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Announcement:

Moody's says Metro-Goldwyn-Mayer Inc.'s Joint Venture Buyout and New TV Operations Leadership is Credit Positive

17 Dec 2015

New York, December 17, 2015 -- Metro-Goldwyn-Mayer Inc.'s ("MGM") acquisition of the remaining 45% share of United Artists Media Group (UAMG) and announcement that Mark Burnett will be the President of MGM Television and Digital Group is a positive development for the company's credit, but will not impact the credit rating or outlook. MGM's Ba2 Corporate Family rating (CFR), Ba2-PD Probability of Default rating, Ba3 2nd lien term loan rating and stable outlook are unchanged.

The joint venture buyout follows MGM's acquisition of 55% ownership stake in September 2014. In the joint venture 45% buyout, Mark Burnett and Roma Downey will exchange their interest in UAMG for 1.3 million shares of MGM stock valued at $90 per share or about $120 million. Hearst will receive approximately $114 million in cash for their stake. Mark Burnett will become President of MGM Television and Digital, where he will bring an impressive track record of content development -- in particular unscripted television, and report directly to Gary Barber, MGM's CEO. We believe that Burnett's acceptance is beneficial not just because the stake is being acquired with equity, but also because it aligns his interests better with the company's. The company pursued the transaction to drive greater efficiencies and revenue growth opportunities during a period of great demand for both linear and non-linear platform content.

We expect that MGM will execute the transaction with some of its cash on hand, which stood at $286 million at 09/30/2015, and will continue to maintain robust liquidity supported by remaining cash on hand, strong near-term free cash flow particularly from Spectre box office receipts and window output revenues, as well as library and other film revenue. In addition, the company's $665 million revolver is expected to remain undrawn. While the acquisition has no impact on MGM's current (as of 9/30/15) leverage ratio of around 0.9X Debt to EBITDA GAAP leverage or 1.8x (incorporating Moody's standard adjustments and accounting for film costs on a cash basis), we believe that the deal will be cash flow and EBITDA accretive and UAMG will now be consolidated with MGM's results. UAMG has generated better than expected EBITDA over the last twelve months.

The acquisition marks an advance in the company's efforts to further diversify its revenue and cash flow streams beyond the volatile film production sector. More broadly, we view the development as a prudent use of cash for driving future long-term growth, and is favorable from a debt holder perspective than the use of cash solely for shareholder distributions. From a fundamental business perspective, we think the investment is positive as MGM Television will be led by the creator and producer of some of the most well-known and successful reality shows on television. Mark Burnett is the mastermind behind iconic shows such as Survivor, The Voice, Shark Tank, and The Apprentice, and Roma Downey is known for producing popular faith-based and educational shows such as The Bible series. While the deal will allow UAMG to better take advantage of MGM's significant vault of television shows and films, it also represents an opportunity for MGM to boost its earnings by providing the distribution for new premium content across various platforms and also broaden its presence in the religious media niche.

Metro-Goldwyn-Mayer Inc., based in Beverly Hills, California, produces and distributes motion pictures, television programming, home videos, interactive media, music, and licensed merchandise. It owns a library of films and television programs and holds ownership interests in domestic and international television channels. Revenue for LTM 9/30/2015 were approximately $1.41 billion.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Neil Begley
Senior Vice President
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 says Metro-Goldwyn-Mayer Inc.'s Joint Venture Buyout and New TV Operations Leadership is Credit Positive
No Related Data.
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