S&P rates EMI convertible BBB-, cuts outlook to negative

Standard & Poor's revised the outlook on U.K.-based music producer and distributor EMI Group plc and related entities to negative from stable following a review of its credit quality in light of the continued evolution of the global recorded music market.

At the same time, S&P affirmed all its ratings on EMI.

In addition, related entity EMI Group Finance (Jersey) Ltd.'s $243 million 5.25% convertible notes due 2010 (guaranteed by EMI Group plc and Capitol Records Inc.) were assigned a BBB- senior unsecured debt rating, subject to Standard & Poor's review of final documentation.

At March 31, EMI had gross debt of £960 million ($1.6 billion). EMI's relatively narrow business profile compared with integrated media rivals increases risks to the group's business.

Despite progress with restructuring, challenging market conditions imply that the group's credit ratios are likely to remain below investment-grade medians over the next few years.

"Sustained recovery of EMI's ratios back into investment-grade territory depends upon the success of industry-wide initiatives to combat piracy, a recovery in consumer spending, maintained improvements in the group's operating margin, and the group's recovery of lost market share," said Standard & Poor's credit analyst Trevor Pritchard. "EMI must also maintain strict financial discipline regarding shareholder distributions in order to make meaningful inroads on its financial debt."

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