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06 May 2003
MOODY'S ASSIGNS B3 RATING TO PRIMEDIA's PROPOSED $300M SENIOR SECURED NOTE OFFERING AND A SGL-2 SPECULATIVE GRADE LIQUIDITY RATING TO THE COMPANY
Approximately $2 Billion of Debt and Preferred Securities Affected
New York, May 06, 2003 -- Moody's Investors Service assigned a B3 rating to PRIMEDIA Inc.'s
proposed $300 million issuance of senior secured notes due 2013,
and a SGL-2 speculative grade liquidity rating to the company.
Additionally, Moody's also confirmed all existing ratings for the
company, as outlined below. The rating outlook remains negative.
- $300 million of to-be-issued senior notes
due 2013 - B3
- $470 million of 8.875% senior notes due
2011 - B3
- $225 million of 7.625% senior notes due
2008 - B3
- $291 million of 8.5% senior notes due 2006
- $84 million of 10.25% senior notes due 2004
- $100 million of 9.2% exchangeable preferred
stock - Ca
- $175 million of 10% exchangeable preferred stock
- $210 million of 8.625% exchangeable preferred
stock - Ca
- Senior Implied rating - B3
- Senior Unsecured Issuer Rating - Caa2
- Speculative Grade Liquidity Rating - SGL-2 (see
separate press release of today)
- Rating Outlook - Negative
The ratings reflect PRIMEDIA's high financial leverage, poor
growth prospects in its consumer and business-to-business
(B2B) segments, insufficient cash flow coverage of interest and
dividends, very limited structural differentiation between classes
of senior debt,poor business line visibility for creditors,
and relatively poor asset protection metrics, especially as afforded
to preferred stockholders.
However, ratings are supported by recent improvements in operating
cash flow, enhanced financial flexibility and liquidity following
both completed and pending divestiture of certain assets, the value
ascribed to PRIMEDIA's remaining stable of consumer and B2B holdings,
and management's demonstrated track record of monetizing individual
asset holdings as necessary, in relatively short order and at attractive
At the end of December 2002, PRIMEDIA recorded leverage (total debt
plus preferred stock to consolidated EBITDA) of a very high 13.75
times. Since mid 2001, and following the sale of Seventeen
magazine, PRIMEDIA will have sold assets valued at approximately
$530 million, representing an average multiple of 17 times
"Segment" EBITDA. Moody's notes that PRIMEDIA's
definition of "Segment" EBITDA excludes a number of charges
and provisions, and cannot be readily verified, given the
lack of financial disclosure at the individual operating company level.
Although management has indicated "zero imperative to sell assets",
Moody's believes that many of PRIMEDIA's marquee names have
now been sold and we question the ability of PRIMEDIA's remaining
assets to command sales multiples sufficient to assure full recovery of
all debt-holder and preferred shareholder obligations.
Although PRIMEDIA recorded modestly positive free cash flow results during
2002, its retained cash flow (defined as free cash flow after dividends)
is likely to remain negative over the intermediate term.
PRIMEDIA continues to experience a soft sales environment, as advertising
revenues, particularly B2B advertising, suffers from a prolonged
economic downturn. 1Q03 revenues declined 9% sequentially
and 9% year-over-year. However, largely
as a result of cost cutting measures, the company has experienced
substantial EBITDA growth during the past year.
The ratings incorporate PRIMEDIA's leadership position in the enthusiast
magazine, business-to-business magazine, and
consumer guide sectors, all of which provide for a high degree of
targeted "endemic" advertising and subscriber loyalty.
At the end of March 2003, PRIMEDIA recorded liquidity of $180
million, comprising $20 million of cash equivalents and $160
million in undrawn availability under its $944 million bank credit
facility. The disposition of Seventeen magazine for $182
million will result in an improvement in liquidity following the sale,
which is expected to close in 2Q03. Combined, these sources
of cash should be more than adequate to fund the company's retained cash
flow deficit over the coming year, as reflected in the SGL-2
liquidity rating assignment. Covenants under the bank credit facility
are governed by the performance of PRIMEDIA's restricted group,
rather than by the results of the company's consolidated operations.
Covenant compliance analysis is hampered by the substantial levels of
inter-company sales, cross promotion, leasing and licensing
transactions between restricted and unrestricted subsidiaries.
Nevertheless a tightening of the total debt leverage covenant test to
5.75 times in 3Q03, and again to 5.5 times in 1Q04,
may result in some covenant pressure.
Like the company's existing and similarly rated senior "unsecured" notes,
which are now "unsecured" in name only and actually benefit from the same
security package afforded to the debt borrowed under the company's unrated
bank credit facilities, the to-be-issued senior secured
notes benefit from an upstream guarantee from the restricted group of
operating subsidiaries and are secured by a pledge of the stock of PRIMEDIA
Companies Inc., an intermediate holding company that owns
the stock of the operating subsidiaries. The stock and assets of
the operating subsidiaries remain unencumbered.
Proceeds from the sale of the proposed notes will be used to redeem PRIMEDIA's
8.5% Senior Notes due 2006.
In Moody's opinion, PRIMEDIA's remaining assets provide
bank lenders and bondholders with adequate asset coverage; however,
preferred stockholder interests, in particular, may be compromised
in a distress scenario. Accordingly, the preferred stock
is rated four notches below the senior implied rating, solidifying
the equity-like risks associated with same.
Ratings could be lifted if the company can demonstrate the ability to
produce consistently positive retained cash flow. Current financial
visibility is poor and Moody's does not have a high degree of confidence
in its valuation model. Accordingly, ratings could be lowered
if our future assessment of asset values showed impairment. Ratings
could also be lowered if proceeds from future asset sales were to be used
for purposes other than the permanent reduction of debt and preferred
The negative outlook reflects our lack of comfort with the level of disclosure
which continues to be provided by PRIMEDIA, particularly as it relates
to the very sizeable level of inter-company transactions,
which represent a substantial amount of restricted subsidiary group revenues
New York City-based PRIMEDIA Inc. is a media company providing
targeted content for both the consumer and business-to-business
sectors. The company is a specialty magazine publisher and a producer
and distributor of specialty video products. In addition,
the company provides news and information on the Internet through ABOUT.com.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
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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