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Moody's assigns WMG Acquisition Ba3
Moody's Investors Service said it assigned to WMG Acquisition Corp. a Ba3 corporate family rating and Ba3-PD probability of default rating. Moody's affirmed WMG Acquisition’s senior secured notes and senior secured term loan ratings at Ba3 and upgraded the senior unsecured notes to B2 from B3. Moody's also withdrew the B1 CFR, B1-PD PDR and stable outlook from WMG Holdings Corp. WMG Acquisition's rating outlook is stable.
WMG Acquisition is a direct wholly owned subsidiary of WMG Holdings Corp. and an indirect wholly-owned subsidiary of Warner Music Group Corp. Warner Music Group guarantees the note obligations at WMG Acquisition and produces consolidating financial statements that separately break out WMG Acquisition. Moody's transitioned the CFR to WMG Acquisition Corp. from WMG Holdings because WMG Acquisition Corp. is currently the senior-most debt-issuing entity within the corporate structure and Warner Music Group’s debts reside at WMG Acquisition.
The Ba3 ratings on the secured notes and term loan match the CFR to reflect the preponderance of secured debt in Warner Music Group’s capital structure (nearly 90%) and Moody's expectation that this secured class will remain the vast majority of debt over the rating horizon. The B2 rating on the senior unsecured notes reflects their lack of security interest in the collateral package and structural subordination to the secured debt obligations.
The Ba3 CFR reflects Moody's expectation WMG Acquisition's ultimate parent, Warner Music Group Corp. will generate 8%-10% revenue growth driven by continued strong secular adoption of digital music streaming services by consumers, especially in underpenetrated overseas markets. Moody's projects the parent will improve financial leverage and operate with total debt to EBITDA in the 4x area (as calculated by Moody's) by the end of 2020, buoyed by EBITDA growth and adjusted EBITDA margins improving to the upper end of the 16%-20% range (as calculated by Moody's).
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