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Global Credit Research - 24 Nov 2010
Approximately $525 million of debt assigned
New York, November 24, 2010 -- Moody's Investors Service assigned a B3 Corporate Family Rating ("CFR"),
B3 Probability of Default Rating ("PDR"), and instrument
ratings in connection with American Media Operations, Inc.'s
("American Media") proposed Chapter 11 exit financing, as detailed
below. The proposed exit financing will reduce funded debt by an
estimated 40% to $525 million through conversion of existing
14% senior subordinated notes and 8 7/8% senior subordinated
notes into common stock. In addition, existing 9%
senior PIK notes could be be converted into a portion of the new second
lien notes. The company plans to utilize net proceeds and a portion
of cash balances to repay existing bank debt facilities as well as to
fund transaction fees and related expenses.
..Issuer: American Media Operations, Inc
....Corporate Family Rating, Assigned
....Probability of Default Rating, Assigned
....New First Lien Senior Secured Notes,
Assigned a B2, LGD3 - 40%
....New 2nd lien, Senior Secured Notes,
Assigned a Caa2, LGD5 - 89%
....Speculative Grade Liquidity Rating,
..Issuer: American Media Operations, Inc
....Outlook, Assigned Stable
American Media filed a voluntary petition for reorganization under Chapter
11 of the U.S. Bankruptcy Code on November 17, 2010.
The company expects its plan for reorganization to become effective in
approximately 60 days. Under the plan, senior debt will be
taken out completely, with senior subordinated notes absorbing the
loss. The reorganization will significantly reduce the company's
debt and interest expense providing more financial and operating flexibility.
Moody's ratings assume that proposed conditions are met and that the company's
debt structure after emerging from bankruptcy will consist of an undrawn
$40 million super-priority senior secured revolver (unrated),
$385 million of first lien senior secured notes and $140
million of second lien senior secured notes. The rating assignments
are subject to a review of the final terms and conditions of the debt
instruments, and the company's liquidity position including headroom
under financial maintenance covenants.
Upon emergence from Chapter 11 and completion of the proposed new debt
issuances, American Media's B3 CFR reflects secular trends negatively
impacting circulation of weekly celebrity tabloids and monthly magazines,
the challenging market for magazine advertising, its high 4.9x
total debt-to-EBITDA leverage ratio (including Moody's
adjustments for standard items and rack amortization), and competition
from deep-pocketed rivals. After emerging from Chapter 11,
the company needs to reduce total debt-to-EBITDA leverage
ratios below the initial 4.9x level to maintain its B3 CFR.
Ratings are supported by the reputation and reader loyalty of its flagship
titles including National Enquirer, Star, Shape, and
Muscle & Fitness, improved free cash flow-to-debt
ratios due to significantly lowered cash interest expense, as well
as the ability to partially offset declining newsstand and subscription
revenues with price increases and optimizing reductions in manufacturing
and distribution costs through strategic rate base cuts. Liquidity
is adequate and enhanced by the proposed $40 million revolver which
is expected to be largely undrawn. Although revenues are expected
to be negatively impacted by continued circulation decreases, we
expect credit metrics including debt-to-EBITDA leverage
and interest coverage ratios to improve as free cash flow is applied to
reduce note balances or enhance liquidity.
The stable rating outlook reflects our expectation that annual circulation
revenues will continue to decline 2-3% in the near term
and American Media will perform in line with its plan and apply free cash
flow to reduce debt balances or enhance liquidity. We also expect
debt-to-EBITDA leverage ratios will remain below 5.50x
(including Moody's standard adjustments). Management states
that it is focused on increasing free cash flow and reducing leverage.
We recognize that American Media's leading celebrity magazines experienced
a lower decline in advertising page count compared to a number of its
peers; however, we expect the company will continue to rely
on cover price increases to offset ongoing declines in newsstand and subscription
revenues. Also incorporated in the outlook is our expectation that
the company will maintain adequate liquidity and contain costs resulting
in EBITDA margins of 25-27% over the rating horizon.
Ratings could be upgraded if improved advertising demand, incremental
service revenue or cover price increases results in greater free cash
flow generation, further debt reduction and debt-to-EBITDA
ratios being sustained comfortably below 4.25x (including Moody's
standard adjustments). Ratings could be lowered if higher than
expected circulation declines or reduced advertising demand deteriorates
free cash flow to the point that the company is no longer able to reduce
debt balances or meet financial maintenance covenants. Ratings
could also be lowered if acquisitions or other leveraging events result
in debt-to-EBITDA ratios that are contrary to management's
plan to reduce leverage.
Moody's last rating action for American Media was on November 17,
2010 when its PDR was downgraded to D following the company's announcement
that it filed a voluntary petition for reorganization under Chapter 11
of the U.S. Bankruptcy Code. All ratings were subsequently
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.
Headquartered in Boca Raton, Fl, American Media is a leading
publisher of celebrity journals as well as health and fitness magazines.
The company also provides publishing services to other publishers and
arranges for the placement of owned publications and third party publications
with retailers. Given continued declines in subscription,
newsstand and advertising revenues, the company has been challenged
to reduce debt balances since its January 2009 restructuring. On
November 17, 2010, American Media filed a pre-packaged
plan of reorganization under Chapter 11. American Media is expected
to emerge from Chapter 11 protection in approximately 60 days with an
estimated 40% lower debt load. The company reported sales
of approximately $404 million for the 12 months ended September
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 information, and confidential and proprietary Moody's
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.
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 American Media B3 ratings on Ch. 11 Exit Financing; outlook is stable
250 Greenwich Street
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