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28 Jul 2004
MOODY'S UPGRADES ALL RATINGS OF DEX MEDIA: CONCLUDES REVIEW
Approximately $6.4 Billion of Rated Debt Securities Affected
New York, July 28, 2004 -- Moody's Investors Service has upgraded all ratings of Dex Media,
Inc. (Dex) and subsidiaries
The ratings upgraded include:
Dex Media, Inc.
$512 million 9% senior discount notes, due 2013 --
B3 from Caa2
$500 million 8% cash pay unsecured notes, due 2013
-- B3 from Caa2
Senior implied rating -- Ba3 from B1
Issuer rating -- B3 from Caa2
Dex Media East LLC
$1.191 billion senior secured credit facility -- Ba2
$450 million 9.875% senior unsecured notes,
due 2009 -- B1 from B3
$525 million 12.125% senior subordinated notes,
due 2012 -- B2 from Caa1
Dex Media West LLC
$2.066 billion senior secured credit facility -- Ba2
$385 million 8.5% senior unsecured notes, due
2010 -- B1 from B3
$780 million 9.875% senior subordinated notes,
due 2013 -- B2 from Caa1
Moody's has withdrawn the senior implied and issuer ratings of Dex
Media East and Dex Media West. Senior implied and issuer ratings
now only reside at Dex Media Inc.
This concludes the review for possible upgrade, which was initiated
on May 28 2004.
The rating outlook is stable
The senior implied upgrade to Ba3 reflects the positive operational performance
which Dex has achieved since the acquisition of Dex West in September
2003 and a reduction of consolidated leverage which will result from management's
plans to reduce debt from the proceeds of the recently concluded IPO.
In addition the ratings reflect Moody's view of reduced volatility
in Dex's financial profile, proven access to the public debt
and equity markets, and an expectation for further deleveraging
as a result of continued strong cash flow. Nevertheless,
the ratings continue to be pressured by Dex's high leverage,
a slow but manageable erosion of yellow page usage, and the prospect
of heightened competition within all of Dex's markets.
The stable outlook incorporates the reliability and visibility of Dex's
revenues, the resilience of the yellow page advertising business
to economic downturns, and the company's strong free cash
flow generation which provides potential for significant organic deleveraging.
On May 28, 2004, Moody's placed all ratings of Dex companies
on review for possible upgrade following the company's announcement that
it planned to use the net primary proceeds of its proposed initial public
offering to delever its balance sheet by retiring $184 million
of Dex Media East subordinated debt and $273 million of Dex Media
West subordinated debt.
Subsequently, Dex announced a reduction in the size of its planned
debt repayment to $184 million instead of $437 million,
resulting in a reduction of pro-forma leverage to 6.2 times
EBITDA at year end 2004, instead of the 5.9 times EBITDA
which was contemplated by the earlier announcement. Although the
level of pro-forma leverage now not as low as previously expected,
it nevertheless represents an improvement over the 6.7 approximately
times EBITDA level which resulted from Dex's $250 million
add-on senior note issue in January 2004. The Ba3 senior
implied rating incorporates an expectation that free cash flow generation
will continue to reduce leverage to below 6 times EBITDA by the end of
2005, and assumes no incremental debt issuance.
Dex enjoys a fundamentally sound and predictable business model,
which to date has experienced only a modest reduction in market share,
given the company's reputation as the "official" yellow
pages of the incumbent local exchange carrier -- Qwest. Its
operations produce strong EBITDA margins of approximately 60%,
and free cash flow approximating $500 million in 2003. However
the company has tolerated some volatility and releveraging in its balance
sheet by using the proceeds of incremental debt issuance and funds from
operations to remit a substantial level of dividends to its two primary
shareholders. Moody's does not expect to see a continuation of
these levels, post IPO.
Moody's considers that Dex enjoys adequate liquidity. At the end
of March 2004, Dex recorded approximately $200 million in
aggregate undrawn available revolving credit facilities at Dex East and
Dex West. Given Dex's strong cash flow generation,
Moody's does not project a need for further drawings under these
The senior secured credit ratings of Dex East and Dex West are notched
up from the senior implied rating in recognition of strong asset protection
metrics. Management has addressed Moody's earlier concerns
regarding Dex's acquisition and integration risk, and the
prospect of lower balance sheet volatility have also facilitated this
notching. The senior unsecured debt of Dex East and Dex West is
rated one notch below the senior implied rating in recognition of their
ranking below approximately $3.3 billion of senior secured
bank debt. Moody's notes that Dex East carries less debt
and is less leveraged than Dex West. However, Dex East's
lower debt burden and superior asset coverage does not warrant a rating
differential, according to Moody's. The senior unsecured
debt of Dex Media, Inc. is rated B3 reflecting its position
as the most junior debt component in Dex's capital structure.
Through its operating subsidiaries, Dex Media East LLC and Dex Media
West LLC, Dex Media, Inc. is the exclusive publisher
of business telephone directories for Qwest Communications International.
Dex East owns and operates incumbent directories in 7 states -
Colorado, Iowa, Minnesota, Nebraska, New Mexico,
North Dakota and South Dakota. Dex West owns and operates incumbent
directories in 7 states - Washington, Oregon, Idaho,
Montana, Wyoming, Utah and Arizona. The company is
headquartered in Englewood, Colorado.
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2020 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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