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Moody's Gives WME IMG B2 Credit Rating, Calls Company's Outlook Stable

Moody’s Investor Service gave WME IMG a B2 credit rating and said the new company’s outlook was stable. The B2 rating reflected what Moody’s said was WME IMG’s “very high leverage of 7.6x” and the “challenges of integrating a larger company and achieving substantial cost saving.” Moody’s estimated cost savings of $100M from the acquisition will take two years to complete. It also said that cash flow would be affected by tax reimbursements to equity holders and severance packages. The report stated, “Going forward we expect the company to benefit from its College division. ... We expect this division to benefit from further growth in college marketing rights which is underpenetrated compared to professional sports teams. This division should benefit from good revenue visibility given that much of the available inventory is sold well in advance; however, the college division's EBITDA was below our expectations through Q3 2013.” It added that the media division could benefit from the increasing value of sports content and the sports and entertainment group could benefit from reducing “expenses at unprofitable events.” Moody’s said that WME IMG is expected to have $222M of cash on its balance sheet at closing, which should be completed in the coming weeks. It confirmed reports that William Morris Endeavor agreed to buy IMG in December for $2.4B with equity from Silver Lake Partners in the amount of $461M.

THANKS FOR YOUR SERVICE: Forstmann Little & Co. this week sent a letter to IMG employees thanking them for their hard work the last 10 years. The private equity firm is in the process of finalizing the sale of IMG to WME. In the letter, the trustees of Forstmann Little credited the growth of IMG College and the sports and entertainment businesses with helping IMG fulfill the goals the late Ted Forstmann had for the company. They wrote, “With the remarkable growth of IMG College, as well as the expansion and diversity of the sports and entertainment businesses, Ted’s strategic vision has been realized through the genius and effort of the ... professionals who work for this great company.” The letter suggests that the IMG sale to WME will be finalized in “a few short weeks” and the unified companies will “assume the preeminent position in the sports and entertainment world.” The letter was signed by Kathleen Broderick and Winston Hutchins of Forstmann Little and Akin Gump’s Mark MacDougall, the attorney and trustee who oversaw IMG’s sale. It was written Feb. 25.

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