OREANDA-NEWS. S&P Global Ratings today assigned its 'B' issue-level ratings and '3' recovery rating to New York City-based WMG Acquisition Corp.'s proposed euro - and U. S. dollar-denominated senior secured notes due 2024. The '3' recovery rating indicates our expectation for meaningful recovery (50%-70%; upper half of the range) of principal in the event of a payment default.

The company plans to use the net proceeds from the debt issuance to repay all of the outstanding balance on its €157 million 6.25% and $450 million 6% senior secured notes due 2021. Upon the transaction's closing, we will withdraw our issue-level ratings on these current outstanding senior secured notes. WMG Acquisition is a subsidiary of Warner Music Group Corp. (WMG).

Our 'B' corporate credit rating on WMG incorporates the company's large and well-diversified portfolio of recordings and compositions across multiple genres and regions and its smaller market share than its significantly larger peers. We expect that adjusted leverage will remain above 5x through the end of the fiscal year ending Sept. 30, 2017, pro forma for the transaction.

Although we believe WMG would look for additional opportunities to reduce leverage, we expect the company to prioritize its free cash flow into investing in the business, leaving insufficient excess cash flow to materially reduce leverage. Therefore, given the lack of visibility regarding the pace of voluntary debt reduction, we don't expect this strategy, by itself, to materially reduce leverage. Rather, we expect leverage reduction primarily from EBITDA growth. We forecast that EBITDA will grow about 10%-12% in 2016 and 8%-10% in 2017, which could result in adjusted leverage declining to the low-5x area by the end of 2017.