Outlook upgraded to stable.
EMI Group Plc today (April 21) had its credit rating lowered to "junk" status by Standard & Poor's Ratings Services.
S&P's lowered its long- and short-term corporate credit ratings on the company to "BB+" and "B" respectively. At the same time, the London-based major's outlook was upgraded from negative to stable.
"The ratings were lowered following a review prompted by EMI's warnings that its recorded music division's sales would decline by 7.5% in the financial year ended March 31, 2005," Standard & Poor's credit analyst Trevor Pritchard says in a statement. "Our reappraisal of the global recorded music industry concluded that significant short- and long-term challenges remain, notwithstanding the slowing of the decline to flat in 2004."
He added that "EMI's overall business profile is now judged to be below the quality expected at investment grade."
Pritchard noted also that the music publishing division's results and prospects "remain solid."
EMI Group says in a statement that the new rating is "consistent with the sub-investment grade rating held on the company by Moody's since March 2003. S&P has also moved the outlook on EMI up to stable. EMI confirms there will be no incremental interest cost impact from this rating adjustment."
EMI will publish its financial results for the fiscal year ended March 31, 2005 on May 24. In its interim report, EMI Group indicated that its debt stood at £976.2 million ($1.87 billion). On April 15, EMI announced that its annual underlying profit would be slightly better than anticipated due in part to improved prospects for its recorded music division.
EMI stock closed today up .75p at 250.5p.
Overall, Standard & Poor's estimates that global physical music sales industrywide will continue to decline as consumers migrate to digital formats. It also considers that business will suffer from extra pressures on costs and erosion from piracy. "Given that the music market has not yet reached a stable plateau, we expect EMI to respond adequately to evolving market conditions to preserve nominal profitability and operating margin," Standard & Poor's says. An upgrade back to investment grade "would require vastly improved industry conditions and significant debt reduction."