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Global Credit Research - 11 Feb 2011
Ratings assigned to $195 million of debt
New York, February 11, 2011 -- Moody's Investors Service assigned Playboy Enterprises, Inc.
("Playboy") a B2 Corporate Family Rating (CFR), B2 (LGD-3,
32%) ratings to Playboy's $195 million of senior secured
credit facilities, and a B3 Probability of Default Rating (PDR)
in connection with the proposed buyout by private equity firm Rizvi Traverse
and management. The buyout will be funded with $195 million
of senior secured credit facilities (consisting of a $185 million
Term Loan B due 2017 and a $10 million Revolver due 2016) plus
$185 million in equity contributions from Rizvi Traverse and management,
including Hugh M. Hefner. The outlook is stable.
A summary of today's rating actions are listed below:
Issuer: Playboy Enterprises, Inc.
.Corporate Family Rating, Assigned B2
.Probability of Default Rating, Assigned B3
....New $10 million Senior
Secured Revolver due 2016, Assigned B2 (LGD-3, 32%)
....New $185 million Senior
Secured Term Loan B due 2017, Assigned B2 (LGD-3, 32%)
.Outlook, Assigned Stable
Playboy's B2 Corporate Family Rating (CFR) reflects the company's
high pro forma debt-to-EBITDA leverage ratio of approximately
5.9x by the end of 2011 (including Moody's standard adjustments),
and challenges in executing its global strategy for branding and licensing
while rationalizing under performing, non-core segments.
Free cash flow remains negative through the first half of 2012 as newly
awarded licensing and location based entertainment revenues are realized.
Playboy's ratings are supported by its recognizable global brand,
growing higher margin licensing and location based entertainment (LBE)
businesses, in addition to Moody's expectations for improved
financial performance over the next 12 to 18 months based on multi-year
contracts with minimum guarantees. Moody's believes Playboy,
under new ownership, will be successful over the near term in growing
EBITDA by entering into new licensing and LBE arrangements which generate
stable and higher margin revenue streams. Moody's also expects
the company will continue to focus on cutting costs through additional
overhead eliminations and outsourcing agreements while maintaining adequate
The stable outlook reflects Moody's view that Debt-to EBITDA
will be sustained below 6.0x in 2011 (including Moody's standard
adjustments) and below 5.0x in 2012 and that losses from publishing
or other segments will be reduced from 2010 levels. The outlook
also reflects expectations that the company will continue to enter into
high margin licensing arrangements and that liquidity will be adequate.
Ratings could be downgraded if revenue or EBITDA fall short of Moody's
expectations due to the inability to grow licensing or location based
entertainment businesses or if losses from publishing or other segments
increase resulting in debt-to-EBITDA ratios sustained above
6.0x in 2011 or 5.0x in 2012. A decrease in licensing
contracts or erosion in margins resulting in weakened liquidity or deterioration
in the EBITDA cushion relative to financial covenants would create downward
rating pressure. An upgrade could be considered when total debt-to-EBITDA
ratios are sustained comfortably below 3.75x with free cash flow-to-debt
ratios greater than 15% in combination with increasing cash balances.
The principal methodology used in determining instrument ratings was Loss
Given Default for Speculative-Grade Non-Financial Companies
in the U.S., Canada and EMEA published in June 2009.
Playboy Enterprises, Inc. is a global media and lifestyle
company founded in 1953 by Hugh M. Hefner, the creator and
editor-in-chief of Playboy Magazine. The company
has expanded beyond its print business to include licensing, location
based entertainment (LBE), digital, and entertainment business
segments. Playboy generates annual revenues of approximately $221
million (LTM through 9/30/10) across these five business segments with
operations or licensing contracts in the Americas, Europe,
Asia and Australia. Upon closing of the announced buyout,
Playboy's controlling equity holder will be Rizvi Traverse Management
(approximately 60% ownership), a Los Angeles based private
equity firm, with Mr. Hefner (37%) and other executive
management (3%) holding the remaining equity.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns B2 CFR and Instrument Ratings to Playboy's New Credit Facilities
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