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Rating Action:

Moody's affirms Getty Images' B3 CFR; outlook revised to negative

30 Apr 2020

Approximately $1.9 billion of existing rated debt impacted

New York, April 30, 2020 -- Moody's Investors Service ("Moody's") has affirmed Getty Images, Inc.'s ("Getty" or the "company") B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR). Concurrently, Moody's affirmed the B2 ratings on the first-lien credit facilities (comprising the $80 million revolving credit facility (RCF), €450 million ($504.9 million US dollar equivalent) first-lien euro term loan and $1.03 billion first-lien term loan) and Caa2 rating on the $300 million senior unsecured notes. The outlook was revised to negative from positive. The full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

The negative outlook reflects the significant impact that the novel coronavirus (a.k.a. COVID-19) pandemic will have on Getty's operating and financial performance in 2020. The cancellation or postponement of major world events, including entertainment, live concerts and sports, combined with the expected reduction in global advertising spend and suspension of several film and video production projects will lead to a substantial, albeit temporary, deterioration in Getty's profitability and a spike in financial leverage to over 8.5x (Moody's adjusted). As the virus threat is neutralized, major events are rescheduled and advertising spend gradually rebounds at the end of 2020 and into 2021, Moody's projects leverage will decline to the 7.5x-8x area by the end of next year.

The negative outlook also incorporates governance risk, specifically the likelihood that Getty's already high leverage (7.3x Moody's adjusted at 31 December 2019) will rise significantly over the next two years owing to a rapidly accreting payment-in-kind (PIK) preferred equity instrument in Getty's capital structure. Moody's estimates the PIK will expand to roughly $700 million principal balance when the non-call period ends in early 2022, which if refinanced entirely with debt, could increase leverage by 2x-2.5x. The negative outlook embeds the numerous uncertainties related to the social considerations and economic impact from COVID-19 on Getty's cash flows, leverage and liquidity. The magnitude of the impact will depend on the depth and duration of the pandemic and the impact that government restrictions to curb the virus will have on consumer and corporate behavior.

Getty's B3 CFR reflects the effect of COVID-19 on the company's financial performance due the inability to create a sizable volume of new imagery content since many live entertainment and sports events have been cancelled or postponed, coupled with Moody's expectation for reduced advertising and media spend from clients as projects are abandoned or rescheduled. Moody's expects the company will generate lower revenue and EBITDA this year resulting in higher financial leverage and weaker free cash flow generation. The rating also acknowledges Getty's global leadership position with one of the largest and broadest collection of visual imagery content; long-term relationships across a diversified customer base comprising news, entertainment, and sports publishing organizations; increasingly subscription-based revenue model; and highly variable cost structure that allows the company to reduce operating costs by up to 60% in the short-run.

Getty's Editorial Stills segment (30.7% of 2019 revenue) creates, licenses and distributes news, entertainment and sports imagery content on an exclusive basis. Given that many live concerts, festivals and sports events have been cancelled for 2020 (e.g., Montreux Jazz Festival, iHeartRadio Music Awards, Wimbledon, NBA, NHL) or rescheduled to the second half of the year (e.g., Cannes Film Festival, Kentucky Derby, Boston Marathon) or postponed into next year (e.g., 2020 Tokyo Summer Olympics, Euro 2020 and 2020 FIFA Women's World Cup), Moody's expects this segment to exhibit significant revenue declines over the coming quarters. Notably, even after the coronavirus restrictions are lifted, the potential remains for the virus to remain active in the community until a vaccine is widely available, possibly forcing rescheduled events to be postponed a second time. Partially offsetting this is the increased news coverage and demand for content related to the pandemic, which clients source from Getty for use in broadcast and cable news, websites, digital media, online articles and other programming and media formats. This segment also retains a sizable archive of historic still images, which Getty's clients can access to meet their changing demands during the outbreak.

The Creative Stills segment (53.6% of 2019 revenue) offers non-exclusive, low-priced stock imagery under several licensing models and various price points to suit every budget and end market use. Since global advertising spend is a key driver of stock imagery demand, Moody's expects this segment to decline in connection with our expectation for global ad spend contraction. While Moody's expects mid to high-single digit percentage global ad spend decline in 2020 offset by favorable, albeit subdued, digital advertising spend growth, Moody's expects a comparatively sharper decline in Creative Stills. This is due to its sizable exposure to small-to-medium sized businesses (SMBs), which are more vulnerable in the current downturn and have largely stopped advertising given the closure of non-essential businesses and reduced consumption. Getty's budget-friendly iStock (Royalty Free) sub-segment serves mostly SMBs and will likely experience greater declines than the broader Creative Stills segment. Online ad campaigns, which SMBs are more inclined to use to promote products and services, are more susceptible to cancellation since they are easier to cut in the short-run. However, Moody's also expects SMB clients that previously did not have an online presence to establish new digital ad campaigns and utilize Getty's stock imagery content.

Total annual subscription revenue (including Editorial subscriptions) accounts for nearly 50% of Getty's revenue, which Moody's believes will provide a cushion against client spending pullbacks. Nonetheless, Moody's expects renewal rates to fall over the coming year as clients in more challenged sectors such as SMBs and consumer discretionary businesses that are being hurt more due to the increased risk of infection (e.g., transportation, travel, hospitality and tourism) will reduce, cancel or delay their renewals. Clients with weak liquidity and based in countries or regions more severely impacted by the coronavirus will likely cancel their subscriptions. However, Getty's end market exposure to client sectors less affected by the virus will partially offset softness in more challenged sectors. They include food and beverage, telecom, healthcare, financial services, technology software, residential real estate services, insurance and in-home entertainment and media. To help offset the pullback from certain clients, Moody's expects Getty will continually update its deep stock imagery library to reflect content associated with the pandemic to meet evolving and shifting client demand.

The Video segment (12.7% of 2019 revenue) maintains a library of editorial and creative as well as contemporary and archival video offerings with about 70% of the content exclusive to Getty. Video content is sourced from professional videographers, Image Partner collections and crowd-sourcing. Moody's expects this business to experience double-digit revenue declines over the next two quarters arising from the numerous production delays of theatrical films, television advertisements and programming, trade show and promotional videos, assignment shoots and other filmed entertainment content. Web-based advertisements will likely experience an increase in demand due to extended stay-at-home orders as consumers increasingly engage in online activities such as ad-supported video streaming, internet and mobile gaming, social media and e-commerce.

Moody's estimates up to 60% of Getty's operating expenses are variable enabling the company to quickly reduce operating costs in the short-run as a result of natural expense reductions from decreased supplier volumes and event cancellations. Moody's fully expects the company to implement cost actions to offset revenue declines and minimize reduction in cash flows. Cost of goods sold is primarily royalties paid by Getty to its contracted photographers and suppliers. Royalties are typically 20% - 50% of the total license fee charged to customers. Getty benefits by having cost of goods as a variable expense and by keeping the cost of content creation with the third party supplier. Gross margins are relatively high, just above 70%, however margins fluctuate depending on product mix and shift towards a particular license model. SG&A costs consisting of staff costs, marketing expenses, professional fees and other operating expenses can also be curtailed with cuts in salaries and merit pay, furloughs, staff reductions, lower marketing spend, reduced digital investment and decreased Editorial Stills' expenses given the large number of event cancellations and postponements.

With the global economy facing recession this year and the prospect of extended business closures, layoffs and high rates of unemployment, an erosion of consumer confidence will lead to a reduction in discretionary consumption. Given these economic realities, even if some events recommence and media spend rebounds later this year, Moody's expects demand will be weak. While Getty has relatively good geographic diversity, with roughly 55% of sales derived from North America, 33% from EMEA and 10% from Asia-Pacific (excludes indirect revenue), since the coronavirus pandemic is global, it will affect economic activity in nearly every region where the company operates. The impact to the company's financial performance will mirror the timing of the outbreak and economic shutdown in each region. Asia-Pacific and Europe will mostly impact Getty's performance in Q1 2020, while Europe and the US will chiefly impact Q2 2020, offset with Asia-Pacific returning to growth.

Over the next 12-15 months, Moody's expects Getty to maintain adequate liquidity supported by weakened free cash flow generation, lower cash balances (unrestricted cash balances totaled $113 million at 31 December 2019) and access to its $80 million RCF (undrawn at 31 December 2019). Moody's projects the company will reduce capital expenditures from the historical range of $45-$50 million to around $40 million to preserve cash. Getty has $21.4 million of mandatory principal payments due in 2020, which the company should be able to fund from internal sources despite diminished free cash flow generation.

Moody's will closely monitor the headroom under Getty's RCF, which contains a quarterly leverage maintenance covenant that enables access to the facility as long as the total first-lien debt to EBITDA (as defined in the bank credit agreement) does not exceed 6.5x (steps down to 6x on 31 March 2021). While the company was in compliance with a 24% cushion at 31 December 2019, headroom could decrease rapidly as a result of a substantial decline in EBITDA and/or if there is a future need to access liquidity via the insertion of incremental secured debt in the capital structure. Moody's expects the company will likely need to obtain waivers from its banks given that the covenant cushion could tighten materially over the coming quarters.

Moody's estimates that the rapidly accreting payment-in-kind (PIK) preferred equity instrument in Getty's capital structure will expand to roughly $700 million principal balance when the non-call period ends in early 2022. If the PIK instrument is refinanced entirely with debt, Moody's projects financial leverage could increase to the 9.5x-10.5x area. There is sufficient time over the coming two years for the company to decide whether to use equity, debt or a combination of equity and debt to refinance the PIK. However, higher-than-expected leverage and weaker cash flows this year will delay debt reduction, and a future debt refinancing of the PIK could likely lead to a ratings downgrade.

ESG CONSIDERATIONS

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. The stock imagery sector has been one of the sectors most significantly affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Getty's credit profile, including its exposure to live events and media, publishing and broadcasting sectors, as well as to US and European economies, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Getty remains vulnerable to the outbreak's continuing spread. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's action reflects the impact on Getty of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The rating outlook could be revised to stable if containment of the coronavirus results in resumption of major live events, clients' media spending improves and Moody's expects minimal impact to Getty's profitability and liquidity, with total debt to EBITDA reverting to under 7.5x (Moody's adjusted) and free cash flow to debt improving to 1.5% - 2.5% on a sustained basis.

A ratings upgrade is unlikely over the near-term, especially if the coronavirus outbreak impacts the scheduling of major live events and reduces clients' consumption of Getty's visual imagery products. Over time, an upgrade could occur if the company demonstrates revenue stability in the Creative Stills unit, and exhibits continued mix shift to higher volume enterprise subscriptions and higher margin Royalty-Free products. Additionally, upward rating pressure could occur if free cash flow to debt (Moody's adjusted) improves to the low to mid-single-digit percentage range and total debt to EBITDA approaches 5.5x (Moody's adjusted).

The ratings could be downgraded if operating performance tracks below Moody's expectations or if total debt to EBITDA is sustained above 7.5x (Moody's adjusted) after the coronavirus outbreak is neutralized and the global economy returns to growth. Ratings could also experience downward pressure if liquidity deteriorates such that free cash flow to debt is sustained below 1% (Moody's adjusted).

SUMMARY OF TODAY'S RATING ACTIONS

Ratings Affirmed:

..Issuer: Getty Images, Inc.

.Corporate Family Rating, Affirmed at B3

.Probability of Default Rating, Affirmed at B3-PD

.$300 Million Gtd Senior Unsecured Global Notes due 2027, Affirmed at Caa2 (LGD6) from (LGD5)

..Issuer: Getty Images, Inc. (Co-Borrower: Abe Investment Holdings, Inc.)

.$ 80 Million Senior Secured First-Lien Revolving Credit Facility due 2024, Affirmed at B2 (LGD3)

.€450 Million ($504.9 Million US dollar equivalent) Senior Secured First-Lien Euro Term Loan B due 2026, Affirmed at B2 (LGD3)

.$1,030 (outstanding amount ) Million Senior Secured First-Lien Term Loan B due 2026, Affirmed at B2 (LGD3)

Outlook Actions:

..Issuer: Getty Images, Inc.

Outlook, Changed to Negative from Positive

Headquartered in Seattle, WA, Getty Images, Inc. is a leading creator and distributor of still imagery, vector, video and multimedia products, as well as a recognized provider of other forms of premium digital content, including music. The company was founded in 1995 and provides stock images, music, video and other digital content through gettyimages.com and iStock.com. In September 2018, a trust representing certain Getty family members bought out The Carlyle Group's 51% majority equity stake for approximately $250 million at an enterprise value of just under $3 billion to regain 100% ownership of the company. Revenue totaled approximately $846 million for the fiscal year ended 31 December 2019.

The principal methodology used in these ratings was Media Industry published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1077538. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gregory A. Fraser, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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