Moody's cuts Warner Music

Moody's Investor Services said it lowered Warner Music Group Corp.'s corporate family and probability-of-default ratings to B1 from Ba3 and changed the outlook to stable from developing.

The agency lowered WMG Holdings Corp.'s senior discount notes rating to B3 (LGD6, 95%) from B2 (LGD6, 95%) as well as the ratings of WMG Acquisition Corp.'s senior secured loan to Ba3 (LGD3, 30%) from Ba2 (LGD2, 29% ) and WMG Acquisition Corp.'s senior subordinated notes to B3 (LGD5, 84%) from B2 (LGD5, 84%). Moody's also lowered the speculative grade liquidity rating to SGL-3 from SGL-2.

"While the music industry has shown weakness for some time, the decline in physical sales exceeds Moody's prior expectations and, as a consequence, has led to weaker credit protection measures for [Warner Music] than we had previously anticipated, including higher leverage and less free cash flow," Moody's senior vice president Christina Padgett said in a written statement.

The B1 rating incorporates Moody's view that the company will continue to experience deterioration in its recorded music business but will modestly benefit from growth in digital music sales as well as from the greater stability and profitability it continues to derive from its music publishing assets, the agency said.

The action also reflects the acquisitive nature of the company in light of the ongoing consolidation in the music industry and its potential impact on financial flexibility, Moody's said.

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