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Rating Action:

Moody's downgrades Imagina (Joye Media) to B3 from B1; ratings on review for further downgrade

27 Apr 2020

Madrid, April 27, 2020 -- Moody's Investors Service, ("Moody's") has today downgraded to B3 from B1 the corporate family rating (CFR) and to B3-PD from B1-PD the probability of default rating (PDR) of Joye Media S.L. ("Joye"), the parent entity above the restricted group that owns Imagina Media Audiovisual, S.L. ("Imagina"), a leading global integrated international sports, media and entertainment group. Concurrently, Moody's has downgraded to B2 from Ba3 the ratings of the €300 million senior secured first lien term loan (TLA -- due in 2024), the €380 million amortizing senior secured term loan (TLB -- due in 2025) and the €60 million senior secured revolving credit facility (RCF -- due in 2024) issued by Invictus Media S.L.U. ("Invictus") and Imagina. Moody's has also downgraded to Caa2 from B3 the €180 million senior secured second lien facility issued by Invictus and Imagina (due in 2025). The outlook was changed to ratings under review from stable for all entities.

"The downgrade to B3 reflects the company's weaker than expected operating performance in 2019, our expectation of a material contraction in the company's revenues and profits in 2020 on the back of the coronavirus outbreak, and the resulting deterioration in credit metrics and liquidity," says Víctor García Capdevila, a Moody's AVP-Analyst and lead analyst for Joye.

"The ratings remain on review for further downgrade due to the fragile liquidity profile of the company. The rating could be downgraded after the review process if the company fails to improve its liquidity in light of upcoming cash needs in the next months," adds Mr García.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented.

Joye's main business division, sports rights management, has been affected by the suspension and cancellation of sports events across the world, and in particular, the Spanish La Liga, due to the coronavirus outbreak. The other major business segments such as audiovisual services and Mediapro studio, focused on the creation, design and production of entertainment content, have also been negatively affected by the social distancing measures and the lockdowns imposed in most of the countries where the company operates.

Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety. Today's action reflect the impact on Joye of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

Joye's performance in 2019 was weaker than expected. The company's reported normalized EBITDA in 2019 was €224 million, about €40 million or 15%, below Moody's expectations. Its EBITA margin dropped to 3.9% in 2019 from 6.8% in 2018. The main drivers of this underperformance were: (1) higher investments in international rights, mainly in Canada and Chile; (2) the deterioration in its free-to-air channel, Gol TV, owing to a material fall in advertising revenue; and (3) timing differences due to some free-to-air broadcasters requesting delays in the delivery of content to 2020 due to weaker TV ad spending in the second half of 2019. In addition, the company suffered a €306 million working capital outflow, including the €221 million payment to its JV partner BeIn Sports, that translated into material negative free cash flow generation of €-234 million. This led to a deterioration in credit metrics, with Moody's adjusted gross leverage increasing to 4.6x in 2019 from 3.7x in 2018, and interest coverage, measured as EBITA/interest, reducing to 1.4x in 2019 from 2.6x in 2018.

Moody's anticipates a significant operational disruption in 2020 due to the coronavirus outbreak. The rating agency estimates that EBITDA could drop between 25% to 50% in 2020 depending on whether the Spanish football league is resumed at the end of June or, on the contrary, the remainder of the 2019/2020 season is cancelled.

The company's liquidity profile is very tight. Moody's estimates that as of the end of March 2020, Joye had a cash balance of around €200 million. Its €60 million revolving credit facility is fully drawn. The company faces a number of sizeable cash outflows in 2020, including (1) €48 million of debt amortization, split between Q2 2020 and Q4 2020; (2) a negative change in working capital of around €35 million; (3) capital expenditures between €50 million - €60 million; and (4) other cash outflows of around €5 million. Furthermore, the company needs to start making sizeable payments in the summer related to the French League 1 football rights. This, together with Moody's expectation of a negative free cash flow generation between €30 million -€35 million leads to a very fragile liquidity profile that is vulnerable to unexpected cash outflows and the possibility of a more prolonged period of coronavirus-related operational disruption that currently anticipated.

In addition, Moody's expects the company to breach the maintenance leverage covenant of its term loan facilities in June/September 2020, as the covenant tightens overtime.

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

The ratings are on review for further downgrade. The review process will focus on the measures that the company may take to alleviate its near-term liquidity pressures, the degree to which the spread of the coronavirus across its key countries of operation will affect the company's operating and financial performance in 2020 as well as the shape of the recovery in 2021. Moody's expects to conclude the review within the next three months.

STRUCTURAL CONSIDERATIONS

Joye's probability of default rating of B3-PD reflects the expected recovery rate of 50% typically assumed by Moody's for a capital structure that consists of secured first-lien and second-lien facilities with financial covenants. The B2 rated €300 million TLA and the €380 million term loan B are ranked highest in priority of claims pari passu with the €60 million RCF. The loans are secured against share pledges and benefit from guarantees from subsidiaries accounting for 80% of group EBITDA.

The lowest ranking debt instrument in the liability waterfall is the €180 million second lien term loan (rated Caa2), which provides buffer to the B2-rated debt in the capital structure.

LIST OF AFFECTED RATINGS

..Issuer: Joye Media S.L.

Downgraded and Placed On Review For Further Downgrade:

....Probability of Default Rating, Downgraded to B3-PD from B1-PD

....Corporate Family Rating, Downgraded to B3 from B1

Outlook Action:

....Outlook, Changed To Ratings Under Review From Stable

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

Downgraded and Placed On Review For Further Downgrade:

....Backed Senior Secured Bank Credit Facility, Downgraded to B2 from Ba3

Outlook Action:

....Outlook, Changed To Ratings Under Review From Stable

..Issuer: Invictus Media S.L.U.

Downgraded and Placed On Review For Further Downgrade:

....Backed Senior Secured Bank Credit Facility, Downgraded to B2 from Ba3

....Backed Senior Secured Bank Credit Facility, Downgraded to Caa2 from B3

Outlook Action:

....Outlook, Changed To Ratings Under Review From Stable

PRINCIPAL METHODOLOGY

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.

COMPANY PROFILE

Joye Media S.L. (Joye) is the ultimate holding company of Imagina Media Audiovisual, S.L. (Imagina), a leading integrated international media group with operations in sports rights management, audiovisual services and content production. It is present in more than 150 countries and employs more than 6,600 people. In 2019, Joye reported revenue and normalized EBITDA of €1.8 billion and €224 million, respectively.

Joye is majority owned (53.5%) by Kunshan Techonology Investment (HK) Limited, an entity controlled by the Chinese private equity group Orient Hontai Capital.

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.

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.

Victor Garcia, CFA
AVP-Analyst
Corporate Finance Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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 Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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