DraftKings (NASDAQ: DKNG) has revealed plans to syndicate a $600 million senior secured term loan B credit facility, with the aim of utilizing the funds to buy back convertible bonds.

The gaming firm indicated that it intends to use the net proceeds from the term loan to repurchase “a portion” of the convertible notes amounting to $1.15 billion that were issued in 2021.

These acquisitions will occur “depending on availability and market conditions,” and DraftKings noted that funds from the loan could also be allocated for “various general corporate needs. ”

By buying back segments of the convertible notes, DraftKings stands to gain, as bondholders have the option to change that debt into common stock at $70 per share in 2028, which is significantly higher than the current trading price of the stock.

Convertible bonds are a blend of two types of investments, incorporating characteristics of both equity and fixed income. The term “convertible” originates from the ability for creditors to transform this type of corporate debt into shares of the issuing company.

DraftKings Increasing Its Credit Line

Additionally, DraftKings has announced that it has secured commitments for a new $750 million revolving credit facility set to mature in 2031, intended to replace an existing, smaller revolver.

“DraftKings has launched syndication of, and secured commitments for, a new $750 million senior secured revolving credit facility maturing in 2031 to enhance liquidity and provide additional financial flexibility, which will replace its existing $500 million senior secured revolving credit facility maturing in 2029,” according to a statement.

The gaming firm announced that the funds from the newly introduced revolver could be allocated for “general corporate needs,” although it anticipates that it will “remain largely unused at the time of closing. ”

Fitch Ratings has assigned DraftKings a rating of “BB+,” while S&P has given it a “BB” rating, both of which fall into the category of non-investment-grade ratings.

DraftKings Has 'Strong Buffer'

Following the announcement of the upcoming $600 million senior secured term loan B facility and the increased credit revolver, S&P reaffirmed its rating for DraftKings with a “stable” outlook, highlighting that the company is capable of managing the fresh borrowings without significantly endangering its credit standings.

“We expect DraftKings’ credit metrics will have good cushion compared to our downgrade threshold for the rating following its proposed $600 million incremental term loan and proposed $250 million upsize of its revolving credit facility,” said the ratings agency.

Recognizing that DraftKings has 1.4 billion dollars in available cash, S&P pointed out the firm's initiatives in the prediction market while also noting the significant rivalry posed by established yes/no trading platforms.

“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,” S&P concluded.