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Rating Action:

Moody's affirms Nielsen's Ba3 CFR, assigns Ba1 to new term loan facility and downgrades sr. unsec. notes to B2 from B1; outlook negative

05 May 2020

Approximately $9 billion of existing rated debt impacted and $800 million of new debt rated

New York, May 05, 2020 -- Moody's Investors Service ("Moody's") has affirmed Nielsen Holdings plc ("Nielsen" or the "company") Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating (PDR) and Ba1 ratings on the senior secured bank credit facilities at Nielsen Finance LLC ("Nielsen Finance"). Concurrently, Moody's assigned a Ba1 rating to the new term loan B facility to be issued by Nielsen Finance and Nielsen Holding and Finance B.V., a Dutch borrower. Moody's also downgraded the ratings on the senior unsecured notes at Nielsen Finance and The Nielsen Company (Luxembourg) S.à.r.l. to B2 from B1. The outlook remains negative. The full list of affected ratings can be found at the end of this press release.

Nielsen Finance and Nielsen Holding and Finance B.V are indirect wholly-owned subsidiaries of Nielsen. Moody's expects the new term loan B facility to total $800 million, comprising a $500 million US dollar tranche and $300 million US dollar equivalent Euro tranche, both maturing June 2025. Terms will be substantially similar to Nielsen's existing term loan B. Net proceeds will be used to repay the $800 million 4.5% senior unsecured notes due October 2020 residing at Nielsen Finance and Nielsen Finance Co. (co-borrower).

Though senior secured debt will increase to nearly 60% of total pro forma debt from 49%, the higher proportion does not impact the secured debt instrument ratings under Moody's Loss Given Default (LGD) framework. However, the senior unsecured debt ratings were downgraded by one notch to B2 due to this class of debt's proportionately lower mix relative to the senior secured obligations resulting in a higher loss absorption in a distress scenario. The Ba1 ratings on the senior secured credit facilities are two notches above the Ba3 CFR to reflect their security interest in substantially all assets of the company's wholly-owned material domestic subsidiaries and effective priority relative to the senior unsecured notes. The B2 ratings on the senior unsecured notes reflect their lack of security interest in collateral and structural subordination to the secured debt obligations.

The transaction is leverage neutral since Moody's expects Nielsen to use the net proceeds to repay the $800 million 4.5% senior unsecured notes at maturity. Moody's views the transaction favorably given the extension of the debt maturity structure.

RATINGS RATIONALE

The negative outlook reflects the impact that the novel coronavirus (a.k.a. COVID-19) pandemic will have on Nielsen's operating and financial performance in 2020. While roughly 70% of Nielsen's revenue is tied to contracts that are one year or longer in length (many with leading blue chip companies), the remaining 30% is short-cycle non-contractual revenue, which will experience pressure due to projects associated with sectors of the economy that have been impacted by coronavirus restrictions. Examples include the: (i) cancellation or postponement of major sports events, which restricts Nielsen ability to provide measurement services; and (ii) significant decline in new automobile production, which will reduce demand for the Gracenote subsidiary's music, video and sports metadata and automatic content recognition technologies that are licensed to suppliers of infotainment systems and car stereos, which are eventually sold to automakers. Moody's estimates just under 30% of Nielsen's long-term contracts are up for renewal in 2020. While Moody's expects the vast majority of these agreements will be renewed, some could experience delays, reduced purchases or pricing pressures given the company's large exposure to consumer packaged goods (CPG) and media companies, two sectors experiencing spending pullbacks due to the effects of COVID-19 on their financial performance.

The numerous uncertainties related to the social considerations and economic impact from COVID-19 on Nielsen's cash flows, leverage and liquidity are also embedded in the negative outlook. 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. The negative outlook reflects Moody's expectation that Nielsen's constant currency organic revenue growth will contract in the mid-single digit percentage range over the coming year and adjusted EBITDA margins will migrate to the low end of the 27% to 30% range. The outlook also captures Moody's view that financial leverage as measured by total debt to EBITDA will increase temporarily above the downgrade threshold to 5.4x (Moody's adjusted, including one-time separation and restructuring costs) compared to 4.6x at 31 March 2020 arising from the challenged operating environment. Moody's projects a global economic recession this year with the US and G-20 advanced economies contracting 5.7% and 5.8%, respectively. As the virus threat is contained and economic growth gradually returns in 2021, Moody's projects leverage will decline to the 4.5x area by the end of next year.

Nielsen's Ba3 CFR reflects the company's leading international positions within its Global Media ("Media") and Global Connect ("Connect") operating segments; relatively high entry barriers with high client switching costs; long-standing contractual relationships across its diverse client base; and solid EBITDA margins. Nielsen has sustained historical margin pressure in its Connect business from: (i) slowing revenue growth amid a competitive landscape, (ii) reduced spend from CPG clients, and (iii) growth in e-commerce and private label sales, coupled with investments in the Media business to adapt to shifts in advertising spend and changes in consumer viewing habits. The company faces further challenges from ongoing cyclical and secular spending pressures from certain client verticals both in the US and abroad; proliferation of new technologies that alter consumer buying habits and advertising/marketing delivery channels; moderately high financial leverage; diminished operating cash flow stemming from EBITDA weakness; and a historically shareholder-friendly capital allocation strategy due to sizable dividends, though materially reduced going forward.

Moody's believes Nielsen's contractual revenue, which accounts for around 70% of the total, will provide some cushion against client spending pullbacks. Nonetheless, 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 client spending in short-cycle products (roughly 30% of total revenue) rebounds later this year, Moody's expects demand will be weak. Moody's expects some clients in more challenged sectors such as CPG, automotive and non-grocery retail will reduce or delay their purchases. Clients with weak liquidity and based in countries or regions more severely impacted by the coronavirus will likely seek to extend payment terms, which could negatively impact working capital and lead to an increase in Nielsen's cash conversion cycle. Nielsen'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, supermarkets, healthcare, pharmacies, telecom, financial services and in-home entertainment and media. Web-based providers 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 expects Nielsen to take temporary cost actions to eliminate approximately $200 million of operating costs in the short-run as well as additive permanent cost reductions. Areas that will be curtailed include, travel and entertainment, merit pay, bonuses and company 401(k) match. Other cost actions include furloughs, hiring freezes and reduction of certain variable operating expenses. While Nielsen has relatively good geographic diversity, with roughly 57% of sales derived from the US, 21% from EMEA and 13% from Asia-Pacific, 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. Europe and the US will mostly impact Nielsen's performance in Q2 2020 and potentially in Q3 2020, offset by Asia-Pacific returning to growth.

On 7 November 2019, Nielsen announced plans to spin off Connect into a new publicly traded standalone entity by distributing the business unit's shares to shareholders. The transaction is expected to be completed by the end of Q1 2021. Nielsen also reduced its quarterly cash dividend to $0.06 per share from $0.35 per share to improve cash generation. This equates to an annual dividend of approximately $84 million. Factoring in one-time cash separation costs estimated at roughly $300 million as well as $200 million of projected annualized cost savings, Moody's projects Nielsen will produce adjusted free cash flow this year in the range of $90 - $120 million (defined as cash flow from operations less capex less dividends). An expected cash distribution from the completed spin-off would be applied towards repayment of Media's debt. Following the Connect separation, the remaining Media business will continue as a publicly traded company ("Nielsen RemainCo"). While Moody's views the pending separation favorably given the prospects for debt reduction, enhanced free cash flow generation and improved organic revenue growth in 2021, as more information becomes available, Moody's will evaluate Nielsen RemainCo's pro forma debt capital structure, leverage target and financial strategy, as well as the impact and timing of expected transition costs on EBITDA and cash flows. Moody's assessment will also consider that Nielsen RemainCo will become a more narrowly focused business with reduced revenue and profitability after the spin-off.

Over the next 12-15 months, Moody's expects Nielsen to maintain good liquidity (SGL-2 Speculative Grade Liquidity) supported by positive, albeit weakened, free cash flow generation in the range of 1% of total debt (Moody's adjusted), solid cash levels (cash balances totaled $359 million at 31 March 2020) and access to its $850 million revolving credit facility (RCF) ($135 million outstanding at 31 March 2020). Moody's expects the $800 million 4.5% senior unsecured notes maturing in October will be repaid with proceeds from the new term loan B financing.

Moody's will closely monitor the covenant headroom under Nielsen's credit facility, which contains a maximum quarterly maintenance covenant of 5.5x total net debt to EBITDA (as defined in the bank credit agreement). While the company was in compliance with a 20% cushion at 31 March 2020, headroom could decrease as a result of EBITDA shortfalls or reduced cash balances. If the covenant cushion tightens over the coming quarters, Moody's expects the company will seek to obtain waivers from its banks.

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 consumer measurement and data analytics sector has been one of the sectors affected by the shock given its sensitivity to consumer demand and sentiment. More specifically, the weaknesses in Nielsen's credit profile, including its exposure to sports events and consumer packaged goods, media, broadcasting and automotive sectors, as well as to US, European and Asian economies, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and Nielsen 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 Nielsen of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

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

The rating outlook could be revised to stable if financial leverage declines to the 4.5x area (Moody's adjusted) and free cash flow to debt improves to the mid-single digit percentage range (Moody's adjusted) coupled with constant currency revenue growth in the low-to-mid-single digit percentage band. A ratings upgrade is unlikely over the near-term, especially if the coronavirus outbreak continues to impact clients' spending on Nielsen's measurement and analytics products. Over time, an upgrade could occur if the company demonstrates constant currency revenue growth in the mid-single digit percentage range and higher EBITDA margins in the 30% to 35% area. Additionally, upward rating pressure could occur if total debt to EBITDA declines below 4x (Moody's adjusted) and free cash flow to debt (Moody's adjusted) improves to the 5% to 6% range.

Ratings could be downgraded if EBITDA margins contracted or debt levels increased resulting in total debt to EBITDA above 5x (Moody's adjusted) on a sustained basis and free cash flow generation weakened to below 1% of adjusted debt due to deterioration in operating performance. A deterioration in liquidity could also result in ratings pressure.

SUMMARY OF TODAY'S RATING ACTIONS

Assignments:

Issuer: Nielsen Finance LLC

..$500 Million Senior Secured Term Loan B due 2025, Assigned Ba1 (LGD2)

Issuer: Nielsen Holding and Finance B.V.

..$300 Million USD equivalent Senior Secured Euro Term Loan B due 2025, Assigned Ba1 (LGD2)

Affirmations:

Issuer: Nielsen Holdings plc

..Corporate Family Rating -- Ba3

..Probability of Default Rating -- Ba3-PD

Issuer: Nielsen Finance LLC (Co-Borrowers: TNC (US) Holdings Inc. and Nielsen Holding and Finance B.V.)

..$ 850 Million Senior Secured Revolving Credit Facility due 2023, Affirmed at Ba1 (LGD2)

Issuer: Nielsen Finance LLC

..$1,125 Million ($1,083 Million outstanding) Senior Secured Term Loan A due 2023, Affirmed at Ba1 (LGD2)

..€ 545 Million ($592 Million USD equivalent) Senior Secured Euro Term Loan B-2 due 2023, Affirmed at Ba1 (LGD2)

..$2,303 Million ($2,262 Million outstanding) Senior Secured Term Loan B-4 due 2023, Affirmed at Ba1 (LGD2)

Downgrades:

Issuer: Nielsen Finance LLC (Co-Borrower: Nielsen Finance Co.)

..$ 800 Million 4.5% Senior Unsecured Notes due 2020, Downgraded to B2 (LGD5) from B1 (LGD5)

..$2,300 Million 5.0% Senior Unsecured Notes due 2022, Downgraded to B2 (LGD5) from B1 (LGD5)

Issuer: The Nielsen Company (Luxembourg) S.à.r.l.

..$625 Million 5.5% Senior Unsecured Notes due 2021, Downgraded to B2 (LGD5) from B1 (LGD5)

..$500 Million 5.0% Senior Unsecured Notes due 2025, Downgraded to B2 (LGD5) from B1 (LGD5)

Speculative Grade Liquidity Actions:

Issuer: Nielsen Holdings plc

Speculative Grade Liquidity, Remains SGL-2

Outlook Actions:

Issuer: Nielsen Holdings plc

.....Outlook, Remains Negative

Issuer: Nielsen Finance LLC

.....Outlook, Remains Negative

Issuer: The Nielsen Company (Luxembourg) S.à.r.l.

.....Outlook, Remains Negative

Issuer: Nielsen Holding and Finance B.V.

.....Outlook, Assigned Negative

The assigned ratings are subject to review of final documentation and no material change in the size, terms and conditions of the transaction as advised to Moody's. Moody's will withdraw the B2 rating on the 4.5% senior notes upon their full redemption.

Nielsen Holdings plc, founded in 1923 and headquartered in Oxford, England and New York, NY, is a global provider of consumer information and measurement that operates in more than 100 countries. Nielsen's Connect segment (47% of LTM 3/31/20 revenue) provides retail measurement and consumer panel measurement services as well as consumer intelligence and analytical services for clients. The Media segment (53% of LTM 3/31/20 revenue) provides viewership and listenership data and analytics across television, radio, online and mobile devices for the media and advertising industries. Revenue totaled approximately $6.5 billion for the twelve months ended 31 March 2020.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. 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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