Today (May 31), the world’s biggest music rightsholder was assigned its inaugural credit ratings since going public from two of the world’s three major rating agencies.
UMG has been assigned a first-time Prime-2 short term credit rating, and a Baa1 long term credit rating “with stable outlook” by Moody’s Investors Service.
In a media statement announcing the ratings, UMG says that it “considers these investment grade ratings as supportive of its financing strategy and is committed to maintaining an investment grade rating”.
UMG says it was advised by Bank of America during both credit rating processes.
Universal’s ratings announcement comes four weeks after the company published its financial results for Q1 2022.
Across all of its divisions (including recorded music, publishing and more) UMG posted revenues in the three months to end of March of €2.199 billion ($2.46bn).
That was up by 16.5% YoY at constant currency, driven by growth across all revenue segments.
Commenting on the ratings news in a media statement issued today, Boyd Muir, UMG’s EVP, CFO and President of Operations, said: “We are pleased that, in the inaugural ratings since our public listing, the rating agencies have recognised our strong credit attributes.
“Both agencies highlighted our leadership in the music industry, best-in-class catalogue, recurring and well-diversified revenue streams and low leverage as key drivers of these solid ratings.
“The Baa1/BBB rating assignment is another positive recognition in our early days as a stand-alone publicly listed company.”
“We are pleased that, in the inaugural ratings since our public listing, the rating agencies have recognised our strong credit attributes.”
Boyd Muir, UMG
In a press release explaining its rating decision for UMG, S&P says that the music company “benefits from its top market position in the growing music industry, as well as its large and well-diversified global portfolio of recordings and compositions across multiple genres”.
S&P notes that UMG “enjoys stable and predictable revenue, earnings, and cash flow thanks to a high proportion of subscription revenue through streaming,” and that the company’s “unique music library will continue to generate largely predictable and solid revenue, earnings, and cash flow”.
Added S&P: “In our view, UMG’s low leverage provides the group with ample financial flexibility, but we take into account the possibility of large debt-financed catalogue acquisitions or significantly higher dividends.”
“The Baa1 rating reflects the company’s strong operating momentum supported by the secular growth prospects of the music industry fueled by increasing consumer adoption of on-demand music streaming platforms, social media apps and other emerging digital platforms.”
Agustin Alberti, Moody’s
Moody’s, meanwhile, says in its own press release that the rationale behind its rating for UMG reflects “the ongoing transition to a more predictable and recurring revenue profile based on the growth of streaming and publishing revenues”.
The rating agency also cites what it says is, “the secular tailwinds for the global music industry’s long-term growth fueled by strong consumer adoption of paid subscription streaming services, social media apps and emerging digital platforms that Moody’s expects to continue, particularly in emerging markets”
Other reasons for Moody’s ratings assignment include UMG’s “good track record in supporting and developing artists’ careers through its global network of iconic labels and publishing companies covering 200 markets”, as well as, “a best-in-class music catalog with good geographic diversity and monetization opportunities,” plus, “an experienced management team with a proven track record of adapting to new trends through innovation”.
Amongst “factors that could lead to a downgrade or upgrade of the ratings” listed by Moody’s, the agency states that, “downward pressure could develop if there is deterioration in the company’s business model that results in a material, sustained erosion of its leading market position, profitability or cash flow generation.
Adds Moody’s: “The ratings could also face downward pressure if management adopts a more aggressive financial policy, undertakes sizeable acquisitions or finances large share buybacks with debt.”
Agustin Alberti, a Moody’s Vice President – Senior Analyst and lead analyst for UMG, said: “The Baa1 rating reflects the company’s strong operating momentum supported by the secular growth prospects of the music industry fueled by increasing consumer adoption of on-demand music streaming platforms, social media apps and other emerging digital platforms,”
“The rating is also supported by UMG’s prudent financial policy as reflected by its current low leverage and the public commitment to a solid investment grade rating.”Music Business Worldwide