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Global Credit Research - 16 Nov 2010
Approximately $408 million of debt affected
New York, November 16, 2010 -- Moody's Investors Service assigned a Ba3 Corporate Family Rating (CFR)
and B1 Probability-of-Default Rating (PDR) to FilmYard MergeCo,
LLC ("FilmYard"). Additionally, Moody's assigned
a Ba3 rating to FilmYard's proposed $408 million 7-year
senior secured term loan. The company is a subsidiary of FilmYard
Holdings, LLC ("FilmYard Holdings") which is wholly
owned by a consortium of equity sponsors led by Colony Capital.
Proceeds from the term loan issuance will be used to finance the purchase
of Miramax Film NY, LLC ("Miramax") from The Walt Disney
Company for a purchase price of $664 million less cash on the balance
sheet, pay transaction costs and fund an opening cash account for
the newly created company. The equity sponsors will contribute
approximately 40% of the net purchase price. FilmYard will
be renamed Miramax post closing of the merger. The rating outlook
..Issuer: FilmYard MergeCo, LLC
.Corporate Family Rating -- Ba3
.Probability of Default Rating -- B1
.Senior Secured Term Loan -- Ba3 (LGD 3-34%)
FilmYard's Ba3 CFR reflects the inherent high risk associated with
the film business and the depreciating asset base represented by a vintage
content library which is expected to have declining revenue levels and
dependence on contract renewals, mitigated by the expected strong
credit metrics of the company and the strong protection provided by the
credit agreement which ensures steady debt reduction over the term of
the loan. The rating further reflects the lack of history given
the startup nature of the company and the risk posed by a new management
team and a smaller-scale business in effectively competing for
content licensing contracts to exploit the company's film titles.
The company's reliance on speculative sources of revenue for the
relatively high quality of assets in the portfolio such as participations
in sequel production, Blu-ray sales and digital streaming
licenses is offset by a high level of not yet earned contracted revenues
that have high certainty of collection, and low risk of new film
production in the near to intermediate term. Moody's anticipates
that FilmYard will have strong credit metrics including moderate pro-forma
debt-to-EBITDA leverage of under 3.0x which is expected
to consistently decline through debt reduction as a result of strong excess
cash flow sweep provisions in the credit agreement. "The full repayment
of debt by maturity through free cash flow generation eliminates refinancing
risk which is key to the Ba3 rating," stated Neil Begley,
a Moody's Senior Vice President.
The B1 PDR is a notch lower than the company's CFR due to the company's
all bank capital structure with financial covenants resulting in a higher
probability of default and a higher expected family recovery rate of 65%.
The stable outlook reflects a balance between an increase in risk over
time related to the depreciating asset base and growing dependency on
renewing contractual backlog and non-contractual revenues,
and our expectation for a disciplined decline in debt and leverage to
exceed the rate of decline in revenues and EBITDA. We anticipate
very low refinancing risk with the debt being fully repaid through free
cash flow generation over the seven year term. Within the first
12 to 18 months, leverage is expected to be in the 2.5-3.0x
A rating upgrade is unlikely in the near term based on the company's
lack of history in managing these assets, and low visibility on
the revenues in later years which bear higher risk. However,
if the company pays down debt at a more rapid pace due to better than
expected library exploitation opportunities (particularly of contractual
nature), and leverage falls and we believe can be sustained at around
1.25x by the end of 2012 along with credit protections remaining
in place, upward pressure on the rating could occur.
A rating downgrade could occur if certain revenue sources and EBITDA are
significantly below expectations and the company is not on the projected
pace for debt reduction resulting in leverage which is materially higher
than our initial expectation of under 2.0x by the end of 2012.
This is the first time Moody's has assigned public ratings to FilmYard.
Moody's subscribers can find further details in the FilmYard Credit Opinion
published on Moodys.com.
The principal methodology used in this rating was Loss Given Default for
Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
FilmYard's ratings were assigned by evaluating factors that Moody's
considers relevant to the credit profile of the issuer, such as
the company's (i) business risk and competitive position compared with
others within the industry; (iii) capital structure and financial
risk; (iii) projected performance over the near to intermediate term;
and (iv) management's track record and tolerance for risk. Moody's
compared these attributes against other issuers both within and outside
FilmYard's core industry and believes FilmYard's ratings are comparable
to those of other issuers with similar credit risk.
FilmYard MergeCo, LLC (to be renamed Miramax Film NY, LLC
post-merger), domiciled in New York, is comprised of
the film content library developed by the independent film studio established
by the Weinstein Brothers and later acquired by The Walt Disney Company
in 1993. The catalogue consists of approximately 670 films (475
theatrical films and 195 direct-to-video films), 130
television episodes and 200+ book titles.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
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
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns Ba3 CFR to FilmYard MergeCo, LLC (to be renamed Miramax post-merger) and a Ba3 rating to New Term Loan
250 Greenwich Street
New York, NY 10007
No Related Data.
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