Moody’s upgrades WMG Acquisition Corp.’s rating, maintains stable outlook

Investing.com -- Moody’s Ratings has upgraded the corporate family rating (CFR) of WMG Acquisition Corp. (WMG) to Ba1 from Ba2. The probability of default rating (PDR) and the ratings for the company’s senior secured notes and bank credit facility debt were also improved to Ba1 from Ba2. The SGL-1 Speculative Grade Liquidity rating remains unchanged, and the outlook for WMG has been revised to stable from positive.

The upgrade is driven by the expectation that WMG will benefit from positive trends in music streaming and operational improvements over time. WMG has managed to cut costs in slower growth areas and reinvested some of the savings in higher growth sectors, which is expected to support profit margin improvement and lower leverage. Moody’s expects WMG’s leverage to slightly decrease in 2025, with a further decline toward 3x in 2026, driven by EBITDA growth in the mid to high single digits.

WMG’s Ba1 CFR reflects its moderate leverage level of 3.6x LTM Q1 2025, including Moody’s adjustments, combined with a diversified and resilient business model. As the world’s third-largest music entertainment company, WMG’s extensive recorded music and publishing assets will drive recurring revenue streams and benefit from royalty rights price increases. The company continues to generate the majority of its revenue from established artists with a good geographic diversity, while also investing in new talent.

Despite the positive outlook, WMG faces challenges such as seasonal recorded music revenue and difficulties in fully monetizing content value due to piracy. However, growth in streaming distribution services, regulatory changes designed to expand royalty payments to rights holders, and other efforts are expected to improve WMG’s content monetization.

WMG’s Credit Impact Score reflects the company’s governance score as WMG continues to pursue an acquisitive growth strategy. The stable outlook is based on the expectation that WMG’s license revenue model, driven mainly by streaming revenue growth, will continue to expand. The company also plans to continue initiatives to lower costs and invest in higher growth opportunities.

WMG’s Speculative Grade Liquidity (SGL) rating of SGL-1 reflects strong liquidity driven by a significant cash balance of $802 million as of December 31, 2024, and access to an undrawn revolver due November 2028. The company paid $366 million in dividends as of LTM December 31, 2024, and free cash flow (FCF) as a percentage of debt is expected to remain in the mid to high single digits in 2025.

In February 2025, WMG acquired a 50.1% interest in Tempo Music Investments, an investment platform for music rights, from Providence Equity Partners for $76 million. The company also spent $169 million on the acquisition of music publishing rights and music catalogs LTM December 31, 2024.

The ratings could be upgraded if WMG exhibits sustained revenue growth in the recorded music business, at least stable EBITDA margins, and a continued decrease in earnings volatility. Conversely, the ratings could be downgraded if competitive or pricing pressures led to a decline in revenue or higher operating expenses, or if sizable debt-financed acquisitions increased leverage toward the 4x range.

WMG Acquisition Corp., an indirect wholly-owned subsidiary of Warner Music Group (NASDAQ:WMG) Corp., operates domestically and overseas in more than 70 countries. The company has a library of over 1.5 million musical compositions from more than 180,000 songwriters and composers across a diverse range of music genres. Revenue totaled $6.3 billion for the twelve months ended 31 December 2024.

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