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Announcement:

Moody's says Nine Entertainment's announcement to acquire Mi9 is mildly credit positive; Rating unaffected

Global Credit Research - 15 Oct 2013

Sydney, October 15, 2013 -- Moody's Investors Service says that Nine Entertainment Co Holdings Limited's (NEC) announcement that it will acquire 100% of Mi9 is mildly credit positive but has no immediate impact on its Ba2/stable rating.

NEC, which currently owns 50% of Mi9 in a Joint Venture with Microsoft Corporation (Aaa/Stable), has announced an agreement to acquire Mi9 fully - effective 1st November 2013. Mi9 is an online entertainment portal focused on digital media and advertising.

NEC intends to use its cash resources to fund the purchase price. According to NEC, the main motive underlying the decision is to enhance and take control of its digital business.

"Overall, we consider this transaction to be mildly positive for NEC, as it gives it more control of its profitable digital business," says Maurice O'Connell, a Moody's Vice President and Senior Analysts. The transaction has limited impact on financial metrics, with the ratio of adjusted Debt/ EBITDA expected to be around 3.4x in FY2014. This level of leverage remains within the tolerance level for the rating of 4.25x. "However, NEC has made a number of bolt-on transactions in the last 12 months, and any material debt-funded acquisitions, could exert negative pressure on the rating, " added O'Connell.

NEC's Ba2 rating reflects its strong operating profile combined with a sound conservative financial profile. The company's strong operating profile is driven by its national scale operations which provide it with a good ability to withstand and absorb localised weak operating conditions or sporadic market disruptions, across its entire network.

At the same time NEC has a solid track record of strong audience and revenue share as well as a good degree of diversification across different advertising channels. Nevertheless NEC faces strong competition from other Free to Air networks which could impact on margins depending on the success of future content. We expect growth in advertising revenue over the next 1-2 years to be slow and gradual.

NEC exhibits a sound financial profile, appropriate for a potentially volatile earnings platform. Preparedness to engage in debt fund acquisitions, albeit with sound commercial rationale, weakens the credit profile which was premised on a stable business profile.

Finally, the rating also considers a degree of uncertainty around the future capital structure due to the complex shareholder structure and the potential for the capital structure to change following a possible IPO in the near term.

The stable rating outlook reflects the solid liquidity and our expectation that NEC will continue its focus on maintaining prudent financial leverage to cushion any adverse industry developments.

Ratings could be downgraded if debt-to-EBITDA ratios are sustained above 4.25x (including Moody's standard adjustments) which could be due to operating weakness, acquisitions or cash distributions to shareholders. Failure to maintain good liquidity including a comfortable cushion to financial covenants to absorb a cyclical downturn in revenue could also result in a downgrade.

Ratings could be upgraded if the company will operate in a financially prudent manner consistent with a higher rating, including maintaining debt-to-EBITDA ratio below 2.5x, and free cash flow-to-debt ratio in the low double digit range or above on a consistent basis.

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

Maurice O'Connell
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Pty. Ltd.
Level 10
1 O'Connell Street
Sydney NSW 2000
Australia
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100

Terry Fanous
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100

Releasing Office:
Moody's Investors Service Pty. Ltd.
Level 10
1 O'Connell Street
Sydney NSW 2000
Australia
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100

Moody's says Nine Entertainment's announcement to acquire Mi9 is mildly credit positive; Rating unaffected
No Related Data.

 

© 2014 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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