Approximately $1.45 billion of rated debt instruments affected
Toronto, April 14, 2011 -- Moody's Investors Service (Moody's) downgraded Live Nation Entertainment,
Inc.'s (Live Nation) corporate family and probability of default
ratings by one notch to B1 from Ba3 as a result of recent results showing
greater susceptibility to recessionary forces than had previously been
anticipated, and as it appears that the business environment will
not soon improve by enough to facilitate improved business activity levels
that would, in turn, cause credit metrics to materially improve
from current lackluster measures. While our assessment of Live
Nation's expected loss prospects as represented by the CFR has deteriorated,
prospects for the company's senior secured bank credit facilities
remain in a range that allows their Ba2 ratings to be maintained.
However, with aggregate prospects downgraded (the CFR) and the senior
secured rating unchanged, expected loss prospects for unsecured
notes deteriorate significantly, resulting in a two notch downgrade
to B3 from B1.
Live Nation's liquidity arrangements also affect the ratings assessment.
With financial covenant compliance thresholds set to become more stringent
in mid 2012, unless EBITDA rebounds, the company's compliance
cushion will erode from current comfortable levels. Live Nation
has the ability to apply some its cash towards debt repayment should it
become necessary to alleviate compliance pressure, however,
this would not address underlying EBITDA weakness. These matters
have caused us to downgrade the company's speculative grade liquidity
rating to SGL-2 (good) from SGL-1 (very good). Should
liquidity continue to deteriorate as the covenant step-down approaches,
it may be necessary to reposition the SGL rating again. Despite
this, the rating outlook is stable as we believe performance will
recover somewhat from the current trough with no further rating actions
The following summarizes actions and current ratings:
Issuer: Live Nation Entertainment, Inc.:
Corporate Family Rating: Downgraded to B1 from Ba3
Probability of Default Rating: Downgraded to B1 from Ba3
Guaranteed Senior Secured Credit Facility Rating: Unchanged at Ba2
Guaranteed Senior Unsecured Notes: Downgraded to B3 (LGD5,
78%) from B1 (LGD5, 77%)
Speculative Grade Liquidity Rating: Downgraded to SGL-2 from
Outlook: Unchanged at Stable
Live Nation's B1 corporate family and probability of default ratings
(CFR and PDR respectively) are influenced primarily by elevated leverage,
limited free cash generation, stalled organic growth, and
ongoing acquisition activity. We anticipate 2011 and 2012 Debt-to-EBITDA
leverage to improve somewhat from current mid 6x measures (all stated
credit metrics incorporate Moody's standard adjustments),
but expect little in the way of excess cash flow that can be applied to
reduce debt. As well, recent acquisition activity suggests
that management plans to de-lever through EBITDA growth rather
than debt reduction. Given relatively high purchase multiples and
the industry's historically thin margins, this strategy requires
considerable time to come to fruition. The rating is supported
by Live Nation's leading position in the live entertainment industry
with a multi-faceted revenue stream derived from ticketing,
venue operation, concert promotion (based on a significant roster
of well-recognized performing artists), and artist management
(through a controlling interest in Front Line Management Group,
Inc.). The company's good liquidity position,
evidenced by its SGL-2 speculative grade liquidity rating,
is also credit positive, albeit recent deterioration is negative
and potential covenant compliance matters suggest that caution is warranted.
The outlook is stable. While we anticipate seasonal fluctuations
and co-variability with general economic trends, we expect
credit metrics to be relatively stable over the rating horizon.
What Could Change the Rating - Up
Positive ratings/outlook actions may be contemplated as total adjusted
debt to EBITDA trends towards the mid 5x range and free cash flow to debt
expands beyond 5%.
What Could Change the Rating - Down
Downwards rating pressure could develop if leverage deteriorates into
the high 6x range with free cash flow to debt remaining at or below the
approximately 5% range.
The principal methodology used in rating Live Nation Entertainment was
Global Business & Consumer Service Industry Rating Methodology published
October 2010. Other methodologies used include Probability of Default
Ratings and Loss Given Default Assessments published in June 2009 and
Speculative Grade Liquidity Ratings published in September 2002.
Live Nation, headquartered in Beverly Hills, California,
operates a leading live entertainment ticketing and marketing company,
owns, operates and/or exclusively books live entertainment venues
in the U.S. and Europe, and owns the rights to several
globally recognized performing artists under contracts of varying scope
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Canada Inc.
Moody's Canada Inc.
Moody's downgrades Live Nation's CFR to B1; outlook stable
70 York Street
Toronto, ON M5J 1S9