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Rating Action:

Moody's assigns first-time B1 ratings to Imagina; outlook stable

13 Mar 2018

NOTE: On March 16, 2018, the press release was corrected as follows: In the second sentence of the first paragraph the maturity date for TLA was changed to 2024. Revised release follows.

London, 13 March 2018 -- Moody's Investors Service has today assigned a first-time B1 Corporate Family Rating ("CFR") and a B1-PD Probability of Default Rating ("PDR") to Invictus Media S.L. ("Invictus"), the top entity of the restricted group that will own Imagina Media Audiovisual, S.L. ("Imagina"), a leading global integrated international sports, media and entertainment group. Concurrently, Moody's has assigned B1 ratings to the €660 million senior secured term loan (TLB - due in 2025), €200 million amortizing senior secured term loan (TLA -- due in 2024) and the €60 million senior secured revolving credit facility (RCF - due in 2024) being issued by Invictus and Imagina.

Orient Hontai Capital Investment Co. Ltd ("OHC") will contribute €552 million of equity and the reinvesting shareholders of Imagina, WPP Plc and Imagina's management, will roll over their equity stakes of 22% and 24%, respectively, effectively contributing a further €479 million to Joye Media, S.L. This total equity of over €1,000 million, together with the proceeds from TLA and TLB will be used to (1) refinance €217 million of existing debt at Imagina; (2) fund the buy-out of exiting shareholders; (3) ensure cash over-funding of €50 million and (4) pay transaction fees while leaving around €17 million of rolled-over debt on balance sheet after closing.

"Imagina's B1 CFR reflects the group's moderate Moody's adjusted gross leverage of around 4.4x for FY2017E and the high reliance of its EBITDA generation from the international agency contract with La Liga which currently runs until 2020/2021," says Gunjan Dixit, a Moody's Vice President -- Senior Credit Officer, and lead analyst for Imagina.

"The rating reflects the risk of future sports rights inflation and the uncertainties associated with the contract renewals but is nevertheless supported by the group's strong relationship with La Liga (particularly in relation to the international agency contract) and also other industry players, its integrated business model with exposure to content production and audiovisual services, and expected healthy cash flow generation," adds Ms. Dixit.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Imagina's B1 CFR reflects its (1) global scale of operations with good international presence and diversity of its operations; (2) well established relationship with La Liga, Spain's football league, and other key industry players; (3) strong quality of its current sports rights properties; (4) the agency model for the international La Liga rights, which provides a stable and predictable stream of revenues; (5) high visibility on revenue and EBITDA growth for 2018/19 owing to the large proportion of contracted revenues; (6) ability to de-lever with EBITDA growth, mandatory amortisation of the TLA and a cash sweep mechanism in the absence of material M&A or shareholder returns, and (7) the value of the company's stake in A3M, which could be monetised if needed.

However, the rating is constrained by (1) the high sports rights contract concentration risk, as the largest international agency contract with La Liga represents a high proportion of the group EBITDA; (2) the potential increase in competition in sports rights bidding process and/ or significant cost inflation for football rights in general; (3) risks related to future contract losses due to budget constraints and/ or low margin or loss-making future contracts could negatively affect the credit profile of the business; (4) Moody's adjusted gross leverage of 4.4x at the end of 2017 on a pro-forma basis; and (5) a lack of past track record for sustained and visible EBITDA growth and positive free cash flow generation before 2016, with poor EBITDA margins before 2015.

After the re-capitalization transaction, Imagina' gross Moody's adjusted leverage would be moderate at around 4.4x at the end of 2017. Moody's expects the company to continue to de-lever going forward in the absence of meaningful M&A and/ or shareholder returns. Imagina is expected to remain free cash flow generative given its limited capex requirements. However, the credit metrics of the company could be negatively impacted if it was to lose any key sports rights in the auction process or win at a substantial price inflation which it may not be able to pass on to the broadcasters in full. In this regard, Moody's cautiously recognizes that the La Liga domestic rights will be auctioned in 2019 and the company could face increased competition from the OTT players. In addition, Imagina will need to renew the international agency contract with La Liga by 2020/21.

On 5th February, the Italian league announced that the domestic television rights for Serie A games for the period 2018 to 2021 have been sold to Imagina's Mediapro for €1.05 billion a year. The transaction is currently going through the due diligence phase and yet to be finalised. Therefore, Moody's has for now not included it as part of its analysis for Imagina's rating assessment.

Imagina has a joint venture (JV) with BeIN Sports for the acquisition and commercialization of Champions league, Europa league and Spanish league. Imagina owns 45% of this venture while BeIN Sports owns 55%. Imagina consolidates 100% of the JV revenues but only 45% of the profits. The cost obligations of BeIN relating to seasons 15/16-17/18 together with its profit share have so far been recorded as payables on the balance sheet of Imagina. The cash balance of Imagina also commensurately includes the cash owed to BeIN for such payables. As of 31 December 2017, the payables to BeIN amounted to €214 million. The payables owed to BeIn will be settled between August and October 2018. Moody's treats these amounts as restricted cash in the adjusted key ratios calculations. The agency recognizes that for the seasons 18/19 onwards, payments to BeIN will be settled on a monthly basis and will no longer accumulate on Imagina's balance sheet as payables.

At transaction closing Imagina will have cash on balance sheet of around €150 million (excluding the €214 million of cash dedicated towards the BeIN Sports payable). The company will also have access to €60 million of revolving credit facility due 2024. Moody's expects the company's cash flow from operations to remain healthy in 2018 and 2019, which, together with the RCF, should be sufficient to meet the company's liquidity requirements over the next 12 to 18 months. The facilities are restricted by one gross leverage based financial covenant to be tested quarterly. The company will be amortising TLA and will not have any material scheduled refinancing needs until 2025, when the TLB falls due.

Invictus has been assigned a Probability of Default Rating of B1-PD, reflecting the expected recovery rate of 50% typically assumed by Moody's for a capital structure that consists of only bank credit facilities with one financial covenant. The €660 million TLB and the €200 million TLA are ranked pari-passu to the €60 million RCF in priority of claims and both the debt ratings are in line with the B1 CFR.

RATIONALE FOR STABLE OUTLOOK

The stable outlook on the rating reflects Moody's expectation that Invictus will be able to grow its revenues and EBITDA steadily by successfully winning and monetizing content, especially the sports rights contracts. The outlook assumes that Invictus will successfully renew its key contracts at economic terms.

WHAT COULD CHANGE THE RATING UP/DOWN

A rating upgrade would be dependent on qualitative considerations such as a longer track record of operation under the new football model, a reduction in contract concentration levels, visibility on the renewal of the key contracts, and track record of adherence to the financial policies that will be implemented by OHC, its new majority shareholder.

Upward rating pressure could be exerted over time if (1) the company's operating performance continues to remain strong supported in particular by a continued healthy and profitable sports rights contracts portfolio; (2) its Moody's adjusted Gross Debt/ EBITDA falls sustainably well below 3.5x; and (3) there is continued visible improvement in company's free cash flow generation (after dividends and capex -- as defined by Moody's).

Downward ratings pressure could be exerted if (1) the company fails to renew its key contracts at economic terms; (2) the company materially under-performs against its business plan; (3) its Moody's adjusted Gross Debt/ EBITDA sustainably rises above 4.5x due to M&A and/ or material shareholder returns; and (4) its free cash flow generation deteriorates materially on a sustained basis.

LIST OF AFFECTED RATINGS

..Issuer: Imagina Media Audiovisual, S.L.

Assignments:

.... Backed Senior Secured Bank Credit Facility, Assigned B1

Outlook Actions:

....Outlook, Assigned Stable

..Issuer: Invictus Media S.L.

Assignments:

.... Corporate Family Rating, Assigned B1

.... Probability of Default Rating, Assigned B1-PD

.... Backed Senior Secured Bank Credit Facility, Assigned B1

Outlook Actions:

....Outlook, Assigned Stable

PRINCIPAL METHODOLOGY

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.

COMPANY PROFILE

Headquartered in Spain, Invictus is the top entity of the restricted group for Imagina. For FY2017, Imagina generated revenue of €1648 million and EBITDA (as calculated by the company) of €187 million on a preliminary basis.

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.

Gunjan Dixit
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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