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04 Nov 2004
MOODY'S ASSIGNS B1 (FIRST PRIORITY LIEN) AND B2 (SECOND PRIORITY LIEN) RATINGS TO THOMSON MEDIA INC.'S SENIOR SECURED BANK CREDIT FACILITIES
$235 million in bank credit facilities affected
New York, November 04, 2004 -- Moody's Investors Service has assigned first-time ratings to Thomson
Media Inc. following the announcement that Investcorp, a
private equity firm, has acquired the company from Thomson Corporation
(A3 senior unsecured) for $350 million, a 10.4x EBITDA
multiple (last twelve months as of September 30, 2004). Proceeds
from the financing, in addition to $160 million in private
equity and $17 in senior notes issued at Thomson Media Holdings
that will be contributed to Thomson Media as equity, will be used
to fund the acquisition.
The ratings are as follows:
B1 -- $35 million first lien senior secured revolving credit
facility due 2010 (expected to be undrawn at closing)
B1 -- $160 million first lien senior secured term loan B,
B2 -- $40 million second lien senior secured term loan C due
B1 -- Senior Implied rating
B3 -- Senior Unsecured Issuer rating
The rating outlook is stable.
The ratings reflect Thomson Media's high financial leverage and Moody's
belief that the company is dependent upon a weakened business-to-business
(B2B) advertising sector and could face potential operating and capital
investment risks associated with the electronic disintermediation of print
media. The ratings are supported by the company's high quality
financial publications, including "American Banker" and "The Bond
Buyer", with strong competitive positions and fairly wide circulation,
an experienced management, adequate liquidity, positive free
cash flow and a recent improvement in organic revenue growth following
one of the worst recessions in B2B advertising spending history.
The stable rating outlook reflects Moody's belief that Thomson Media
will continue to experience top-line organic revenue growth following
an industry-wide decline in B2B publishing revenue. Until
2004, Thomson Media, as a business segment of Thomson Corporation,
had experienced 4.1% average annual revenue declines from
2000-2003, which still outpaced most of its competitors,
due to the challenging economic environment. However, in
view of the recent improvement in the economy in 2004, Moody's
estimates Thomson Media's revenue growth will improve by 3-4%
and EBITDA margins will improve from 16.7% in 2003 to 19%
this year. Moody's believes this trend will continue given the
leveling off of circulation erosion at many of its flagship publications
Given the high financial leverage, Moody's believes the company
is weakly positioned in the rating category. Therefore, the
stable outlook is predicated on improvement in debt protection measures
and the maintenance of significant liquidity through internally-generated
free cash flow, which benefits significantly from the pre-payment
of subscriptions, and availability under the $35 million
revolver. In 2004, pro-forma for the proposed financing,
Moody's expects that Thomson Media's financial leverage will be
a relatively high 6.7x total adjusted debt-to-EBITDAR,
approximately 9% free cash flow to total debt and EBITDA less capex
total interest coverage of 2.2x. By the end of 2006,
Moody's expects financial leverage will improve to below 6.0x
total adjusted debt-to-EBITDAR, debt-to-free
cash flow will improve and then remain above 10% and EBITDA less
capex total interest coverage will also improve and remain above 2.5x.
Moody's anticipates that positive ratings pressure is only likely
over the extended rating horizon should the company demonstrate operating
improvements, as evidenced by EBITDA operating margins that consistently
exceed 20% and a strengthened balance sheet, as evidenced
by adjusted debt-to-EBITDAR well under 5.0x,
free cash flow to debt well above 10% and EBITDA less capex total
interest coverage above 3.0x, all on a sustained basis.
Alternatively, if the company is unable to meet Moody's expected
performance levels and the B2B operating environment were to worsen,
the rating outlook and/or the company's ratings would likely face downward
The senior implied rating resides with Thomson Media Inc.,
as the highest issuer of rated debt in the corporate structure.
However, the rating recognizes that Thomson Media's parent,
Thomson Holdings, will issue approximately $17 million in
senior notes, whose coupon may be paid in cash or added to the outstanding
principal, the proceeds of which will be invested in the subsidiary
as equity. While initially, Investcorp intends to invest
approximately $160 million in equity, ultimately, Moody's
expects the senior notes at the parent will need to be refinanced or serviced
by a distribution from the subsidiary.
Moody's has rated the first-lien bank debt at parity with
the senior implied rating as it represents the bulk of the debt capital
structure. The rating for the $40 million second lien facility
is notched down from the first-lien debt rating in recognition
of the substantial amount of first-lien debt that ranks ahead of
it, and the view that this layer of capital may have some equity-like
risk associated with it in a downside scenario. In the event of
a default, second-lien lenders may only pursue recovery action
once first-lien holder claims have been fully satisfied.
In addition to a priority lien on the collateral security, in the
first 180 days following default, the first-lien debt holders
have the sole right to negotiate up to $50 million in debtor-in-possession
financing and the right to receive post-petition interest without
having to obtain the consent of the second-lien debt holders
Senior secured lenders, which includes both the first and second-lien
debt holders, will receive a perfected security interest in the
stock of Thomson Media and each of its operating subsidiaries and substantially
all tangible and intangible assets, most importantly the company's
high quality brands. Financial covenants are meant to limit indebtedness
through maximum debt-to-EBITDA leverage and minimum EBITDA
interest coverage levels. In addition, the bank definition
of EBITDA is adjusted to reflect the pro-forma results of any acquired
businesses, and also to exclude certain non-recurring items.
Moody's believes the company will delever its balance sheet given the
moderate level of projected free cash flow over the intermediate term
and a 50% excess cash flow sweep commencing in fiscal 2005.
However, Moody's believes the pace of debt repayment could
slow if the company needs to invest additional capital in its technology
infrastructure given Moody's opinion that electronic distribution
is quickly becoming the fastest growing information platform in the B2B
Thomson Media Inc., headquartered in New York City,
is a leading provider of multimedia information to professionals in the
banking, financial services and related technology markets.
Its flagship publications include "American Banker", "The Bond Buyer"
and "Investment Dealer's Digest". For the 12 months ending
September 30, 2004, the company generated $175 million
and $33.2 million in revenue and adjusted EBITDA,
Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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