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30 Jul 2010
Approximately $575 Million of Rated Debt Affected
New York, July 30, 2010 -- Moody's Investors Service assigned a B3 rating to Vertis' proposed
$425 million senior secured first-out term loan and a Caa2
rating to its proposed $150 million senior secured last-out
term loan, both due 2015. Based on the proposed revised debt
structure, these new term loans will be issued in place of the previously
proposed Senior Secured Bank Credit Facility and Senior Secured Regular
Bond/Debenture, which each had been rated B3 in April 2010,
and the ratings for which have now been withdrawn. All other ratings
remain unchanged and the rating outlook remains stable, as outlined
The ratings are assigned in connection with Vertis' proposed out-of-court
restructuring and refinancing that will reduce its debt by approximately
18% to $948 million (excluding an incremental $100
million of PIK preferred stock that Moody's considers to be debt-like)
through conversion of existing senior PIK notes into common stock and
an exchange of existing senior secured second lien notes for new secured
notes, cash and preferred stock. Vertis plans to utilize
net proceeds from the new first lien term loans to repay existing bank
debt and second lien notes, as well as to fund transaction fees
and expenses. The restructuring and refinancing favorably extend
the maturity profile and reduce total interest expense but significantly
increase Vertis' cash interest payments.
...Issuer: Vertis, Inc.
...Senior Secured (First-Out) Term Loan,
Assigned a B3, LGD3 - 33%
...Senior Secured (Last-Out) Term Loan,
Assigned a Caa2, LGD4 - 61%
...Corporate Family Rating, Caa1
...Probability of Default Rating, Caa1
...Speculative Grade Liquidity Rating, SGL-3
Senior Secured Bank Credit Facility, B3
Senior Secured Regular Bond/Debenture, B3
The B3 rating and LGD3-33% assessment on the proposed $425
million first-lien, senior secured, first-out
term loan is one notch above the CFR and reflects the benefits of the
first lien on substantially all the assets of Vertis, the company's
parent, Vertis Holdings, Inc. and its subsidiaries,
as well as its first-out payment priority over the $150
million first-lien, senior secured, last-out
term loan. The first-out term loan also benefits from financial
maintenance covenants and scheduled quarterly amortization. Maintenance
covenants could improve recovery prospects as they provide lenders an
ability to modify terms of the credit facility, which could result
in pay downs and/or higher interest margins as a condition to amending
the facility. Scheduled amortization and other mandatory pay-downs
also reduce the first-out term loan lenders' exposure over time.
The Caa2 and LGD4-61% assessment on the proposed $150
million first-lien, senior secured, last-out
term loan is one notch below the CFR and reflects the benefits of the
first lien albeit last-out position behind the first-out
term loan. Vertis' proposed last-out term loan also notably
does not contain financial maintenance covenants or scheduled amortization
An unrated proposed revolver also exists and is also secured by a lien
on the company's assets, but it will have first priority only with
respect to current assets and second priority with respect to all other
assets. The term loans will have second priority with respect to
current assets and first priority with respect to all other assets.
The restructuring/refinancing transactions are subject to a number of
conditions including minimum participation requirements on the company's
exchange offerings. Moody's assumes these conditions are met but
ratings are subject to a review of the final results of the company's
restructuring and the terms and conditions of the debt instruments.
Moody's subscribers can find further details on Vertis' ratings in the
credit opinion published on www.moodys.com.
Moody's last rating action for Vertis was on April 23, 2010 when
we assigned a CFR of Caa1, a PDR of Caa1, a Speculative Grade
Liquidity Rating of SGL-3, and individual instrument ratings
related to the previous proposal.
Vertis' ratings were assigned by evaluating factors we believe are relevant
to the credit profile of the issuer, such as i) the business risk
and competitive position of the company versus others within its industry,
ii) the capital structure and financial risk of the company, iii)
the projected performance of the company over the near to intermediate
term, and iv) management's track record and tolerance for risk.
These attributes were compared against other issuers both within and outside
of Vertis' core industry and Vertis' ratings are believed to be comparable
to those of other issuers of similar credit risk.
Vertis, headquartered in Baltimore, MD, provides advertising,
direct marketing and interactive products and services to clients across
North America. Vertis merged with ACG in October 2008 upon the
emergence of both companies from July 2008 pre-packaged bankruptcy
filings. Avenue Capital will control a majority of the equity and
the board of directors upon completion of the proposed refinancing/restructuring.
Revenue was approximately $1.3 billion in FY 2009.
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's Rates New Vertis Debt - Sr Sec First-Out B3, Sr Sec Last-Out Caa2
No Related Data.
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