic model that includes equal distribution of multi-year national television contract revenues from solidly investment grade broadcast partners, and significant revenue sharing among member teams. Combined with an effective collective bargaining agreement (CBA) with its players' union that has effectively maintained consistent year-over-year player costs as a percentage of basketball revenues, the NBA actively works to ensure the financial viability of its member teams and promote strong competition. The rating also benefits from the structure of the transaction, whereby national television revenues flow into an account established by the NBA to meet debt service obligations, including funding of interest and labor contingency reserves, before distribution to the participating teams, and a $10 million letter of credit (LOC) provided by the NBA that is available to cover interest and other outstanding obligations under the facility and notes.

Current economic conditions indicate heightened risks for all of Fitch's sports ratings, as there will likely be increased pressure on individual and corporate discretionary spending levels and renewals of key sponsorship and advertising agreements. (See Fitch's 'U.S. Sports Outlook 2009, dated Feb. 17, 2009, available at www.fitchratings.com). This is partially mitigated in the near term by the NBA's multi-year national television agreements with its network and satellite providers which currently run through 2016 with ABC/ESPN and Turner Broadcasting, respectively, as well as its current multi-year sponsorship agreements which provide a strong operating cushion for NBA clubs. League-wide facility participants and noteholders are also somewhat insulated given the pledge of national television contracts to service debt prior to distributions to teams for operations.

Additionally, individual teams may be partially insulated in the near-term by the high percentage of multi-year contractually obligated arena-based income streams from luxury suites, club seats and sponsorship and advertising agreements. Nevertheless, potentially lower renewal levels of key revenues at the league and individual team levels, should economic conditions worsen, would financially constrain the league and member teams. Additional risks include the overall high financial leverage of the participating teams, inherent risks associated with extension and/or renewal of the current CBA, and the team-specific nature of the obligations and lack of a corporate (joint and several) obligation of the NBA (other than the $10 million LOC).

While Fitch positively views the NBA's economic model and financial policies, as in all sports leagues a wide disparity exists between the financially strongest and weakest teams. A team's reliance on local revenues, which fluctuate significantly between small and large markets, and a team's discretion to exceed the salary-cap can result in greater financial disparity among NBA teams. In the unlikely event of a team bankruptcy, the program documentation provides for the league to continue to withhold such team's share of television revenues to meet the debt service obligations of such team. Nevertheless, in certain circumstances, debt service could be interrupted or delayed. While the lack of a comprehensive formal league-level obligation is a potential weakness, Fitch views the importance of the facility and notes to league operations as a key mitigating factor. Fitch further notes the NBA's demonstrated willingness to provide support to distressed teams (such as the league's support of the New Orleans team following hurricane Katrina), and the presence of the league's $10 million LOC.

The NBA's national television contracts with ABC/ESPN (parent company 'The Walt Disney Company' rated 'A'; Stable Outlook) and Turner Broadcasting (parent company Time Warner rated 'BBB'; Stable Outlook) were renewed in 2007 and run through the 2015-16 season. The eight-year term of the national television contracts and higher annual broadcast fees compared to the prior television contracts are a testament to the long-term value of the NBA's content and its highly coveted viewership, which attracts strong advertising partners.

The current CBA was signed in 2005 and runs through the 2010-11 season, with a league option to extend it through the 2011-2012 season. The CBA ensures play through 2011 and includes a 'soft' salary cap as well as salary escrow and tax provisions designed to maintain player costs at a set percentage of the league's basketball related revenues. Teams can exceed the salary cap subject to payment of a dollar-for-dollar 'luxury tax' on excess amounts. Luxury tax funds are subsequently distributed to non-taxpaying teams in accordance with NBA formulas. While a 'hard' salary cap system would provide a greater amount of cost certainty, the NBA's soft cap combined with the escrow and tax distribution system, provides a viable cost containment mechanism for the league that has reliably maintained player cost at the targeted percentage of total basketball revenues since its inception in 2001.

Year-to-date viewership and attendance levels have been positive taking into consideration the current economic climate. The NBA's average for gate receipts and attendance per team are essentially flat for 2008-09 season as compared to 2007-08 season. Furthermore, 20 of the 30 teams are averaging 90%, or better of arena capacity which demonstrates the NBA's stable fan base. Additionally, national and local television viewership has remained strong after solid growth for the 2007-2008 season. Regular season viewership has increased between 14%-16% and television ratings have ranged from flat to an increase of 5% across the three broadcast partners.

The NBA currently has 30 teams in major metropolitan areas in the U.S. and Canada, of which 17 participate in the league lending facilities. The NBA's extensive international marketing efforts are viewed favorably and Fitch also notes the continued positive growth in international revenues as a percentage of overall league revenues.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.