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Rating Action:

Moody's downgrades CFR of PUG LLC (Viagogo) to B3; outlook negative

19 Aug 2020

New York, August 19, 2020 -- Moody's Investors Service, ("Moody's") downgraded the Corporate Family Rating (CFR) of PUG LLC (Viagogo) to B3 from B2. The downgrade reflects Moody's expectation that Viagogo will report lower than previously expected revenue declines for 2020 combined with continuing uncertainty regarding timing for a meaningful rebound in demand for live events and secondary tickets due to the coronavirus outbreak and restrictions on large gatherings globally. The outlook is negative.

A summary of today's action follows:

..Issuer: PUG LLC (Viagogo)

.... Corporate Family Rating, Downgraded to B3 from B2

.... Probability of Default Rating, Downgraded to B3-PD from B2-PD

....Senior Secured 1st lien Bank Credit Facility (USD), Downgraded to B3 (LGD4) from B2 (LGD4)

....Senior Secured 1st lien Bank Credit Facility (Euro), Downgraded to B3 (LGD4) from B2 (LGD4)

Outlook Actions:

..Issuer: PUG LLC (Viagogo)

....Outlook, Negative

RATINGS RATIONALE

Despite Viagogo's asset-lite business model, revenues remain dependent on the timing and number of live events globally as well as attendance at venues which is expected to remain below historical capacity based on social distancing mandates and consumer sentiment. Accordingly, debt ratings continue to be pressured by cancellations and postponement of live events globally (e.g. sports, concerts, and theater). Moody's projects Viagogo's secondary ticket sales revenue will remain well below 2019 levels over the next several months followed by a gradual recovery around mid-2021; however, there are further downside risks in the event demand for live events remains depressed beyond mid-2021 in a scenario in which COVID-19 is not contained.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. Moody's regards the coronavirus outbreak as a social risk under Moody's ESG framework, due to the substantial implications for public health and safety. Given Viagogo's reliance on live events and secondary ticket sales which have been significantly affected by restrictions on crowd gatherings and given the company's exposure to the global economy and consumer spending, Viagogo remains vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.

Viagogo's B3 CFR incorporates adequate liquidity, supported by the company's cash balances (over $400 million) plus up to 35% of availability under the company's $125 million of revolver (usage exceeding 35% subjects the company to a 5.70x first lien leverage test). Viagogo has completed a substantial portion of its cost reduction plans with insignificant amounts expected to be paid for remaining restructuring and severance costs. Given a reduced monthly burn rate, cash balances provide Viagogo the ability to operate with only nominal amounts of revenue for over 12 months. Moody's base case projections include revenues growing gradually in the first half of 2021 as a greater number of live events get scheduled across the globe next year. Tickets sales occur a few months in advance of events which typically generates cash inflows and positive working capital.

Moody's expects a gradual return to cash flow growth given a portion of live events in 2021 will represent postponed events for which tickets have already been sold, although incremental secondary ticket selling is likely to occur. Given the time needed to ramp revenues in 2021 to approach historical levels, particularly as permitted attendance will be kept below venue capacity to allow social distancing and consumers remain cautious about large social gatherings, Moody's expects revenues in 2021 will remain well below 2019 levels.

Over 60% of Viagogo's operating costs, including sales and marketing, is variable and tied to revenue and transaction volume. As demand for secondary tickets declined in the past few months, the company incurred reduced performance marketing spend (customer acquisition costs, lower bid pricing), reduced spending on offline marketing including brand promotion, and deferred product development costs to reduce its monthly cash burn rate and preserve liquidity.

Notwithstanding the impact of COVID-19, Viagogo's credit profile benefits from its large scale with leading market positions in most major global regions including North America and asset-lite business model. Financial metrics are supported by historically attractive adjusted EBITDA margins, typically positive working capital cash flows, and minimal capex leading to good conversion of EBITDA to free cash flow. Moody's believes these benefits support Viagogo's ability to exceed historical margins and free cash flow generation when live events and secondary tickets sales eventually approach 2019 levels. Given the significant equity investment in the company by its investors less than one year ago, there is the potential for sponsor support in the event the outbreak is prolonged and further liquidity is needed.

Viagogo's adequate liquidity is supported by more than $400 million of unrestricted cash balances, working capital inflows from upfront cash receipts in advance of reimbursements to ticket sellers, minimal capital expenditures, and 35% availability under the $125 million revolving credit facility due 2025. Given the springing covenant in the revolver, Moody's assumes the remaining portion of the revolver will be unavailable over the next few quarters. Payments due to ticket sellers totaling $170 million is expected to be stable through 1Q2021, with the roll-off of historical payments due to sellers expected to be largely offset by cash inflows from new receipts. The company indicates that remaining severance and other restructuring costs are not significant.

The ticketing industry faces regulatory scrutiny and the potential for legislation that could adversely impact Viagogo's business model. Social risks include concerns regarding ticket prices in the secondary market both in the U.S. and abroad. There is also the potential for changes in consumer practices or regulations that could reduce profitability or require greater disclosures for the sector evidenced by prior regulatory actions taken against secondary ticket providers, including StubHub, Ticketmaster, and Viagogo. Concentrated voting control, lack of public financial disclosure, and the absence of board independence are also incorporated in Viagogo's B3 CFR. Moody's treats the preferred shares as equity; however, initial investors in the preferred shares have the right to request that Viagogo conduct a sale process if an IPO or public listing of common stock has not occurred within 8 years of the February 2020 acquisition.

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

The negative outlook for Viagogo is driven primarily by significant uncertainty regarding the depth and duration of the current decline in global demand for live events and secondary tickets. The lack of visibility regarding timing for a meaningful increase in live events and attendance levels is exacerbated by restrictions on group gatherings and is dependent on when local authorities globally will allow group gatherings. Furthermore, consumers may be reluctant to attend large events without a vaccine widely available. Viagogo should be able to manage cash outflows as the company has significantly reduced discretionary expenses including performance marketing, branding, and product development. The outlook does not include changes to regulations or consumer practices in major regions that could have a negative impact on secondary ticket sales. To the extent revenue growth tracks below Moody's revised base case projections, or a gradual recovery in demand by mid-2021 is not considered likely, there could be additional downward pressure on ratings.

Given the pressure on the business and live entertainment industry, an upgrade is unlikely over the near term. Beyond 2020, ratings could be upgraded if Moody's is assured demand for live events and secondary tickets is recovering meaningfully. Viagogo would also need to execute its operating strategy and produce consistent top line growth such that adjusted debt to EBITDA approaches 6x without addbacks. Viagogo would also need to maintain good liquidity (net of payments due to ticket sellers) with adjusted EBITDA margins approaching 25%. Ratings could be downgraded if the impact of COVID-19 is not contained leading Moody's to expect a gradual recovery in demand will occur after mid-2021 or if the liquidity cushion significantly erodes. Beyond 2021, there would also be downward rating pressure if adjusted EBITDA margins deteriorate, or if regulatory actions or developments in the competitive landscape adversely affect Viagogo's profitability or market share.

Viagogo provides an online marketplace for secondary tickets along with payment support, logistics, and customer service. With the acquisition of StubHub, the combined company is a leading ticket marketplace globally. Viagogo is majority owned by Madrone Capital Partners, Bessemer Venture Partners, and Eric Baker, CEO and founder, with Mr. Baker holding majority voting control.

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.

Carl Salas
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

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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