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Rating Action:

Moody's affirms WME IMG's existing ratings following proposed add on term loan

06 Jun 2016

New York, June 06, 2016 -- Moody's Investors Service (Moody's) affirmed WME IMG, LLC's (WME IMG) existing B2 corporate family rating (CFR) following the proposed $250 million add on term loan. The first lien credit facility was affirmed at B1 and the second lien term loan was affirmed at Caa1. The outlook remains stable.

The $250 million add on term loan, in addition to cash from the balance sheet and recent equity raised is expected to be used to make acquisitions or investments either inside or outside the restricted group. In either scenario the restricted group is expected to receive a minimum of $25 million in additional annual EBITDA going forward. The add on term loan is expected to be fungible with the existing first lien term loan.

A summary of Moody's rating actions are as follows:

..WME IMG, LLC.

Corporate Family Rating affirmed B2

Probability of Default Rating affirmed B2-PD

$100 million senior secured revolver due 2019 affirmed B1 (LGD3)

$2.1 billion (pro-forma for the add on) senior secured term loan B due 2021 affirmed B1 (LGD3)

$450 million senior secured second lien term loan due 2022 affirmed Caa1 (LGD5)

Outlook is stable

The assigned ratings are subject to review of final documentation and no material change in the terms and conditions of the transaction as provided to Moody's.

RATINGS RATIONALE

WME IMG LLC's B2 CFR reflects the company's very high leverage of 7.1x as of Q1 2016 pro-forma for the transaction (including Moody's standard adjustments) which weakly positions the company at the existing ratings. An additional concern is the amount of significant add backs to EBITDA which has been a persistent issue since the company was rated in the beginning of 2014. Free cash flow is negatively impacted by distributions and tax reimbursements to equity holders which limit the amount available for debt repayment or cash funded acquisitions. The company does not own a significant amount of content or events and a material amount of the value of the company is determined by contracts and the intellectual capital of management and its employee base with limited tangible assets. In addition, the college division has underperformed expectations which has weighed on results. We anticipate the company will be sensitive to cyclical consumer advertising spending. The rating receives support from the size of the company with global scale and diversified operations in client representation, event operations, distribution of media, sponsorship and licensing rights, as well as marketing and other services. Recent acquisitions completed in the past year are expected to be a source of growth and help to enhance and diversify its service offerings while increasing the amount of owned content by the company. WME IMG also benefits from the recent $355 million of equity raised which is expected to be used to make acquisitions or investments. In addition, the company has joint ventures and equity investments that although not currently material to earnings, have the potential to be a source of growth or liquidity if successfully monetized. We also anticipate WME IMG will benefit from the increasing value of sports and original content worldwide as well as from revenue synergies as the organization utilizes existing relationships within television, film, sports, music, and advertising to further grow the business.

The stable outlook reflects our expectation that leverage will decline modestly due to organic EBITDA growth in the low to mid single digits in addition to growth from acquisitions. However, we note that leverage is very high and that the ratings would come under negative pressure if leverage was unlikely to decline to under 7x during the next 12 months.

WME IMG is expected to have adequate liquidity with in excess of $100 million of cash pro-forma for the transaction and a $100 million revolver which matures in May 2019 and is undrawn as of Q1 2016. Free cash flow is expected to be modest due to interest expense, capex, equity distributions, and contingent acquisition payments.

The revolver is subject to a first lien leverage maintenance covenant of 5.9x when greater than 30% of the revolver is drawn. The first and second lien term loans are covenant lite. The company also has the ability to issue an incremental facility of $400 million in addition to the level permitted by a first lien incurrence ratio of 4.25x.

Given the current high leverage level for the existing rating and the substantial amount of add backs to EBITDA, a rating upgrade is not expected in the near term. Leverage well below 5x on a sustained basis with good free cash flow, positive organic growth, and good liquidity could lead to an upgrade.

Leverage levels above 7x due to a decline in EBITDA or debt funded transaction could lead to a downgrade. A weak liquidity position due to negative free cash flow or limited revolver availability could also lead to negative rating action.

WME IMG, LLC. (WME IMG) is a diversified global company with operations in client representation, event operations, distribution of media, sponsorship and licensing rights, as well as marketing and other services. William Morris Endeavor Entertainment, LLC. bought IMG Worldwide Holdings, Inc. (IMG) in May 2014 for approximately $2.4 billion dollars with equity financing from Silver Lake Partners in the amount of $461 million. Reported revenue as of the LTM ending March 31, 2016 is approximately $2.4 billion.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Scott Van den Bosch
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's affirms WME IMG's existing ratings following proposed add on term loan
No Related Data.
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