Company Town

The business behind the show

« Previous Post | Company Town Home | Next Post »

Warner Music Group revenue up, but credit ratings down on concerns over debt

May 10, 2011 |  2:08 pm

Despite first-quarter earnings 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+ from BB-, also put Warner on Fitch's "Watch Negative" list, making it potentially more difficult for the company to borrow money from creditors.

The New York-based 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, up from $666 million a year ago, beating analysts' expectations of $610 million. A net loss of $38 million, or 25 cents a share, compared with a year-ago net loss of $25 million, or 17 cents a share.

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