Fitch Rates Warner Music Secured Bond Offering 'BB'; Outlook Stable

NEW YORK--(Business Wire)--
Fitch Ratings has assigned a 'BB' rating to WMG Acquisition Corp's $500 million
senior secured note offering. The proceeds are expected to be used for general
corporate purposes including the reduction of outstanding balances on the
company's secured term loan. WMG Acquisition Corp is an indirect wholly owned
subsidiary of Warner Music Group Corp. (NYSE:WMG).

Fitch currently rates WMG and its subsidiaries as follows:

Warner Music Group

--IDR 'BB-'.

WMG Acquisition Corp

--IDR 'BB-';

--Senior secured 'BB';

--Subordinated 'B+'.

WMG Holdings Corp

--IDR 'BB-';

--Senior unsecured 'B'.

The Rating Outlook is Stable.

The ratings are supported by WMG's strong market share, global footprint, and
diversified and established content library. Credit concerns include substantial
challenges facing the recorded music industry related to continued declines to
its physical unit sales. The Stable Outlook is supported by WMG's adequate
liquidity position, scaleable cost structure related to physical music sales and
WMG's position as one of the top global music publishing businesses.

The music industry continues to deal with declining physical sales that have not
been fully replaced by digital sales in most markets. Year-to-date May 10, 2009,
album units including track-equivalent album sales (giving 1/10th credit for
digital singles) have decreased 6.9% according to Nielsen SoundScan. Fitch
believes these decreases are predominantly the result of continued piracy and
copying, and proliferation of alternative entertainment activities and products.
Although digital tracks and digital albums (less than one-third of total)
continue to grow (year-to-date up 16% and 21%, respectively, according to
Nielsen) they are unable to offset physical sale declines (down 19%). While
Fitch is cautiously optimistic regarding the continued roll-out of cellular
music products including over-the-air downloads, we expect a mid-to-high single
digit negative trend on track-equivalent albums to continue over the
intermediate term.

Specifically related to WMG, total revenue decreased 10% in the most recent
quarter on a constant-currency basis due to difficult international comps and
release schedules. Additionally, U.S. physical retailers continue to manage
their physical inventory levels down. While the conservative inventory
management by U.S. physical retailers has essentially cycled through a material
phase, Fitch expects continued pressure in this area for the industry. Fitch
believes similar behavior by foreign physical retailers has also been occurring
over the last few years. Digital revenue for WMG increased 11% from the prior
year and 3% sequentially on a constant currency basis. Digital revenue
represented 26% of total revenue for the most recent quarter. While margins on a
quarter-by-quarter basis will continue to depend somewhat on release schedules,
international mix, and ancillary initiatives, Fitch expects to continue to see
general improvements over time as digital makes up a greater portion of total
revenue and the company manages its cost structure in-line with such transition.
WMG should benefit in the back half of its fiscal year with a greater volume of
releases including Green Day and Rob Thomas. Other potential releases before
year-end include greatest hits from Madonna and Neil Young.

Fitch continues to believe WMG's push into 360-degree relationships is prudent.
As demonstrated over the last year, the major labels will likely not pursue
established artists in these agreements as up-front royalty payments could be
excessive. Instead, Fitch expects WMG and the other labels to continue to push
these agreements with new artists and that the recording industry should have
significant leverage regarding deal terms due to the oligopoly structure of the
industry combined with the virtually limitless supply of aspiring musicians.
Further upside to operations could be realized through radio royalty fees that
are currently being considered in congress, as well as progress related to ISP's
monitoring piracy.

Pro forma for the expected transactions, Fitch expects WMG's net leverage and
cash interest coverage to generally remain the same at approximately 3.7 times
(x) and 3.4x, respectively. The company's gross leverage should improve to
approximately 4.4x through debt at WMG Holdings. WMG's cash debt service ratio
(defined as EBITDA divided by gross cash interest expense and principal debt
amortization) should remain slightly over 3x pro forma for these transactions.
Including cash interest from the HoldCo notes payable in 2010 brings the ratio
to approximately 2.8x per Fitch's calculations.

Fitch assesses WMG's liquidity position based on the operating entity, WMG
Acquisition Corp. As such, liquidity is adequate and should comprise $260
million of cash pro forma March 31, 2009 and available credit revolver of $146
million ($150 million revolver less $4 million outstanding letters of credit).
Liquidity is also supported by ongoing free cash flow which Fitch estimates will
be in excess of $200 million. Pro forma for the bank amendment and bond
offering, the company's maturity schedule is manageable and generally could be
handled organically through cash on hand and expected free cash flow.

For additional information related to WMG and secular trends facing the music
industry, please see Fitch's report on Warner Music dated October 2008 and
available at www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings
Jamie Rizzo, CFA, +1-212-908-0548 (New York)
Rolando Larrondo, +1-212-908-9189 (New York)
Cindy Stoller, +1-212-908-0526 (Media Relations, New York)
cindy.stoller@fitchratings.com

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