Zuffa takes out a $100 million loan

MMA Payout has a detailed account of Zuffa's latest financial action. 

Essentially Zuffa has taken out a 100 million senior secured incremental term loan due in 2015. Term loans are typically used by small businesses to buy fixed assets and the loan itself is set over a period of time with fixed payments and a floating interest rate.

So why is Zuffa in need of 100 million over the next six years? According to Payout's report it has to do with paying dividends (fancy word for pay out) to the owners and repay debt to creditors.

Net proceeds from the proposed incremental term loan will be used to repay the outstanding balance under the company's revolving credit facility and to fund a dividend to the owners. Leverage will increase moderately as the result of this transaction.

MMA Payout also gives us some historical perspective on what these dividend payments mean for Zuffa,

Dating back to the company's original loan, dividend payments to the owners have been an issue for creditors and they are limited by a restricted payment basket in the terms of the loan.  The initial dividend was characterized as quite aggressive and the current dividend payment (roughly $75M) would "consume a large portion of [the] current basket," however, the basket has the potential to increase each quarter.

If I am reading this right, Zuffa had to pay a large dividend to the Fertitta's and White (the owners), which would "consume a large portion of [the] current basket." In other words the pay out to the owners would have eaten up too much of the company's finances. Thus Zuffa took out a loan so they could pay off the bosses.

I bet the Station Casino's going belly-up and the Fertitta's paying a $5.4 billion buyout in order to take the business private had nothing to do with this...