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11 Nov 2003
MOODY'S CONFIRMS NEBRASKA BOOKS RATINGS; CHANGES OUTLOOK TO STABLE
Approximately $300 Million of Debt Affected.
New York, November 11, 2003 -- Moody's Investors Service confirmed the debt ratings of the Nebraska
Book Company, Inc., and the debt ratings of its parent,
NBC Acquisition Corp. The ratings include those assigned to the
company's prospective secured bank facilities, which have
been reduced by an aggregate $35 million to the amounts shown below.
The rating outlook has been changed to stable from negative following
a change in recapitalisation plans, although Moody's notes
that the current plan will still increase the company's leverage
to a point where it will be weakly positioned in its rating category.
The following ratings of Nebraska Book Company, Inc. were
$110 million senior subordinated notes due 2008 (guaranteed by
all operating and holding companies) at B3;
Senior secured bank debt rating ($75 million term loan and $50
million revolving credit agreement secured by essentially all assets)
at B1. The Ba3 ratings of the existing bank facilities will be
withdrawn following establishment of the new facilities.
The following ratings of NBC Acquisition Corp. (parent company)
Senior implied rating at B1;
Senior unsecured issuer rating at Caa1;
$76 million senior unsecured debentures due 2009 rated Caa1.
The new term loan amount has been reduced to $75 million from $110
following the company's decision to reduce the amount of shares
to which it will tender to about $35 million. This amount
falls within the restricted payments covenant of the subordinated notes.
Additional proceeds will be available to finance acquisitions or operational
Nebraska Book's leverage will remain high relative to both income
and assets following proposed transaction, with only a modest amount
of cash flow available to reduce debt. Funded debt will be higher
than total assets following the transaction. Debt to EBITDA will
rise above 4.5 times at closing, with lease-adjusted
debt to EBITDAR in excess of 5 times. Moody's expects debt repayment
to be modest over the medium term.
The ratings are supported by low volatility in used textbook segment of
Nebraska's business, satisfactory fixed charge coverage ratios,
and by the substantial amount of cash which Nebraska Book has retained
on its balance sheet which is being used to meet seasonal needs.
The company has been able to retain cash as a result of following a more
conservative acquisition strategy over the past two years. Moody's
believes that a smaller number of acquired and opened stores has helped
improve operating margins as well as cash retention. An increase
in acquisition activity could stall or reverse this trend. EBITDAR
to fixed costs is expected to remain near 2.0 times following the
transaction, and Moody's expects the company can continue to finance
maintenance and moderate growth capex through internal sources.
The rating outlook has been changed to stable from negative. The
smaller amount of debt gives Nebraska more cushion to absorb setbacks.
Debt protection metrics are more closely in line with comparably rated
companies, and the lower amount of debt should allow Nebraska to
de-lever more quickly than previously expected. Competitive
pressure or technology shift could change the dynamics of Nebraska Book's
wholesale book business. There is also a risk that the company
may resume more aggressive growth or diversification strategies which
could reduce cash balances and delay de-leveraging. Nebraska
Book's EBITDA margin has fluctuated within a narrow range over the
past few years, rising significantly in the most recent fiscal year
ending March 2003. Profit margins are subject to further change
based on management strategies or the competitive environment.
Changes in technology or customer preferences could also affect financial
A use of cash for acquisitions, or competitive responses which would
reduce profitability without generating additional sales could cause ratings
to fall. The rating outlook could respond positively if the company
reduces debt more quickly than expected. The term loan has very
low required amortization in its early years, which increases financial
flexibility and liquidity but allows more discretion in use of cash.
The B1 rating on the secured debt reflects a high amount of secured borrowings
relative to the company's asset base and capital structure.
The company's enterprise value and modest tangible asset base,
whose value would be questionable in a distressed scenario, no longer
provides a substantial cushion relative to a higher level of secured debt.
The revolving credit agreement has a borrowing base formula, which
provides little additional protection given the outstandings under the
term loan. The five-year maturity date on the revolver and
seven-year maturity date on the term loan will be accelerated if
the senior subordinated notes are not refinanced or extended by June 2007.
Nebraska Book Company, Inc., headquartered in Lincoln,
Nebraska, is a leading wholesaler of used textbooks and operates
more than 110 college bookstores. The company also offers other
affiliated services. Revenues were $370 million for the
fiscal year ended March 2003.
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
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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