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Rating Action:

Moody's changes outlook on UBM's Baa3 ratings to Negative From Stable

15 Dec 2015

London, 15 December 2015 -- Moody's Investors Service has today affirmed UBM plc's ('UBM', or 'the company') Baa3 long-term issuer and senior unsecured ratings, and revised the rating outlook to negative from stable.

The rating action follows UBM's announcement of the closing of the sale of PR Newswire ("PRN") to Cision, a business controlled by GTCR Canyon Holdings (Cayman), L.P. for $810 million gross cash proceeds (equivalent to around GBP498 million net cash proceeds) and $31 million preferred equity on a fair value basis (equivalent to around GBP20 million).

The company will be distributing GBP245 million, around 50% of the disposal proceeds to shareholders by way of a special dividend, with the remainder retained to provide greater financial capacity to drive growth via bolt on acquisitions in the events space.

Regulatory approvals for the closing of the disposal of PRN are expected to be obtained late in Q1 2016.

The negative outlook and the affirmation of the Baa3 ratings consider the greater business risk profile of UBM post the sale of PRN, balanced against the modest near term reduction in net financial leverage expected to result from the transaction. UBM has achieved a good value for the PRN asset, and is employing the proceeds in a balanced fashion between shareholder returns and reinvestment in the business. Yet, in exiting PRN, UBM will become exclusively focused on the events business, where it holds a leading position but will be more exposed to cyclical business risks. Moreover, UBM will be exposed to execution risk as it looks to deploy the retained portion of the proceeds in expanding its events offerings.

RATINGS RATIONALE

With the disposal of PRN, UBM will lose its existing diversification and become a 100% Events player. UBM will be also reducing its scale of operations as it will be losing close to 20% of both its overall revenues and EBITA. Whilst we believe that the disposal falls in line with UBM's strategy of establishing itself more firmly as the leading B2B events business globally, the company will be simultaneously returning close to 50% of the disposal proceeds to shareholders, diminishing as a result the company's potential investment capacity by GBP245 million.

We acknowledge the disposal of PRN as consistent with UBM's strategic plan which we consider as credible overall, but we are also cautious in view of the growing concentration of Events in UBM's revenue mix, which together with the reduced size of the business, makes the company more vulnerable to potential cyclical moves.

Notwithstanding the above, we recognize that the transaction will have a net positive effect on financial leverage because 1) in the near term, the portion of the proceeds retained will lower net debt, and 2) in the longer term, we expect the company will be investing the remaining disposal proceeds in acquisitions with considerably higher growth potential than PRN and that these will contribute to enhancing EBITDA and strengthening UBM's positioning within the rating category.

Following the transactions, we expect UBM to have Gross Debt/EBITDA (using Moody's Standard Adjustments) of around 2.4x and RCF/Net debt (using Moody's Standard Adjustments) of around 16%. These metrics are within the lower end of the range for the Baa3 rating. Successfully reinvesting the retained portion of the proceeds in profitable new growth initiatives should provide scope for strengthening of financial metrics over the coming quarters.

UBM's reported net debt/ EBITDA ratio is expected to remain around 1.1x-1.5x, suggesting the potential for the company to lever-up for additional growth initiatives in line with its financial policy leverage target ratio of 1.5x-2.0x. Should the company decide to lever-up in 2016 or 2017 to the higher end of its financial policy, negative pressure on the rating could become more pronounced.

UBM's Baa3 issuer rating remains underpinned by (1) the strength of the company's fast growing Events division, which is a top 5 global player and has leading positions in its chosen vertical markets; (2) the cash-generative nature of UBM's business; and (3) the company's progress over the last few years in improving the quality of its revenue mix. However, the rating is tempered by UBM's (1) growing exposure to the cyclical events market; (2) limited size and scope of overall operations and (3) the company's headroom for higher leverage within the current financial policy.

OUTLOOK

The negative rating outlook reflects UBM's less diversified business model and greater exposure to the cyclical risks of the events business. The outlook also incorporates Moody's view that the company will need to further strengthen the earnings and cash flow of its existing businesses and successfully reinvest proceeds from the PRN sale to offset the potential risks of its greater exposure to the events business.

WHAT COULD CHANGE THE RATING - UP

Moody's does not see any catalysts for an upgrade in the near term. Evidence of strong top-line revenue growth over a number of years and maintenance/strengthening of market positions, as well as UBM achieving and maintaining over time an RCF/net debt ratio around 20% and a Moody's-adjusted debt/EBITDA ratio well below 2.25x, on a sustained basis, could result in upward pressure over time.

WHAT COULD CHANGE THE RATING - DOWN

Downward rating pressure could develop (1) due to any weakness in operating performance that hampers the company's ability to deliver continued revenue and profit growth and (2) if the company's gross debt/EBITDA rises above 2.75x and its RCF/net debt trends below the mid-teens (both as calculated by Moody's) on a sustained basis.

Downward pressure could also be exerted if the company's scale and scope of operations is further reduced visibly. Negative pressure on the rating is also likely if the company fails to maintain a strong liquidity position or timely address its upcoming 2016 debt maturities.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Publishing Industry published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

UBM plc is a globally operating events services provider. The company generated revenue of around GBP456 million in the first six months of FY 2015.

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.

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

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

Moody's changes outlook on UBM's Baa3 ratings to Negative From Stable
No Related Data.
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