Electronic Arts Agrees to Be Taken Private Amid Relatively Softer Business Momentum; Estimated Pro Forma Leverage Increases to 7.4x; FCF/Interest Compresses Below 2x

Relevant Document:
Press Release

Electronic Arts, or EA, is an interactive entertainment company that develops, markets, publishes and delivers games and content. Widely known game franchises held by the company include the EA Sports FC franchise, EA Sports Madden NFL, EA Sports F1, EA Sports NHL and EA Sports UFC, which are licensed from major sports leagues, teams and players’ associations, and the Star Wars franchise, which includes rights licensed from Disney. The rights to other game titles, such as Battlefield, Apex Legends, The Sims, Dragon Age, Need for Speed, Plants vs. Zombies and Titanfall, are listed as trademarks of Electronic Arts Inc.

On Sept. 29, the company released a press release stating that it had agreed to be taken private in a $55 billion deal, led by a consortium of major investors, including Saudi Arabia’s Public Investment Fund, or PIF, private equity firm Silver Lake, and Affinity Partners. The transaction would be funded with $36 billion of equity from the consortium and $20 billion of debt on the balance sheet of Electronic Arts, of which $18 billion is expected to be raised at the close of the transaction. The transaction values the equity share price at $210 per share in cash, which is at a 25% premium to EA’s unaffected share price of $168.32 at market close on Sept. 25. The transaction is expected to close in the first quarter of EA’s 2027 fiscal year.

As of the first quarter of its FY 2026, EA reported gross leverage of 0.8x and net leverage of 0.1x using Octus-adjusted EBITDA for the last 12 months ended June 30, 2025. Assuming rough incremental debt of $18 billion at the close of the transaction, as stated in the press release, and EBITDA in line with LTM levels, Octus calculates gross leverage jumping to 7.4x. The calculation assumes that the company would prepay the existing debt of $1.8 billion on its balance sheet.

As discussed below, our reporter’s sources suggest this new offering may be rated single-B and the ICE BofA single B index currently sits at 6.49%. Assuming some concession given the quantum of debt, we provide an illustrative analysis of levered free cash flow using potential weighted interest burden of 6.75%, 7.25% and 7.75% on the new debt, which in the middle of the range results in an interest coverage ratio narrowing to approximately 1.9x and free cash flows tightly meeting the debt servicing expense.

As part of Silver Lake, PIF and Affinity Partners’ $55 billion take-private buyout of video game developer EA, the private equity consortium lined up JPMorgan to arrange a $20 billion debt financing package to back the deal.

Of JPMorgan’s $20 billion debt financing, about $18 billion is expected to be in syndicated leveraged loans and high-yield bonds, along with a $2 billion liquidity facility, according to sources. Additionally, the debt is expected to be assigned single-B ratings from the credit ratings agencies, sources said.

EA’s leveraged loans and high-yield bonds will not likely come to the market until at least the first quarter of 2026, according to sources. Indicative price talk would be determined closer to the launch date, sources added.

One leveraged finance banker familiar with the deal noted that there will be high amounts of demand from buy-side market participants for EA’s offering leading up to its launch. The banker said that big investment firms, such as Apollo and KKR, are expected to take large chunks of EA’s debt, as opposed to smaller shops, given EA being a stellar credit in its gaming sector.

JPMorgan declined to comment. Silver Lake, PIF, Affinity Partners and EA did not respond to requests for comment.

EA is one of the leading video games and content-generating companies in the U.S. in terms of revenue, having annual revenue of $7.4 billion for fiscal year 2025. Electronic Arts’ revenue consists of full game sales, comprising approximately 27% of its revenue, and live services, constituting approximately 73%. The video gaming industry has shifted from the one-time sales model to revenue model toward recurring “live services” model, with EA maintaining a proportion of live services to total sales in the 70% range since its fiscal year 2021.

Full sales revenue comprises digital downloads and packaged goods sold at retail outlets. Live sales primarily constitute sales of extra content for console, PC and mobile games. For example, consumers buying new annual versions of EA sports games such as EA Sports FC (formerly FIFA) or Madden NFL launched every year are termed as full-game sales. Live services begin after the game is purchased and include monetization initiatives such as Ultimate Team purchases, premium pass subscription, in-game currency purchases and web store transactions. For its non-sports franchises, it generates recurring revenue through live services in its free-to-play titles and a catalog of downloadable content. That said, although the company views its “live services” segment as a recurring revenue stream, it is not contractually recurring in nature; instead it is largely dependent on the discretion of the player to upgrade or buy add-on offerings.

The video gaming industry experienced overwhelming demand during the Covid lockdown, leading to double-digit sales increases until fiscal year 2022. Since then, sales have plateaued. Over fiscal years 2023 and 2024, the company pointed out an increasing competitive environment for players’ time. While the company claims “live services” to be the primary revenue driver, the segment’s growth has been stalled since fiscal 2024, partially because of underperformance of its title Apex Legends, temporary setback in its FC franchise and weakness in non-sports live services and its mobile segment, according to the company.

Further, the company’s revenues are dependent on a few popular titles, such as EA Sports FC, EA Sports College Football, EA Sports Madden NFL, Apex Legends, Battlefield and The Sims. The concentration is further pronounced as a material percentage of EA’s digital net revenue is attributable to sales through partners such as Sony, Microsoft, Apple and Google, according to the company’s 10-K. Sony and Microsoft together represented 56% of EA’s total net revenue in fiscal year 2025, up from 53% in fiscal 2024 and 48% in fiscal 2023.

The table below shows the trend in net bookings for the last 12 months as of the particular quarter. Net bookings are defined as the net amount of products and services sold digitally or physically in the period and calculated by adding total net revenue to the change in deferred net revenue for online-enabled games.

The company released 13 game titles in 2021, after which it moderated its pace to seven to eight titles every year. The company said, “We are transitioning to a more focused slate, anchored around massive online communities and select blockbuster storytelling investments.” That said, while EA reported slowing growth, Two-Take Interactive Software Inc, a video game peer of Electronic Arts, reported a resilient 5% to 6% increase in net bookings for FY 2025 and LTM ended June 2025 indicating optimistic demand prospects as it raised its FY 2026 net bookings guidance due to broad-based strength across its franchises, particularly in its direct-to-consumer mobile segment. Take-Two Interactive Software is rated BBB by S&P Global and Baa2 by Moody’s. Further, during its third-quarter and fourth-quarter earnings calls, Microsoft, owner of Activision Blizzard, indicated strength in its gaming content and service offerings, highlighting record monthly active users on its platform. That said, relatively softer top-line performance of EA compared with its peers is a clear differentiator.

Market participants should note that, over the period of FY 2022 to FY 2025, EA reported strong gross margins, which increased from 73% to 79% because of an increased shift to digital sales and high-margin live services segments and strong performance of core franchises. EA’s free cash flow has remained resilient in the range of approximately $1.7 billion despite softer business momentum, partially because of the company moderating its capital expenditures.

Further, we also highlight evolving business models gaining prominence within the gaming industry, such as that of Roblox Corp. Roblox is a gaming platform where users can play 3D experiences, or “games,” that are created by other users. The company is rated Ba1 by Moody’s and recently upgraded to BBB- by S&P Global with a positive outlook. Moody’s changed its outlook to positive, noting “expectation for continued strong operating performance over the coming 12-18 months similar to recent outperformance relative to public guidance driven by robust user, engagement and bookings growth.”

That said, we note and view optimistically EA’s endeavor of “commitment to the community based approach” across its titles and through its newer launches of Battlefield 6 and Skate in FY 2026. We positively view its resilient gross margins and stable free cash flows. The company’s operation of certain widely recognized franchises such as EA Sports FC, NFL and more, is certainly a credit positive, but the company remains dependent on the success of new launches which in turn benefit the “live services” segment and a few popular titles to accelerate its revenue growth from current levels. Although the company positions its revenue profile to be recurring in nature, we reiterate that the discretionary nature of spending may lead to player attrition. Take Two Interactive highlighted that the gaming industry is maturing and that it is not a recession-resilient segment.

On Sept. 29, S&P Global placed all credit ratings on EA, including its BBB+ issuer credit rating, on creditwatch with negative implications. S&P indicated that it would likely lower its ratings on the company by multiple notches because of the increase in its leverage and new financial sponsor ownership at the close of the transaction. S&P said it expects the company’s S&P Global Ratings-adjusted leverage will rise above 6x and annual interest expense to be in the $1 billion-to-$1.5 billion range, depending on the debt pricing.

On Sept. 30, Moody’s placed all ratings of EA on review for downgrade, including its Baa1 issuer rating and Baa1 senior unsecured notes ratings. Moody’s expects the proposed transaction will result in a material increase in gross debt and financial leverage to roughly 10x to 11x pro forma from 1.2x, Moody’s adjusted. Moody’s further expects the downgrade to be multi-notch given the significant increase in debt and interest expense and meaningfully reduced free cash flow.

While additional details on the transaction are unknown and the credit rating trajectory of EA is uncertain, certain comparable peers of Electronic Arts within the investment-grade and high-yield space are below:

Playtika Holding Corp. is a mobile gaming company in the social casino and casual games sectors. On Dec. 20, S&P lowered its issuer credit rating to BB- from BB as Playtika’s acquisition of SuperPlay Ltd. would result in adjusted leverage exceeding its 3x threshold set for its rating. It lowered its issue-level ratings on the company’s first lien debt to BB from BB+. It also lowered its issue-level ratings on its senior unsecured debt to B from B+.

Separately, DraftKings Inc. is an American digital sports entertainment and gaming company that offers a range of online products. On Feb. 18, Moody’s assigned DraftKings Inc. a corporate family rating of B1 and Ba2 to the company’s existing $500 million senior secured revolving credit facility. Moody’s views that the company has a strong position in the United States in both online sports betting and online casino gaming. Its comprehensive and differentiated product offering positions the company to capture the significant growth opportunity of online gaming in the United States. On the same day, S&P assigned BBB- issue-level rating to the company’s $500 million revolving credit facility and $500 million proposed term loan B.

S&P lowered issuer and issue ratings on Playtech PlC’s senior secured notes on May 2, as the U.K.-based software company announced the close of the sale of gaming operator Snaitech SpA to Flutter Entertainment PLC. S&P found that the Snaitech sale weakened Playtech’s business risk profile primarily because it reduces scale and makes its revenue stream less diversified given the concentration around business-to-business operations and higher customer concentration. Moody’s reaffirmed its corporate family rating of Ba2 and Ba2 on its senior secured notes in September 2024. It views the sale of Snaitech as credit negative, but its rating assessment already included that risk potential.