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The rating is constrained by Concord's small size and limited ability to internally fund its aggressive acquisition growth strategy, which relies primarily on financial support from the parent. The rating anticipates continued acquisition activity funded with a combination of equity and debt, which could lead to fluctuations in credit protection measures. It also factors in the seasonal working capital of the business, which produces working capital outflows in the March and September quarters when rights holders are typically paid, although for the entire year, Moody's expects working capital to remain relatively neutral. The rating also reflects the anticipated softness and declines in certain revenue segments due to the impact from the coronavirus (a.k.a. COVID-19) pandemic. Potential headwinds also include the slow transition from physical to digital among a few large countries and the music industry's revenue challenges that prevent full maximization of content value from user-uploaded videos to Concord's songwriters and rights holders.

The B1 CFR also considers Concord's small size and de minimis market share in the global music industry relative to the three major music companies, Universal Music Group, Sony Music Entertainment and Warner Music Group. Moody's estimates the global music industry produced roughly $25.8 billion in annual revenue last year, which comprised the recorded music and music publishing sectors. The three majors collectively accounting for nearly 66% of the global market compared to an estimated 2% share for Concord. Offsetting factors include: (i) the industry's high-single digit secular growth trends; (ii) Concord's well-diversified and sizable catalog of well-known and timeless music copyrights and recordings that produce recurring license revenue; and (iii) the stable, high margin attributes associated with music publishing and catalog assets (87% of Concord's revenue), which tend to be less volatile than new release recordings. The company's exclusive distribution agreement with Universal Music is also a compensating factor. Since 2005, Universal has distributed Concord's recorded music worldwide, which accounts for about 5% of Universal's domestic market share. The agreement allows Concord to benefit from Universal's marketing resources and global reach as the world's largest music label, while also enabling the company to control the release schedule and marketing in key territories. Concord will also benefit from Universal's recent multi-year streaming rights deal with Spotify that gives Universal access to Spotify's marketing tools.

Concord benefits from its historically high revenue growth profile, driven primarily by acquisitions of strategic music assets, and Moody's expectation that the company will continue to be acquisitive over the rating horizon. While catalog acquisitions provide diversification across music genres and help to sustain high EBITDA margins and drive annuity-like cash flows, their purchase price multiples have risen in recent years in tandem with the industry's return to growth. Following nearly two decades of revenue declines, the music industry has generated year-over-year growth since 2015, driven chiefly by listeners' increasing music adoption on paid streaming services.

However, Concord's penchant to grow its music catalog via copyright acquisitions during this period led to a history of negative free cash flow generation (as calculated by Moody's). Moody's views the acquisition of intangible music assets, such as copyrights, as a capital expenditure given that music companies must continually invest in their libraries to drive incremental top line revenue. Accordingly, Moody's defines free cash flow as cash flow from operations less capital expenditures less acquisitions of intangible music assets less dividends. Excluding intangible music asset acquisitions from the definition would result in historically positive free cash flow generation. While most acquisitions fall in the $1-$30 million range, Concord has also made large business acquisitions, such as Imagem (in 2017) and Pulse Music Group and a large undisclosed publishing catalog acquisition (both completed in early 2020), further highlighting the acquisitive growth strategy. Traditional M&A is not factored in Moody's free cash flow calculation, however the rating incorporates our expectation that Concord will continue to pursue medium-to-large sized acquisitions that will be prudently financed, but also potentially lead to unstable credit metrics if financed with sizable debt.

Concord has historically relied on external equity funding from its ultimate parent, the State of Michigan Retirement System (SMRS), to offset cash flow shortfalls arising from music catalog purchases and M&A activity. Given the company's limited ability to internally fund its discretionary growth, Moody's views the parent's historical financial support and ability to provide consistent access to funding as a credit positive for the B1 rating. SMRS owns approximately 94% of Concord through various holding company entities residing above the borrower. The parent has contributed a significant amount of gross cash equity in Concord since 2017 to help fund nearly $1 billion in acquisitions and has refrained from taking a shareholder distribution since 2017. Moody's views SMRS as a long-term investor aligned with the company's strategic objectives and focused on growing Concord's music library. SMRS has a highly diversified investment strategy with approximately $70 billion in assets under management. Concord represents the largest asset in the real return and opportunistic segment of SMRS's portfolio, with prospects for future capital injections. As a government entity, SMRS cannot hold board seats and has retained an independent third-party fiduciary to represent it on Concord's board.

In addition, Concord has opportunistically tapped the debt capital markets to help fund its acquisitive growth. Since 2017, gross debt has increased 2.3x while as-reported EBITDA expanded more than 2.5x. The B1 rating considers Concord's moderately high pro forma financial leverage of 5.4x total debt to EBITDA (as calculated by Moody's at LTM 31 March 2020) or 4.8x adjusted for current acquisitions' LTM EBITDA. While leverage has the propensity to decline primarily via solid EBITDA growth, given the large number of independent labels and music catalogs currently available for purchase, Moody's expects Concord to engage in future debt-funded acquisitions should opportunities arise, which will likely result in volatile credit metrics and leverage fluctuating in the 4.5x-6x range (as calculated by Moody's) over the rating horizon. Concord's leverage target is 4x as-reported (equivalent to approximately 4.25x as calculated by Moody's).

Further, leverage reduction could be delayed over the next two years if management elects to put its equity stake in Concord to the parent starting in FY 2021. The proposed covenant package is designed to restrict the amount of a likely distribution to the lesser of $35 million or 25% of annual free cash flow (as defined in the proposed bank credit agreement) if leverage is above 4x (as defined). However, to the extent leverage falls below 4x or the covenant is waived or relaxed in the future, this could facilitate a sizable distribution, which could conceivably be financed with debt at the borrower resulting in higher-than-expected leverage.

Moody's expects that the economic recession arising from the coronavirus pandemic on Concord's profitability will be relatively manageable given its license-based revenue model. However, Moody's estimates roughly 45% of Concord's revenue will be impacted by COVID-19 and expects revenue will decline in the low-to-mid single-digit range in 2020. This is mainly due to lower performance royalties arising from the cancellation or postponement of tours and live concerts (which, in turn, have slowed new releases); reduced synchronization revenue due to the temporary suspension of film, TV and advertising productions; and reduced theatrical revenue due to the suspension of plays, live musicals and theatrical productions.

The stable outlook reflects Moody's view that Concord's license revenue model, driven by digital revenue growth, and operating profitability will remain fairly resilient during the ensuing economic recession. The outlook considers Moody's expectation for continued improvement in recorded music industry fundamentals combined with Concord's position as one of the world's largest independent music content providers with overseas diversification and an enhanced recorded music repertoire and music publishing assets. The company's revenue diversification across music genre and license type will help to partially offset the impact from COVID-19 related declines in performance, synchronization and theatricals revenue. The magnitude of the impact will depend on the depth and duration of the pandemic, the impact that government restrictions to curb the virus will have on consumer behavior, the length of restrictions in regions where Concord operates as well as the timeline for fully reopening those economies. As a result, de-leveraging could be delayed with total debt to EBITDA rising to the 5.5x-6x area (as calculated by Moody's) due to moderating EBITDA in FY 2020 and then declining to around 5x in FY 2021, which is factored in the stable outlook. Moody's projects a global economic recession this year with the US and G-20 advanced economies contracting 5.7% and 6.4%, respectively, followed by a corresponding 4.5% and 4.8% rebound in 2021.

Moody's expects Concord will maintain good liquidity over the next 12-15 months supported by cash levels of at least $20 million (cash balances totaled $60 million at 31 March 2020), access to the new $450 million RCF, of which $269 million is expected to be drawn at closing, and positive free cash flow generation of $25-$35 million (as calculated by Moody's) supplemented by cash equity contributions from the parent to cover potential shortfalls from discretionary M&A activity.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Concord's credit profile reflects the impact of the outbreak on its profitability given its exposure to the US economy, which has left it vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.

A social impact that Moody's considers in Concord's credit profile is consumers' increasing shift to on-demand music streaming subscription services (access) from music purchases (ownership). Given that Concord owns the copyrights to highly desirable music content, the streaming providers have no other choice but to license the company's content for their platforms to remain competitive and ensure listeners have access to their favorite songs. This will continue to benefit Concord and support solid revenue and EBITDA growth fundamentals over the next several years.

The State of Michigan Retirement System (SMRS) owns approximately 94% of Concord and has historically provided the company with financial support to help fund acquisitions. Moody's views the parent's long-term investment focus, cash equity support, strategic alignment and use of an independent fiduciary as positive factors that reduce governance risk. However, personnel changes in key roles at SMRS could occur in the future and alter the fund's investment strategy and continued support for the company.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if Concord increases scale and exhibits sustained revenue growth, EBITDA margin expansion and higher returns on investment. Upward pressure on ratings could also transpire if Moody's expects total debt to GAAP EBITDA will decline below 4x (as calculated by Moody's) with retained cash flow to debt of at least 20% (as calculated by Moody's) on a sustained basis. Concord would also need to produce positive free cash flow to debt of 4% (as calculated by Moody's), maintain at least a good liquidity profile and exhibit prudent financial policies.

Ratings could be downgraded if competitive pricing pressures led to declines in license revenue and organic revenue growth, or higher operating expenses (due to increased marketing or artist and repertoire (A&R) investments in recorded music or new administration deals that produce lower margin revenue in music publishing) resulted in sustained EBITDA margin contraction. Sizable debt-financed acquisitions or shareholder distributions resulting in total debt to GAAP EBITDA sustained above 5x (as calculated by Moody's) beyond FY 2021 could also lead to ratings pressure. To the extent leveraging transactions result in higher sustained total debt to GAAP EBITDA than Moody's base-case expectation, ratings could be downgraded. Downward pressure could also occur if EBITDA or liquidity were to weaken resulting in retained cash flow to debt sustained below 10% (as calculated by Moody's) or the parent reduces its Concord ownership stake below 90%.

Headquartered in Nashville, Tennessee, Alchemy Copyrights, LLC (d/b/a "Concord") is a leading global independent music content provider. Concord's current catalog includes: a library of over 400,000 copyrights from more than 10,000 songwriters, artists and composers across a diverse range of music genres; 18 of the top 100 songs streamed on Spotify; and 284 Grammy-winning recordings. The company is owned by the State of Michigan Retirement System. Revenue totaled $448 million for the twelve months ended 31 March 2020.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gregory A. Fraser, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Stephen Sohn Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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