Ratings agency Moody's Investors Service has downgraded its outlook on EMI Group to negative from stable but did not change the company's rating. The New York-based agency says it is concerned by EMI'

Ratings agency Moody's Investors Service has downgraded its outlook on EMI Group to negative from stable but did not change the company's rating. The New York-based agency says it is concerned by EMI's debt level in the wake of yesterday's announcement of a massive worldwide restructuring.

"While Moody's acknowledges the eventual benefits of the restructuring measures taken, in particular the outsourcing of production, the agency notes that the near-term effect will be one of extending EMI's track record of weak cash flow generation with free cash flow (after restructuring outflows and dividends) unlikely to turn positive in a material way before the 2005/2006 financial year," the agency states.

EMI's rating remains Ba1.

In a memo to investors, Moody's predicts that the global music market will not return to growth before 2006 "as non-U.S. markets, in particular continental Europe, continue to perform poorly."

Not all analysts agreed with Moody's analysis. "We think the move was a bit harsh, but consistent with Moody's bearish view on the music industry and overall caution on the recovery in the European media industry," says JP Morgan in a note issued this morning.

In a statement, EMI says, "We are pleased that Moody's has reaffirmed our rating and is supportive of the actions we have been taking, notwithstanding their concerns about industry trends. We are confident that we are on the right path. We have demonstrated our ability to deliver sales, drive costs out of the business and strengthen cash generation. The steps we announced [March 31] are aimed at taking our business to the next level of performance."