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S&P: WMG on watch positive
Standard & Poor's said it placed its ratings on WMG Acquisition Corp., including the company's B+ long-term corporate credit rating, on CreditWatch positive.
Also on watch are WMG Acquisition's B+ senior secured debt rating and B- subordinated debt rating and WMG Holdings' B- senior unsecured rating.
S&P said the CreditWatch listing acknowledges the financial profile improvement that would likely occur from the company's anticipated initial public offering.
The company was acquired from Time Warner Inc. in February 2004 by an investor group comprising Thomas H. Lee Partners, Edgar Bronfman Jr., Bain Capital Partners and Providence Equity Partners.
S&P said it currently believes that the ratings could be raised by one notch to BB-. In such a case, proceeds from an expected equity offering would need to be used to reduce debt and we would expect pro forma leverage to be lowered by between one and two turns from the debt to EBITDA ratio of more than 6x at Dec. 31, 2004.
The company should also show that it can maintain its leverage at a level appropriate for a higher rating, and this would require more clarity about the music industry's prospects for defeating on-line piracy and restoring sustainable revenue growth, according to S&P.
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