MOODY'S ASSIGNS B1 RATING TO BANK CREDIT FACILITIES AND B3 TO SR. SUB. NOTES OF DICTAPHONE CORP.
New York, 07-13-95 -- Moody's Investors Service assigned a B1 rating to the proposed $215 million senior secured bank agreement of Dictaphone Corporation. The bank agreement will consist of a $40 million revolving credit line, a $100 million Tranche A term loan, and a $75 million Tranche B term loan. Moody's also assigned a B3 rating to the proposed $175 million issuance of Dictaphone's senior subordinated notes. Proceeds from the financing will be used to purchase Dictaphone from its current parent, Pitney Bowes Corporation.
The ratings reflect Dictaphone's high debt leverage and limited collateral coverage, substantial goodwill and intangibles, a slow growing core business, and limited financial flexibility due to high debt service costs. However, the ratings are supported by Dictaphone's leading position in the niche voice management market, a strong sales and service organization, and a large installed customer base with steady recurring service revenues. Moody's also notes that international markets, which generated 14% of Dictaphone revenues, could represent opportunities for future growth.
Dictaphone designs, manufactures, sells, and services a broad line of voice management products targeting the medical, public safety, financial, and legal markets, in which voice records are important. While voice technology is relatively mature and could be potentially vulnerable to competition from up-and-coming multimedia technologies, it remains a cost-effective method of recording information. The company benefits from its strong sales and marketing franchise and a well-run service organization that differentiates it from its competitors. However, cost reductions in the health care industry, a major market, have negatively impacted dictation product systems sales. This is mitigated by the growth and acceptance of its communications recording products by the public safety and financial markets. Service revenues represent a steady source of revenues and profits for Dictaphone and should buffer the volatility of its products business.
The bank agreement is secured by all of Dictaphone's U.S. assets, including intangibles, and pledges of capital stock of the company's subsidiaries. The B1 bank agreement rating is constrained by the preponderance of the secured facility in Dictaphone's debt structure and the limited tangible asset coverage. Moody's noted that the company will incur from the transaction $180 million of goodwill and $121 million of intangibles, which include patents, service contracts and a non-compete agreement with Pitney Bowes.
Dictaphone Corporation, headquartered in Stratford, Connecticut, manufactures and sells advanced voice recording and retrieval products. It had 1994 sales of $348 million.
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