MOODY'S ASSIGNS B1 RATING TO FOX KIDS WORLDWIDE, INC.'S SENIOR UNSECURED 144A NOTES AND Ba2 TO FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND INTERNATIONAL FAMILY ENTERTAINMENT, INC. BANK FACILITY
New York, 10-13-97 -- Moody's Investors Service has assigned Fox Kids Worldwide, Inc. ("Fox Kids") $500 million senior unsecured notes and $225 million senior unsecured discount notes a B1 debt rating. In addition, the agency assigned a Ba2 rating to the company's proposed $710 million senior secured bank facility of FCN Holding, Inc., Saban Entertainment, Inc., and International Family Entertainment, Inc., each as co-obligors and wholly owned subsidiaries of Fox Kids. The assignments represent initial ratings for the company and its subsidiaries. The ratings are based upon Moody's expectation that the recently formed enterprise will be a formidable competitor as a producer and distributor of children's television programming and that debt protection measures and cash flow will improve over the intermediate term. The ratings on the rule 144A notes take into consideration the structural subordination of the notes to the bank debt, the high debt and low coverage levels expected over the intermediate-term, and the challenges of executing management's strategies of this newly formed company. The risks are offset to a degree by the ownership of the company, which includes one of the largest media enterprises, News Corporation (senior unsecured debt rating Baa3), and by Saban Entertainment, Inc., an established producer of children's programming, each of which own about 50% of Fox Kids.
The senior notes and senior discount notes are being sold in a privately negotiated transaction without registration under the Securities Act of 1933 (the "Act") under circumstances reasonably designed to preclude a distribution thereof in violation of the Act. The issuance has been designed to permit resale under Rule 144A.
In 1996, News Corporation merged its Fox Kids division with Saban Entertainment, Inc. to form a jointly owned company called Fox Kids Worldwide, Inc. and on September 4, 1997, Fox Kids acquired the stock of International Family Entertainment, Inc. ("IFE") for nearly $2 billion in cash and preferred stock. IFE primarily consists of the Family Channel, a U.S. basic cable network which reaches about 71 million homes and offers family oriented entertainment programming. It also includes the MTM library which includes many well known television titles. The new company will be focused on producing children's programming which will be aired on a re-launched Family Channel; selling children's programming to News Corp.'s US Fox broadcast network; creating and programming new children's networks for international direct-to-home and cable markets, including DBS operations wholly and partially owned by News Corp.; and selling new and catalogue children's programming to other international television companies. In the Fall of 1998, Fox plans to re-launch the Family Channel, with a complete make over of its programming lineup. The make over will include updating the daytime children's line up with Fox Kids successful titles and an updated evening line up oriented towards families and adults which will include movies and other titles expected to draw higher ratings and more attractive younger demos for advertisers. The re-launch will also include cross promotion with the Fox Broadcasting Network and leverage the Fox brand name.
As part of the IFE acquisition, Liberty Media, which owned 19.4% of IFE, swapped its interest for $345 million in preferred stock of Fox Kids. The remainder of the acquisition was funded with $1.25 billion of bank debt and a $384 million deeply subordinated loan from News Corp. The preferred stock can be swapped for a new security by News Corp. under certain circumstances, including non-payment of dividends by Fox Kids and it is not exchangeable into a Fox Kids equity ownership.
Moody's does not anticipate the company to make ongoing acquisitions and it expects debt protection measures to improve gradually over the intermediate term, resulting primarily from improving cash flow rather than debt reduction initiatives. The proceeds from the issuance of the notes and the proposed bank facility will be used to refinance the existing bank debt and a portion of the deeply subordinated loan from News Corp. The notes will be issued at an intermediate holding company above the obligors to the bank facility, making them structurally subordinate to that bank debt, and all existing and future liabilities and trade payables of the Fox Kids operating subsidiaries. The bank debt is expected to be guaranteed by the operating subsidiaries and by an intermediate holding company beneath Fox Kids. Both the bank debt and the notes are expected to contain provisions that restrict dividends, except for those paid by the operating companies to Fox Kids and are necessary to service the notes and Liberty preferred stock. The indentures are also expected to provide change of control protection, prohibit further indebtedness until total debt to EBITDA leverage declines significantly, prohibit liens other than with respect to the bank debt (secured by stock), and limit asset sales.
Fox Kids Worldwide, Inc., with its headquarters in Los Angeles, California, is one of the largest producers of children's programming and owner of a major U.S. basic cable network.
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