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16 Sep 2010
$551 million of rated debt affected
New York, September 16, 2010 -- Moody's Investors Service downgraded Local Insight Regatta Holdings,
Inc.'s ("Local Insight Regatta") Corporate Family Rating (CFR)
and its Probability of Default Rating (PDR), each to Ca from Caa1,
and associated instrument ratings detailed below. The multi-notch
downgrades reflect Moody's view that the company is likely to violate
financial covenants for the September 30, 2010 reporting period
and will need to restructure its balance sheet in the near term.
We estimate recovery prospects to be average for a Ca rating with subordinated
debt taking most of the loss. As announced on September 8,
2010, management engaged a financial advisor to evaluate the capital
structure of its parent holding company, Local Insight Media Holdings,
Inc. ("LIMH"). These downgrades complete Moody's review
initiated on September 9, 2010.
Issuer: Local Insight Regatta Holdings, Inc.
Corporate Family Rating, Downgraded to Ca from Caa1
Probability of Default Rating, Downgraded to Ca from Caa1
Senior Secured Revolving Credit Facility due 2014, Downgraded to
Caa2, LGD2-28% from B2, LGD3-30%
Senior Secured Term Loan due 2015, Downgraded to Caa2, LGD2,
28% from B2, LGD3-30%
Senior Subordinated Notes due 2017, Downgraded to C, LGD5,
83% from Caa3, LGD5-84%
Issuer: Local Insight Regatta Holdings, Inc.
Local Insight Regatta's Ca Corporate Family rating reflects weak recovery
prospects facing debt holders in a distress scenario given the company's
reliance on the thin-margined sales and marketing business within
the yellow pages sector and its dependence on successfully renewing contracts
with independently-owned directory publishers. The ratings
also reflect the company's high leverage with 6.3x total debt-to-
EBITDA as of June 30, 2010 (incorporating Moody's standard adjustments).
The yellow pages industry suffers from secular declines in demand for
print-based publishing as competition from established Internet-based
local search providers erodes the need for traditional directories.
Through the six months ended June 30, 2010, revenues declined
8.3% to $266 million as customers cut back or discontinued
their advertising contracts. Over this period, EBITDA declined
19.7% to $37.8 million (14.2%
margin) compared to EBITDA of $47.1 million (15.8%
margin) for the same six months in 2009. We expect continued declines
in demand for core yellow pages products and services over the next twelve
months will more than offset the benefits of Local Insight Regatta's diversified
customer and geographic market base. We also expect free cash flow
to be modest over the next 12 months.
Liquidity is strained and, as of June 30, 2010, Local
Insight Regatta reported $7 million of cash and $10.2
million of availability on its $30 million revolver (effectively
$26.2 million given that it does not have access to an unfunded
$3.8 million commitment from a Lehman Brothers Commercial
Bank subsidiary). In July, the company drew down the remaining
availability bringing total revolver advances to $26.2 million.
Local Insight Regatta is one of three operating groups under the LIMH
parent holding company. The two other operating groups, Caribe
Media, Inc (Caa2, as revised today, also with a negative
rating outlook) and Local Insight Media Finance, LLC (Baa3,
on review for downgrade), are highly leveraged entities with declining
revenue prospects, neither of which are in a position to provide
much needed liquidity to Local Insight Regatta. 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 Local
Insight Regatta 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 rating outlook reflects Moody's view that the capital
structure of Local Insight Regatta is unsustainable, liquidity is
constrained, and demand for the company's core yellow pages
advertising products is in decline, making it likely that the company
will need to restructure its balance sheet," stated Carl Salas,
Vice President of Moody's Investors Service.
A rating upgrade is unlikely in the near term given the negative outlook.
We would downgrade the PDR (and likely the bank debt ratings, as
well, albeit not the subordinated debt rating or the CFR) to "D"
to signal a default event if the company were to exchange debt securities
for less than par value on a Moody's-deemed distressed basis,
and/or if the company files a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code.
Moody's last rating action on Local Insight Regatta occurred on March
13, 2009 when it downgraded the CFR and PDR each to Caa1,
downgraded associated instrument ratings, and affirmed the negative
outlook. On September 9, 2010, Moody's placed
all ratings under review for downgrade.
Local Insight Regatta'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 Local Insight Regatta's core industry and Local Insight Regatta's
ratings are believed to be comparable to those of other issuers of similar
The principal methodology used for the instrument ratings of Local Insight
Regatta Holdings, 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.
Headquartered in Englewood, Colorado, Local Insight Regatta
Holdings, Inc. is a leading provider of local search advertising
products and services, targeting small and medium-sized businesses,
with a range of lead-generating solutions that enable consumers
to find products and services they need. The company's integrated
suite of local advertising solutions includes print Yellow Pages as well
as a range of digital advertising products and services designed to establish,
maintain and optimize an advertiser's online presence. For the
12 months ended June 30, 2010, the company reported revenues
of approximately $554 million. The company is an indirect,
wholly-owned subsidiary of Local Insight Media Holdings,
Inc. whose primary owner is Welsh, Carson, Anderson
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 maintaining
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
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independent third-party sources. However, MOODY'S
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
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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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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.
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 Downgrades Ratings for Local Insight Regatta; CFR Lowered to Ca
250 Greenwich Street
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