Approximately $3.7 billion of debt rated
Toronto, March 19, 2020 -- Moody's Investors Service (Moody's) downgraded Live Nation Entertainment,
Inc.'s (Live Nation) corporate family rating (CFR) to Ba3 from
Ba2, probability of default rating to Ba3-PD from Ba2-PD,
senior secured credit facilities ratings to Ba2 from Ba1, and senior
unsecured notes ratings to B1 from Ba3, and changed the outlook
to negative from stable. The speculative grade liquidity rating
was maintained at SGL-1.
"The downgrade reflects expectations that the postponements or cancellations
of live events associated with the spread of the coronavirus will materially
weaken Live Nation's financial results and credit metrics in 2020",
said Peter Adu, Moody's Vice President and Senior Analyst.
"The negative outlook signals the potential for further rating changes
if the coronavirus outbreak impacts demand for live entertainment in the
busy summer months and onwards", Adu added.
Ratings Downgraded:
Corporate Family Rating, to Ba3 from Ba2
Probability of Default Rating, to Ba3-PD from Ba2-PD
$300M Senior Secured Revolving Credit Facility due 2024,
to Ba2 (LGD2) from Ba1 (LGD2)
$100M Senior Secured Revolving Credit Facility due 2024,
to Ba2 (LGD2) from Ba1 (LGD2)
$100M Senior Secured Multi Currency Revolving Credit Facility due
2024, to Ba2 (LGD2) from Ba1 (LGD2)
$400M Senior Secured Delayed Draw Term Loan A due 2024, to
Ba2 (LGD2) from Ba1 (LGD2)
$950M Senior Secured Term Loan B due 2026, to Ba2 (LGD2)
from Ba1 (LGD2)
$575M Senior Unsecured Notes due 2024, to B1 (LGD4) from
Ba3 (LGD4)
$300M Senior Unsecured Notes due 2026, to B1 (LGD4) from
Ba3 (LGD4)
$950M Senior Unsecured Notes due 2027, to B1 (LGD4) from
Ba3 (LGD4)
Rating Unchanged:
Speculative Grade Liquidity Rating, SGL-1
Outlook Action:
Outlook, Changed to Negative from Stable
RATINGS RATIONALE
Live Nation's Ba3 CFR benefits from: (1) good market position,
enhanced by established relationships with performing artists which create
substantial entry barriers; (2) predictable cash flow due to its
established platform for concert promotions and ticketing; (3) very
good liquidity; and (4) good growth prospects especially in emerging
markets, where there is growing consumption of live events as middle
class incomes rise. The rating is constrained by: (1) potential
significant negative impact of the coronavirus outbreak on its profitability;
(2) a lack of publicly articulated capital structure target and risks
that its acquisition growth strategy will elevate leverage periodically;
(3) expectations that leverage will be sustained towards 5x (4.1x
for 2019 pro forma for recent acquisitions and convertible notes issuance)
through the next 12 to 18 months; and (4) event risks, such
as new ticketing competitors and regulatory changes addressing the company's
substantial market position or mandated consumer protection initiatives.
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. The live entertainment
sector has been one of the sectors most significantly affected by the
shock given its sensitivity to consumer demand and sentiment. Live
Nation remains vulnerable to the outbreak continuing to spread.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Today's action reflects the impact on Live Nation of the breadth
and severity of the shock, and the broad deterioration in credit
quality it has triggered.
Live Nation's social risk is elevated. The coronavirus is expected
to materially impact operations in the live entertainment sector and in
turn Live Nation's earnings, given the company's sensitivity to
consumer discretionary incomes. The company will become more vulnerable
if the outbreak continues to spread into the summer months. The
company's market position attracts periodic adverse publicity related
to both consumer protection and anti-competitive behavior.
Some consumer protection issues arise from situations in which professional
resellers use their competitive advantage to access large quantities of
tickets, and individual consumers get priced out of the market.
These lead to periodic calls for regulatory intervention and although
the company has not been sanctioned, credit concerns exist.
Live Nation's governance risk is elevated. The company has a growth-by-acquisition
strategy, which is not supported with a publicly disclosed leverage
target. This creates uncertainty as to the extent to which leverage
will rise with future acquisitions.
Live Nation has very good liquidity (SGL-1). Sources approximate
$2.4 billion while it has $10 million of mandatory
term loan repayments in the next 12 months. Liquidity is supported
by cash of about $2 billion (including $400 million proceeds
from recent convertible notes issue but net of $838 million in
ticketing client cash), expected breakeven to positive free cash
flow in the next 12 months, and $416 million of availability
under its $500 million multi revolving credit facility that matures
in October 2024 (none drawn but there is $84 million of letters
of credit outstanding). The company's revolver is subject to a
net leverage covenant and cushion is expected to exceed 30% through
the next four quarters. Live Nation has limited ability to generate
liquidity from asset sales.
The negative outlook reflects expectations that a further rating downgrade
will occur if the impact of the spread of the coronavirus is more severe
than now anticipated and significantly pressures demand for live entertainment
beyond June 2020.
For an upgrade to be considered, the company must continue to demonstrate
stable operating performance and maintain very good liquidity while sustaining
Debt/EBITDA below 4x (pro forma 4.1x for 2019) and FCF/Debt above
10% (pro forma 4% for 2019). The ratings could be
downgraded if business fundamentals weaken as a result of the coronavirus
outbreak, evidenced by material revenue and EBITDA declines or if
Debt/EBITDA is sustained above 5x (pro forma 4.1x for 2019) and
FCF/Debt below 0% (pro forma 4% 2019). Weak liquidity,
likely due to an expectation of negative free cash flow for a protracted
period could also cause a downgrade.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Live Nation Entertainment, Inc., headquartered in Beverly
Hills, California, operates a leading live entertainment ticketing
and marketing company (Ticketmaster), and owns, operates and/or
exclusively books venues and promotes live entertainment with operations
in North America, Europe, Asia and South America. Revenue
for the year ended December 31, 2019 was $11.5 billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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rating assigned, and in relation to a definitive rating that may
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Peter Adu, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
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70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653