Moody’s upgrades WMG, loan, notes

Moody's Investors Service said it upgraded WMG Holdings Corp.'s corporate family rating to B1 from B2, probability of default rating to B1-PD from B2-PD and HoldCo notes to B3 from Caa1, as well as WMG Acquisition Corp.'s term loan and secured notes to Ba3 from B1.

WMG Acquisition is a wholly owned subsidiary of WMG Holdings, which in turn is a wholly owned subsidiary of Warner Music Group Corp.

The outlook is stable.

Moody’s said the upgrade of the corporate family rating reflects its expectation that WMG will operate with financial leverage as measured by total debt to EBITDA in the 5 times to 5.75 times range (including Moody's standard adjustments) over the rating horizon following the recent announcement that the company plans to call for redemption the remaining $100 million outstanding 13¾% senior HoldCo notes due 2019 on July 1, 2016 with cash balances. The agency will withdraw the HoldCo Notes' B3 rating upon extinguishment.

Total debt to EBITDA (Moody's adjusted) has declined to 5.9 times as of March 31 (5.8 times pro forma for the HoldCo notes repayment) from a peak of just over 7 times in March 2014, while free cash flow to adjusted debt increased to 6.3% from 1.8%.

In addition, adjusted LTM EBITDA margins expanded 260 basis points to 18% from 15.4% over this two-year period. The improvement in debt protection measures stems from both EBITDA expansion and recent debt retirements.

In February, WMG redeemed $50 million face value of the 13¾% HoldCo notes and in March 2016 it purchased $25 million face value of the 6¾% notes in the open market, Moody’s said.

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