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Rating Action:

Moody's downgrades Getty's CFR to B2 from Ba3; assigns B1 to proposed 1st lien credit facilities and assigns Caa1 to proposed sr unsecured notes

Global Credit Research - 28 Sep 2012

$2.6 billion of new debt rated

New York, September 28, 2012 -- Moody's Investors Service downgraded Getty Images, Inc.'s ("Getty Images") Corporate Family Rating (CFR) two notches to B2 from Ba3 and the Probability of Default Rating (PDR) to B2 from B1. Moody's also assigned B1, LGD3 -- 38% ratings each to the proposed $150 million 1st lien senior secured revolver and $1,900 million 1st lien senior secured term loan as well as a Caa1, LGD6 -- 90% rating to the proposed senior unsecured notes. The new debt instruments are being issued to fund the acquisition of the parent of Getty Images by an affiliate of The Carlyle Group. The downgrades reflect the increased amount of funded debt and related interest expense resulting in higher debt-to-EBITDA leverage and weaker coverage ratios. The rating outlook remains stable.

Downgraded:

..Issuer: Getty Images, Inc. and Abe Investment Holdings, Inc.

.Corporate Family Rating: Downgraded to B2 from Ba3

.Probability of Default Rating: Downgraded to B2 from B1

Assigned:

..Issuer: Getty Images, Inc. and Abe Investment Holdings, Inc.

$150 million 1st Lien Sr Secured Revolver: Assigned B1, LGD3 -- 38%

$1,900 million 1st Lien Sr Secured Term Loan: Assigned B1, LGD3 -- 38%

$550 million Senior Unsecured Notes: Assigned Caa1, LGD6 -- 90%

Outlook Actions:

..Issuer: Getty Images, Inc. and Abe Investment Holdings, Inc.

.Outlook is Stable

To be withdrawn upon closing of the transaction:

..Issuer: Getty Images, Inc.

$100 Million 1st lien sr secured revolver due November 2015: Ba3, LGD3 -- 32%

Incremental $275 million 1st lien sr secured term loan due November 2015: Ba3, LGD3 -- 32%

1st lien sr secured term loan B due November 2016: Ba3, LGD3 -- 32%

RATINGS RATIONALE

Getty Images' B2 corporate family rating reflects very high leverage with debt-to-EBITDA of 6.7x for June 30, 2012 (including Moody's standard adjustments) and pro forma for the pending acquisition by The Carlyle Group ("Carlyle") which increases funded debt balances by more than $850 million and adds more than $60 million to interest expense. Absent tuck-in acquisitions, leverage ratios could improve to less than 6.0x over the rating horizon as free cash flow is applied to reduce debt balances. Although revenue is expected to be flat in FY2012 compared to the prior year, EBITDA is expected to grow in the mid-single digit percentage range reflecting the benefits of recent cost-cutting initiatives. Muted revenue growth for continuing operations reflects the decline in traditional premium stills business being offset largely by growth in the midstock business. Looking forward, Moody's view is that the company will achieve revenue growth in the low single-digit percentage range reflecting increasing demand for midstock imagery products and flat demand for higher end premium products. Ratings incorporate our expectations for a continued economic recovery in the U.S. (the Americas account for 47% of revenues) and very modest growth in Europe (the EMEA regions account for 37% of revenues) accompanied by soft demand for advertising related imagery products in this region. Although there will be a focus on expense reduction and driving greater efficiencies with technology and offshoring, Moody's believes the majority of margin expansion has been achieved as current 38% EBITDA margins resulted from recent cost initiatives and represent significant improvement compared to 32% margins in 2009. Furthermore, Moody's believes future revenue growth will likely require incremental investment in operations to support international expansion and new product development.

We believe event risk is high based on the company's acquisitive nature, ongoing plans to expand internationally, and shareholder-friendly financial policies. Consequently, debt balances could remain elevated. Ratings are supported by Getty Images' leading market position in stock imagery, geographic diversification of its customer base, and stable EBITDA margins. The company's ratings also consider the mature stage of its traditional higher quality premium stills business, the increasing supply of lower priced digital imagery, as well as potential threats from existing and new competitors or technologies. Getty Images is a leader in its field and is strong in the higher end segment with 75% of premium stills content, 50% of iStockphoto content and nearly all of editorial stills content being exclusive (as of June 30, 2012); however, we believe barriers to entry are lower for the price sensitive segments. Increased demand for the company's lower priced imagery products historically offset weakness in the traditional segment; however, there are risks related to the potential for increased competition, especially in the lower end stock imagery segment. Getty Images' video and music businesses provide some revenue diversification away from still photography; however, their combined sales represent less than 11% of total revenues. Accordingly, we believe it is important that Getty Images reduces debt balances to increase financial flexibility to make the necessary investments in its products and services to retain its leading position in photography especially in a scenario of increasing competition in the U.S. and abroad. Liquidity is expected to be good with cash balances of a minimum $15 million to $20 million over the rating horizon plus low to mid-single digit percentage free cash flow-to-debt ratios.

The stable rating outlook reflects our expectation that demand for Getty Images' lower priced imagery products and for its new services will largely offset mature demand for the company's premium imagery business, notwithstanding Moody's view that competition is increasing particularly in the midstock segment. Moody's also believes Getty Images' consolidated revenues will increase modestly over the rating horizon tracking expectations for low to mid single-digit GDP growth through the end of 2013 in the U.S. accompanied by very modest GDP growth in Europe, and that free cash flow will be applied to reduce term loan balances. The stable outlook incorporates our view that debt-to-EBITDA ratios will decrease below current levels providing for more flexibility to fund tuck-in acquisitions with excess cash or short term revolver advances. The outlook does not incorporate sizable debt financed acquisitions or distributions over the rating horizon. We assume liquidity will remain good with improving EBITDA cushion to financial covenants. Ratings could be downgraded if debt-to-EBITDA ratios are not improved from initial levels or if overall performance were to deteriorate due to increased competition or weak demand in one or more key markets resulting in declining revenues, erosion in EBITDA margins, or reduced cushion to financial covenants. Another leveraging event, including sizable debt financed acquisitions, or distributions resulting in debt-to-EBITDA ratios rising above current levels (including Moody's standard adjustments) could lead to a downgrade. Ratings could be considered for an upgrade if debt-to-EBITDA leverage ratios are sustained below 5.0x with free cash flow-to-debt ratios of a minimum 5%. Management would also need to provide assurances that operating and financial policies would be consistent with the higher rating.

The principal methodology used in rating Getty Images was the Broadcast and Advertising Related Industry Methodologies published in May 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Seattle, WA, Getty Images is a leading creator and distributor of still imagery, video and multimedia products, as well as a recognized provider of other forms of premium digital content, including music. The company provides stock images, music, video and other digital content through several web sites, most notably gettyimages.com, istockphoto.com, jupiterimages.com, and thinkstock.com. In August 2012, The Carlyle Group entered into an agreement to acquire a controlling indirect interest in Getty Images in a transaction valued at approximately $3.3 billion (up from the $2.4 billion transaction value of the prior LBO in 2008). The Carlyle Group will own approximately 51% of the company with a trust representing certain Getty family members owning approximately 49%. Revenues totaled $939 million through the 12 months ended June 30, 2012.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

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Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

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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.

Carl Salas
Vice President - Senior Analyst
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 downgrades Getty's CFR to B2 from Ba3; assigns B1 to proposed 1st lien credit facilities and assigns Caa1 to proposed sr unsecured notes
No Related Data.

 

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