Approximately $160 million of debt affected
New York, February 23, 2011 -- Moody's Investors Service has assigned B2 ratings to The Sheridan Group,
Inc.'s ("Sheridan" or the "Company")
$160 million of proposed senior secured bank credit facilities
including a $20 million revolving credit facility and a $140
million term loan facility. Concurrently, Moody's also
affirmed Sheridan's B2 Corporate Family Rating ("CFR")
and revised its Probability of Default rating to B3 from B2 (in accordance
with Moody's Loss-given-Default methodology).
Sheridan plans to use proceeds from its proposed term loan issuance,
approximately $9 million of borrowings under its proposed revolver,
and roughly $5 million of balance sheet cash to refinance existing
indebtedness and pay associated fees and expenses. The B2 rating
for Sheridan's 10.25% senior secured notes due August
2011 will be withdrawn upon full repayment of the notes at the close of
the transaction. The outlook for the ratings is stable.
Moody's has taken the following rating actions:
Proposed $20 million Senior Secured Revolving Credit Facility due
2015 -- Assigned B2 (LGD3, 36%)
Proposed $140 million Senior Secured Term Loan Facility due 2016
-- Assigned B2 (LGD3, 36%)
Corporate Family Rating -- Affirmed at B2
Probability of Default Rating -- Lowered to B3 from B2
$143 million of 10.25% Sr. Secured Notes due
August 2011 -- Affirmed, B2 (LGD4, 52%),
to be subsequently withdrawn
Ratings are subject to the execution of the proposed transaction and Moody's
review of final documentation.
The affirmation of Sheridan's Corporate Family Rating reflects Moody's
view that the Company's moderate debt leverage (pro forma Moody's
adjusted debt-to-EBITDA of approximately 4.0x) and
modestly improved run-rate free cash flow generation prospects
(benefiting from lower operating costs and interest expense on the proposed
bank debt relative to the existing bonds) continue to support the B2-rating
despite the continued challenging revenue environment. While Moody's
expects Sheridan to benefit from improving macro conditions and less dramatic
volume / pricing erosion over the near-term, we do not expect
a material rebound in top line revenues to peak historic levels.
However, we do anticipate that Sheridan's credit profile will benefit
from cost synergies from production facility consolidation as well as
the Company's prioritization of debt reduction, resulting
in debt-to-EBITDA in the mid-3.0x-range
Sheridan's B2 CFR is constrained by the Company's modest size
/ scale relative to larger, better capitalized printers, weak
industry fundamentals characterized by continued declines in print volumes,
general overcapacity and persistent pricing pressure, and the Company's
intensely competitive operating environment. Additionally,
Moody's believes that continued media fragmentation and ongoing
transition from traditional print-media to electronic and web-enabled
platforms will pressure overall print volumes for the industry and limit
Sheridan's growth prospects. Conversely, the rating
is supported by Sheridan's market position as a specialty printer
serving niche / regional markets with high customer service needs,
its diversified product mix coupled with high customer retention rates
and the Company's ability to minimize EBITDA erosion through effective
cost cutting to offset weak industry fundamentals and macro conditions
over the recent period. Additionally, the rating is also
supported by Sheridan's adequate liquidity position and moderate
pro forma debt leverage (with expectations for steady deleveraging over
Based on the proposed transaction, Sheridan's debt structure
will consist of first lien bank debt only, compared to the existing
structure of both bank debt and bonds. As such, Moody's
lowered Sheridan's probability of default rating to B3 from B2 and
switched to a 65% family recovery rate from a 50% family
recovery rate, as indicated by Moody's Loss Given Default
Methodology. In Moody's opinion, companies with only
first-lien bank debt have better recovery prospects but a higher
probability of default than firms with mixed debt capital structures.
The stable outlook incorporates Moody's expectation that Sheridan
will be able to stabilize recent revenue declines through new customer
growth and realize cost savings from its facility consolidation and that
debt leverage will remain below 4.0x debt-to-EBITDA.
Additionally the stable outlook also assumes that Sheridan will maintain
at least an adequate liquidity profile supported by modestly positive
free cash flow in 2011 followed by more significant free cash flow in
Sheridan's rating or outlook could come under pressure if the Company
experiences a material erosion in EBITDA levels as a result of protracted
revenue declines and/or inability to effectively manage its cost structure
such that debt-to-EBITDA approaches 4.5x and/or free
cash flow generation falls to less than 5% of total debt.
Additionally, overly shareholder-friendly fiscal policies
that weaken the Company's credit profile could also result in negative
rating actions. Absent an improvement in industry fundamentals
and a material increase in Sheridan's overall size and scale,
a ratings upgrade is highly unlikely over the next 12 to 18 months.
Additionally, a ratings upgrade would require evidence of improvement
in top line revenue trends combined with expectations for sustainable
debt-to-EBITDA in the low 3.0x-range and sustainable
positive free cash flow exceeding 10% debt.
Headquartered in Hunt Valley, Maryland , The Sheridan Group,
Inc. is a provider of printing solutions to niche markets within
specialty journal, catalog, magazine and book segments.
Sheridan operates through three business segments -- Publications
(56% of revenues), Catalogs (23% of revenues),
and Books (21% of revenues). For the last twelve month period
ended September 2010, the Company reported revenues of approximately
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.
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.
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on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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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
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Corporate Finance Group
Moody's Investors Service
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns B2 ratings to Sheridan Group's proposed credit facilities
250 Greenwich Street
New York, NY 10007