GOOD BUSINESS DIVERSIFICATIONIMG operates within three operating segments including Sports and Entertainment (S&E), Media, and College.S&E consists of event ownership and management, client representation, fashion, consulting, licensing andtraining services. IMG's Media's segment is one of the largest independent producers and distributors of sportsprogramming and entertainment programs worldwide. Within these two business segments, the companymanages and operates numerous events or properties including Wimbledon, The British Open, Australian Open aswell as others. IMG's College business has a strong presence in college football with representation relationshipswith premier sports colleges in most of the major markets and licensing relationships with numerous institutions.IMG has a diverse revenue stream with a large percentage of revenue coming from outside the U.S. with no singlecustomer representing a significant percentage of total revenues. Its exposure to Europe could weigh on its resultsif economic conditions were to deteriorate.
Moody's expects IMG will have an adequate liquidity profile over the next twelve months. At March 31, 2013, thecompany had balance sheet cash of approximately $97 million. The cash balance is down from $197 million inMarch 31, 2012 due largely to a material decrease in is accounts payable balance in addition to some acquisitionactivity. IMG's $50 million revolver matures in 2015 and the $300 million Term Loan matures in 2016. We expectthe company will pay $3 million of annual term loan amortization and make SAR payments of $65 million in 2013and $39 million in 2014. The SAR payments may increase pressure to draw on its revolver. As mentionedpreviously, the company's $400 million of subordinated debt matures in annual installments of $133 million startingin November 2015.The company's credit facility also allows for an incremental facility of $75 million which can be used for generalcorporate purpose, equity buybacks, dividends, and to repay Holdco Subordinate debt. A $150 million debtacquisition basket is also included in the credit agreement. We expect IMG will remain in compliance with financialcovenants over the next twelve months with sufficient EBITDA headroom given the large number of add backsallowed in covenant calculated EBITDA.
The Ba2 rating on the guaranteed senior secured credit facility is three notches above the CFR. The credit facilityis secured by the capital stock of the borrower and its domestic subsidiaries, as well as their intellectual andpersonal property. However, it does not include security in client contracts, certain joint venture interests andrelated assets. These excluded assets represent the material revenue-generating assets of the company, thoughheavily influenced by the company's intellectual property. So essentially Moody's views the facility to besubstantially unsecured debt with the benefit of limited security in certain intangible assets.The $400 million unrated subordinated notes are contractually subordinated to the credit facilities and provide aloss absorption cushion which provides lift for the senior debt rating above the CFR.
The stable outlook reflects our expectation that IMG's operating performance will continue to improve in 2013.EBITDA growth and the SARs payments, which are included in debt, are expected to combine to reduce leveragebelow 6x by the end of 2013. The SAR payments are expected to reduce its liquidity position compared to prior years although cash balances, free cash flow, revolver draws, or incremental term loans could be used to addressthese payments.
What Could Change the Rating - Up
The rating is constrained by the increased likelihood that the private equity sponsor will exit its investment in thenear to midterm. Positive rating pressure could occur if leverage were to decline below 4x (using Moody'sstandard adjustments) on a sustained basis driven by strong and predictable EBITDA growth and confidence thatmanagement intends to maintain leverage below that level going forward.
What Could Change the Rating - Down
Sustained total leverage above 6.5x would put downward pressure on the ratings. Debt financed acquisitions or cash distributions to equity holders that increased leverage or impair its liquidity position could also put downwardpressure on the ratings. In addition, an increase in the level of senior secured debt relative to subordinated debt in