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Rating Action:

Moody's Downgrades Ratings for Caribe Media, Inc; CFR now Caa2

16 Sep 2010

$130 million of rated debt affected

New York, September 16, 2010 -- Moody's Investors Service downgraded Caribe Media, Inc.'s (Caribe") ratings, including its Corporate Family Rating (CFR) to Caa2 from B3, Probability of Default Rating to Caa3 from B3, and associated instrument ratings as detailed below. The rating actions follow the September 8, 2010 announcement by the company that it had engaged a financial advisor to evaluate the capital structure of its parent holding company, Local Insight Media Holdings, Inc. ("LIMH"), and broadly reflect Moody's view that the company is likely to default on a more imminent basis given persistently difficult business conditions and ensuing high financial leverage, as now exacerbated by tightening financial covenants. In a distress scenario, we estimate ultimate recovery prospects in the range of 60%-70% of (principally) debt claims, with subordinated debt absorbing most of the loss severity. The one-notch downgrade of the senior secured debt rating to B3 principally reflects the increased risk of default, partially offset by the above-average anticipated firm-wide recovery expectation and comparatively favorable position of senior secured debt holders (note specifically the reduced loss given default estimate) relative to more junior subordinated debt holders. This completes the review for possible downgrade initiated on September 9, 2010.

Downgrades:

Issuer: Caribe Media, Inc.

Corporate Family Rating, Downgraded to Caa2 from B3

Probability of Default Rating, Downgraded to Caa3 from B3

Senior Secured Revolver due 2012, Downgraded to B3, LGD2-16% from B2, LGD3-35%

Senior Secured Term Loan due 2013, Downgraded to B3, LGD2-16% from B2, LGD3-35%

Outlook Actions:

Issuer: Caribe Media, Inc.

Outlook, Negative

Moody's does not rate Caribe's $50.6 million (includes PIK accretion) of subordinated notes due 2014, which are held entirely by its primary shareholder Welsh, Carson, Anderson & Stowe ("WCAS").

RATINGS RATIONALE

Caribe's Caa2 CFR reflects the company's small size and high leverage in the face of declining demand for yellow pages advertising from small and medium-sized businesses in Puerto Rico. The ratings also reflect the company's high leverage with 5.2x total debt-to-EBITDA as of June 30, 2010 (incorporating Moody's standard adjustments). Through the six months ended June 30, 2010, revenues declined 7% to $50 million while EBITDA fell 25% to $17.1 million (34% margin) due to weak advertising demand in a soft economy, primarily in Puerto Rico, and an increase in bad debt expense. In the same six months of 2009, Caribe generated $22.7 million of EBITDA with 42% margins. We expect continued weak demand for core yellow pages products and services over the next twelve months.

Liquidity is expected to be constrained as Caribe reported $1.8 million of cash at June 30, 2010 and, in a scenario in which financial covenants are violated, it would no longer have access to $7 million of availability on its $10 million revolver (excludes $3 million of unfunded commitments from a subsidiary of Lehman Commercial Bank). In a default scenario, Caribe would eliminate dividends and apply available cash to reduce debt balances as leverage ratio covenants become more restrictive with quarterly step-downs through March 2011. Although the company had built up cash balances through 1Q09, dividends totaling $29.9 million by year end 2009 notably eliminated this liquidity cushion. In the absence of term loan prepayments, debt balances would continue to increase as accruing subordinated PIK debt of approximately $6 million per year more than offsets the $1.5 million of scheduled annual amortization on the term loans. In a restructuring, we would expect a good portion of the subordinated notes to be equitized.

Caribe is one of three operating groups under the LIMH parent holding company. The two other operating groups, Local Insight Media Regatta Holdings, Inc. (Ca, as revised today, also with a negative rating outlook) and Local Insight Media Finance, LLC (Baa3, on review for downgrade), are also highly leveraged entities with declining revenue prospects, neither of which are in a position to provide needed liquidity to Caribe. We estimate that total debt for the consolidated entities exceeds $1.8 billion with reported debt-to-reported EBITDA of more than 7.5x for the consolidated entity. Although debt facilities at Caribe are legally separate from its affiliates and do not cross default to debt instruments issued by affiliates, Moody's view is that management, together with its advisors, may address its refinancing strategy at a consolidated level given reliance on intercompany dividends and affiliate management fees.

"The negative outlook reflects Moody's view that Caribe's capital structure is unsustainable, liquidity is constrained, and demand for the company's core yellow pages advertising products, particularly in its Puerto Rico markets, is in decline, making it increasingly likely that the company will default on its financial covenants in the near term," stated Carl Salas, Vice President at Moody's Investors Service.

A rating upgrade is deemed unlikely in the absence of an equity injection to reduce debt levels to a more sustainable level and more comfortably within compliance of financial maintenance covenants. We would downgrade ratings if revenue or EBITDA were to decline below our expectations or if the company were to exchange debt securities at sub-par values.

Moody's last rating on Caribe occurred on June 23, 2009 when it downgraded the CFR and PDR, each to B3, and downgraded associated instrument ratings in addition to changing the outlook to negative. On September 9, 2010, Moody's placed all ratings on review for possible downgrade.

Caribe's ratings were assigned by evaluating factors we believe are relevant to the credit profile of the issuer, such as i) the business risk and the competitive position of the company versus others in its industry, ii) the capital structure and the financial risk of the company, iii) the projected financial and operating performance of the company over the near-to-intermediate term, and iv) management's track record and tolerance of risk. These attributes were compared against other issuers both within and outside of Caribe's core industry and Caribe's ratings are believed to be comparable to those of other issuers of similar credit risk.

The principal methodology used for the instrument ratings of Caribe Media, Inc. was the Probability of Default Ratings and Loss Given Default Assessments rating methodology published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Caribe Media, Inc., based in Puerto Rico, owns directory publishing operating subsidiaries in two Caribbean nations. In Puerto Rico, Caribe owns 60% of Axesa Servicios de Informacion S. en C. and Axesa Servicios de Informacion Inc., and in the Dominican Republic Caribe owns 100% of Caribe Servicios de Informacion Dominicana S.A. The company reported revenues of approximately $102 million for the LTM period ended June 30, 2010. The company is an indirect, wholly-owned subsidiary of Local Insight Media Holdings, Inc. whose primary owner is Welsh, Carson, Anderson & Stowe.

REGULATORY DISCLOSURES

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 Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining 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.

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

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

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's Downgrades Ratings for Caribe Media, Inc; CFR now Caa2
No Related Data.
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