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Rating Action:

MOODY'S ASSIGNS FIRST TIME RATINGS TO BTAC MERGER CORP.; CORPORATE FAMILY RATING OF B2; OUTLOOK STABLE

09 Jun 2006
MOODY'S ASSIGNS FIRST TIME RATINGS TO BTAC MERGER CORP.; CORPORATE FAMILY RATING OF B2; OUTLOOK STABLE

Approximately $200 Million of Debt Securities Rated

New York, June 09, 2006 -- Moody's Investors Service assigned first time ratings to BTAC Merger Corp.(dba "Baker & Taylor"). The ratings are being assigned in connection with the proposed leveraged recapitalization of BTAC Merger Corp. as a result of its acquisition by Castle Harlan.

The following ratings are assigned:

Corporate family rating at B2;

$200 million senior unsecured notes at B3 .

On May 10 , 2006, Castle Harlan and management signed a definitive agreement to acquire Baker & Taylor for approximately $455 million. The transaction will be financed predominantly with debt from the proceeds of the proposed $200 million senior unsecured notes and borrowings under the proposed asset based revolver, as well as from an equity contribution by Castle Harlan. The initial borrower of the asset based revolver and issuer of the unsecured notes will be BTAC Merger Corp. with upstream guarantees provided by Baker & Taylor Acquisitions Corp. and its wholly owned domestic subsidiaries; including Baker & Taylor Corporation. Upon closing of the transaction, BTAC Merger Corp. will merge with and into Baker & Taylor Acquisitions Corporation. The surviving entity will be Baker & Taylor Acquisitions Corporation. Upon closing the ratings assigned to BTAC Merger Corp. will be moved to the surviving entity, Baker & Taylor Acquisitions Corporation.

The B2 corporate family rating is primarily driven by the company's weak credit metrics, debt heavy capital structure, and private equity sponsor influenced financial policy which constrain the rating category despite certain aspects of its business franchise factors that could support a higher rating category. Pro forma for the proposed transaction the company will be highly levered with weak interest coverage and weak free cash flow generation. Its credit metrics are consistent with the single-B or lower rating categories. The company's has a history of leveraged recapitalizations. The most recent leveraged recapitalization prior to the current transaction was the acquisition of the company by Willis Stein in 2003 .

The rating outlook is stable. Positive rating pressure could develop should the company sustain FCF/Debt above 5% and EBIT/Interest Expense above 1.5x. Negative rating pressure could develop should the company's liquidity deteriorate or operating performance decline such that free cash flow remained consistently negative or Debt/EBITDA rose above 6.5x and EBIT/Interest Expense fell below 1.0x.

The senior unsecured notes (at B3) are rated one notch below the corporate family rating reflecting their junior position to the asset based facility. The senior unsecured notes will be guaranteed by each subsidiary that is either a borrower or guarantor under the asset based revolving credit facility.

BTAC Merger Corp. and its direct subsidiary Baker & Taylor Acquisitions Corp. are holding companies whose sole asset is Baker & Taylor Corporation. Baker & Taylor Corporation, headquartered in Charlotte, NC, is a leading domestic and international distributor of books and entertainment products to libraries and retailers.

New York
Angela Jameson
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Margaret Taylor
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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