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Warner Music Group debt is downgraded

The move by Fitch Ratings comes even though Warner Music Group's first-quarter revenue beat analysts' forecasts.

May 11, 2011|By Alex Pham, Los Angeles Times

Despite first-quarter sales that beat Wall Street's expectations, Warner Music Group got slapped with a downgrade from Fitch Ratings, an influential credit-rating agency.

The downgrade, to B-plus from BB-minus, also put Warner on Fitch's "Watch Negative" list, making it potentially more difficult for the company to borrow money.

The New York music company on Friday said its board of directors had approved an agreement to sell the company to Access Industries, a company controlled by industrialist Len Blavatnik, for $3.3 billion in cash.

The deal calls for Access to pay Warner shareholders $8.25 a share, or about $1.3 billion. The remaining $2 billion goes toward Warner's nearly $2 billion in debt.

Fitch, in a statement, said the Warner downgrade is related to uncertainties about how Access Industries and Blavatnik plan to come up with the cash required to pay shareholders. Borrowing money would add to Warner's already-heavy debt load.

The downgrade did not seem to ruffle investors, who bumped Warner's shares up a penny to close at $8.20 Tuesday.

Earlier in the day, Warner posted higher revenue but wider losses for the quarter ended March 31. Sales grew 2% to $682 million from $666 million a year earlier, beating analysts' expectations of $610 million. A net loss of $38 million, or 25 cents a share, compared with a net loss of $25 million, or 17 cents a share, a year earlier.

Meanwhile, revenue from digital sales grew 9% to $220 million, accounting for slightly less than one-third of Warner's total sales.

Warner is the only publicly traded stand-alone music label that posts its financial results.

alex.pham@latimes.com

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