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Rating Action:

Moody's downgrades IAC/InterActiveCorp to Ba2, rates new Match term loan Ba2 and sr unsec exchange notes Ba3; outlook stable

19 Oct 2015

Approximately $1.3 billion of new debt rated and $1.0 billion of existing debt impacted

New York, October 19, 2015 -- Moody's Investors Service has downgraded IAC/InterActiveCorp's ("IAC" or the "company") Corporate Family Rating (CFR) to Ba2 from Ba1, Probability of Default Rating (PDR) to Ba2-PD from Ba1-PD and existing senior unsecured notes to Ba2 from Ba1. In connection with this rating action, Moody's assigned a Ba2 rating to the proposed $800 million senior secured term loan B and Ba3 rating to the new $500 million 6.75% senior unsecured exchange notes, both to be issued by Match Group, Inc. ("Match"), currently a wholly-owned subsidiary that comprises IAC's online dating businesses. The Speculative Grade Liquidity Rating was affirmed at SGL-1. The rating outlook is stable.

IAC announced an offer to exchange up to $500 million of the existing 4.75% notes due 2022 for a like amount of new Match notes. In the event less than 80% of the 4.75% notes are exchanged and to facilitate retirement of at least $400 million of its existing debt, IAC has also offered to tender a portion of the 4.875% notes due 2018. In addition, Match has raised a new unrated $500 million revolving credit facility (RCF) maturing 2020. The new debt obligations are designed to capitalize Match in connection with IAC's plan to pursue an initial public offering (IPO) of up to 20% of its Match ownership. Proceeds from the debt issuance and IPO will be used to retire intercompany debt and pay special dividends to IAC.

A summary of today's rating actions follows:

Ratings Assigned:

..Issuer: Match Group, Inc.

$800 Million Senior Secured Term Loan B -- Ba2 (LGD-4)

$500 Million 6.75% Senior Unsecured Exchange Notes due 2022 -- Ba3 (LGD-4)

Ratings Downgraded:

..Issuer: IAC/InterActiveCorp

Corporate Family Rating to Ba2 from Ba1

Probability of Default Rating to Ba2-PD from Ba1-PD

$500 Million 4.875% Senior Unsecured Notes due 2018 to Ba2 (LGD-4) from Ba1 (LGD-4)

$500 Million 4.750% Senior Unsecured Notes due 2022 to Ba2 (LGD-4) from Ba1 (LGD-4)

Rating Affirmed:

..Issuer: IAC/InterActiveCorp

Speculative Grade Liquidity Rating -- SGL-1

The assigned ratings are subject to: (i) review of final documentation and no material change in the size, terms and conditions of the transaction as advised to Moody's; and (ii) successful completion of the Match IPO. Moreover, ratings could be negatively impacted if the Match IPO is unsuccessful or cancelled. To the extent the exchange results in the full retirement or a small residual stub of the 4.75% notes, Moody's will withdraw the rating on those notes.

RATINGS RATIONALE

The revision of the CFR to Ba2 reflects IAC's increased financial leverage notwithstanding the additive earnings from the pending PlentyofFish ("POF") acquisition. Pro forma for the debt raise and POF's LTM EBITDA contribution, IAC's leverage, as measured by total debt to EBITDA, rises to 3.9x (4.3x excluding POF) from 2.8x on a Moody's adjusted basis (as of June 30, 2015). Nonetheless, we project EBITDA growth to gradually reduce leverage to around 3.5x by the end of 2016 and migrate to the 3x-3.25x area by mid-2017. The downgrade also embeds the risk that IAC could divest its remaining Match shares after the IPO, which would dramatically alter the business and margin profile of the remaining company.

The downgrade of IAC's 2018 and 2022 notes (the "IAC notes") to Ba2 reflects the CFR downgrade. The IAC notes are structurally subordinated to the debt at Match since they will no longer benefit from a Match guarantee following its reclassification as an unrestricted subsidiary. The IAC notes, however, still benefit from upstream guarantees from IAC's remaining material domestic subsidiaries.

IAC will not guarantee the debt of Match. Moody's derives Match's debt ratings from IAC's CFR using the LGD Methodology based on our expectation of IAC's continued majority ownership of Match post-IPO. However, if Match were to become a standalone entity or less than majority-owned by IAC, Match's ratings would be de-linked from IAC's CFR and based on its standalone creditworthiness. Match's term loan is rated Ba2 as it is secured by capital stock of Match's material domestic subsidiaries and benefits from upstream guarantees. Nevertheless, it would likely experience a deficiency claim in a distressed scenario given that we estimate the asset value at Match would be insufficient to fully repay the credit facilities, which caps the term loan rating at the CFR. Match's unsecured notes are rated Ba3 as they do not benefit from upstream guarantees or a security interest in collateral.

The Ba2 CFR is supported by IAC's position as one of the largest global Internet and digital media companies with online properties that have established brand names and reasonably long operating histories. The Ba2 rating recognizes IAC's good operating performance driven by a business model which has historically demonstrated respectable online audience reach via search engine analytics, marketing and display advertising, and good traffic monetization in the Search & Applications segment; solid subscriber growth trends in the online dating segment; a disciplined acquisition/investment strategy; and rationalization of underperforming portfolio assets. We expect annual free cash flow in the range of $200 - $300 million (after dividends) and financial leverage in the 3x-4x range (Moody's adjusted). We believe IAC will maintain very good liquidity (SGL-1) supported by a sizable cash position and revolving credit facilities totaling $800 million, which provide flexibility to pursue strategic growth objectives.

The Ba2 rating also incorporates the inherent risk that Internet businesses could experience a potential decline in website traffic due to rapidly changing technology and industry standards. Alternative means of content delivery as well as shifts in consumer engagement may also contribute to the risk of rapid obsolescence or waning relevance of traditional portal Internet sites. The rating is constrained by IAC's dependence on the partnership with Google and potential changes to Google's search algorithms that could hurt IAC's listings placements. It also reflects the concentrated earnings profile and sizeable exposure to digital advertising revenue, which could become more cyclical. IAC's historically aggressive financial policies combined with the large voting stake of Mr. Barry Diller heightens event risk.

Rating Outlook

The stable rating outlook reflects our expectations that IAC will continue to maintain or potentially grow its market position in the Search & Applications and Match segments, and experience a reasonable amount of subscriber churn in its Internet portfolio. The stable outlook incorporates expectations for a successful Match IPO and that IAC will continue to maintain a consolidated EBITDA margin of at least 14% (Moody's adjusted), generate positive free cash flow, retain a sizeable cash balance and sustain a somewhat conservative capital structure as it pursues strategic growth objectives.

What Could Change the Rating - Up

IAC's Ba2 rating could be upgraded if the company maintains a majority ownership and leading market share in Match, improves its position in Search & Applications and expands the diversity of its business by increasing the scale and profitability of the eCommerce and Media properties. We could also consider an upgrade to the extent we expect IAC to: (i) demonstrate margin expansion with increasing revenue that is in line or ahead of market growth; (ii) minimize operating losses in the Media segment; and (iii) maintain a net cash position with Moody's adjusted total debt to EBITDA sustained below 3x. An important consideration for an upgrade would be adherence to conservative financial policies with regard to share purchases and dividends.

What Could Change the Rating - Down

Ratings could be downgraded if a spin-off of one or more segments resulted in increased business risk or IAC's competitive position weakens materially as evidenced by revenue declines of 5% or more, adjusted EBITDA margins below 12%, rising traffic acquisition costs or increasing customer churn. Downward pressure could also materialize if financial leverage as measured by Moody's adjusted total debt to EBITDA is sustained over 4x or IAC's liquidity position were to deteriorate significantly due to lower free cash flow generation, higher share purchases or increased acquisition activity. Ratings could also be negatively impacted if the Match IPO is unsuccessful or cancelled.

Moody's subscribers can find additional information in the IAC/InterActiveCorp credit opinion on www.moodys.com.

The principal methodology used in these ratings was the Global Broadcast and Advertising Related Industries published in May 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in New York , N.Y., IAC/InterActiveCorp is a leading media and online company that owns various Internet-based brands and products including: Ask.com (search engine); About.com, Dictionary.com, Investopedia.com (online content and reference libraries), Ask.fm (social) and Apalon (mobile applications); Match Group, Inc. (online dating assets, including Match, Tinder and OkCupid; and non-dating asset, The Princeton Review); HomeAdvisor, ShoeBuy (e-commerce); Vimeo (media); and several other consumer-related applications and portals.

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.

Gregory A. Fraser
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 IAC/InterActiveCorp to Ba2, rates new Match term loan Ba2 and sr unsec exchange notes Ba3; outlook stable
No Related Data.
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