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Rating Action:

Moody's assigns B2 rating to WME IMG's proposed credit facility

03 May 2018

New York, May 03, 2018 -- Moody's Investors Service (Moody's) affirmed WME IMG, LLC's (d/b/a Endeavor) B2 Corporate Family Rating (CFR) and assigned a B2 rating to the proposed first lien credit facility (including a new $2,775 million first lien term loan and a $200 million revolver) issued by its subsidiary. The outlook remains stable.

The use of proceeds of the first lien term loan is expected to refinance the existing first lien and second lien term loan and the proposed $200 million revolver will replace the existing $100 million revolver that matures in 2019. The refinancing will extend the WME IMG, LLC's (WMG IMG) debt maturity schedule, reduce interest expense, and increase its revolver capacity. The ratings on the existing first and second lien credit facilities will be withdrawn after repayment.

The company has announced a transaction to merge its IMG College business with Learfield Communications which is currently pending regulatory approval. The parent company of WME IMG is anticipated to maintain an equity position in the combined company, but it will be held outside the existing credit group. We expect WME IMG will repay debt to offset the loss of EBITDA from IMG College to the credit group if the transaction closes. If the transaction results in an increase in leverage, the ratings would likely face negative rating pressure given the already very high leverage level of 7.3x as of Q4 2017.

A summary of Moody's actions are as follows:

Issuer: WME IMG, LLC

Corporate Family Rating affirmed B2

Probability of Default Rating affirmed B2-PD

Outlook is stable

Issuer: William Morris Endeavor Entertainment, LLC

New $200 million gtd senior secured first lien revolver due 2023, assigned a B2 (LGD3)

New $2,775 million gtd senior secured first lien term loan due 2025 assigned a B2 (LGD3)

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's B2 CFR reflects the company's very high leverage of 7.3x as of Q4 2017 (including Moody's standard adjustments and pro-forma for recent acquisitions) which positions the company very weakly at the existing rating. The company's plan to remove the IMG College business from the credit group would leave the company slightly smaller and less diversified. While the college business has underperformed expectations and was not anticipated to be a driver of performance going forward, it still represents a material loss of value to the credit group which would need to be offset with a reduction in debt. Additional concerns surrounding the company are the amount of add backs to EBITDA as well as a history of aggressive financial policies. Free cash flow is limited and negatively impacted by distributions and tax reimbursements to equity holders which reduce the cash available for debt repayment or acquisition. 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, as well as marketing and other services. While WME IMG does not own a significant amount of content or events, ownership of events has been an increased focus for the company and has become a larger portion of its events business. The company is expected to evaluate additional acquisitions which will be a source of growth and help to enhance and diversify its service offerings, although leverage levels could be impacted depending on how they are financed. 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 for EBITDA growth in the low to mid-single digits which should reduce leverage to approximately 7x over the next twelve months. However, the removal of IMG College from the credit group without a corresponding amount of debt repayment would likely lead to a negative rating action.

WME IMG is expected to have adequate liquidity with $356 million of cash (excluding cash at unrestricted subsidiaries and the parent company) as of Q4 2017 and an undrawn $200 million revolver that matures in 2023. Free cash flow is expected to be modest relative to the amount of debt outstanding due to interest expense, capex, equity distributions, and contingent acquisition payments.

The revolver is expected to be subject to a maximum leverage ratio covenant to be determined when greater than 35% of the revolver is drawn. The term loan is covenant lite. The company has the ability to issue an incremental facility of $550 million or up to the level permitted by an incurrence leverage ratio of 5x. The term loans and revolving credit facility have a secured claim on the assets, although the company has other joint ventures and minority ownerships that could be sold for additional liquidity without disrupting the core business.

Given the currently very high leverage for the existing rating, a rating upgrade is not expected in the near term. However, Moody's would consider an upgrade if leverage declined below 5x on a sustained basis, with free cash flow as percentage of debt greater than 5%, positive organic growth, and a good liquidity position. Confidence would also be needed that the private equity sponsor would pursue a more moderate financial policy consistent with a higher rating.

The ratings would likely be downgraded if leverage were to be sustained over 7x by the end of 2018 due to underperformance or debt funded acquisitions or a weak liquidity position due to negative free cash flow or limited revolver availability. The removal of IMG College from the credit facility without an offsetting amount of debt reduction would also lead to a downgrade.

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 with equity financing from Silver Lake Partners in the amount of $461 million. Reported revenue as of FY 2017 was approximately $2.8 billion.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating 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 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.

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: 1 212 553 0376
Client Service: 1 212 553 1653

John Diaz
MD - Corporate Finance
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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