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Rating Action:

Moody's assigns PRIMEDIA a B1 CFR and a B1 to its new bank facilities; outlook stable

17 Jun 2011

Approximately $315 million of debt rated

New York, June 17, 2011 -- Moody's Investors Service assigned a B1 rating to PRIMEDIA, Inc.'s ("PRIMEDIA") proposed $315 million senior secured credit facilities. This debt is intended to be used to help facilitate the leveraged buyout of PRIMEDIA by affiliates of private equity firm TPG Capital ("TPG") and refinance existing bank debt. Moody's also assigned a B1 Corporate Family Rating ("CFR") and B2 Probability of Default Rating ("PDR"). The existing ratings, including the B1 rating on the company's existing senior secured credit facilities, are expected to be withdrawn upon closing of the proposed transaction. The rating outlook is stable.

On May 16, 2011, PRIMEDIA entered into a definitive agreement to be acquired by TPG for $7.10/share or about $525 million. The transaction has been approved unanimously by the company's board of directors and, as approximately 58% of outstanding shares have executed a written consent approving the transaction, no additional shareholder action is required. Total transaction consideration for the leveraged buyout, including fees and expenses, is expected to be funded with approximately $300 million of equity from TPG and a $275 million first lien senior secured term loan. The bank credit facility is also expected to include a $40 million first lien senior secured revolving credit facility, which Moody's expects will be undrawn at closing. The transaction is not subject to a financing contingency. Pittsburgh Acquisition, Inc. is an acquisition vehicle intended to facilitate the purchase of PRIMEDIA Inc. by TPG and will be merged into PRIMEDIA to complete the acquisition. PRIMEDIA will be the surviving entity and borrower under the proposed credit facilities following the closing of the transaction.

The transaction will result in an increase in debt and higher interest rates as compared to the current capital structure. However, Moody's expects the elimination of the company's quarterly cash dividend to more than offset the increase in interest expense relative to PRIMEDIA's current bank credit facility and slightly improves cash flow generation capability. Moody's estimates initial annual savings of $5 million. We expect the transaction to cause interest coverage to decline to and remain in the 4 times range as compared to the mid-5 times range (LTM 3/31/2011). We also anticipate that leverage will rise to the mid-4 times Debt/EBITDA range at closing (incorporating Moody's standard analytical adjustments, including operating leases) from the mid 3 times range, but we expect the company to reduce leverage return towards 4 times over the next two years as margin improvement continues to offset revenue declines associated with a transitioning business model and the company applies a portion of its free cash flow towards debt reduction.

The assigned ratings are subject to final terms and conditions and documentation of the proposed transaction and the financing.

Assignments:

..Issuer: Pittsburgh Acquisition Inc.

....Corporate Family Rating, Assigned B1

....Probability of Default Rating, Assigned B2

....$40 million Senior Secured Revolving Credit Facility, Assigned B1 LGD3 31%

....$275 million Senior Secured Term Loan B, Assigned B1 LGD3 31%

....Rating Outlook, Stable

RATINGS RATIONALE

The B1 CFR reflects small scale, concentration of earnings and cash flow in a single business line, exposure to cyclical apartment rental and housing markets, and moderate financial risk. The CFR also reflects the company's moderately high debt leverage, and free cash flow generation. The apartment rental listing business accounted for approximately 92% of advertising revenue and 82% of total revenue in 2010, which Moody's expects will rise as the company increasingly embraces third-party distribution of print directories. The CFR is supported by PRIMEDIA's strong competitive position in the apartment rental listing business, well-diversified national presence, and several brands aimed at different market niches.

The stable rating outlook incorporates Moody's expectation that PRIMEDIA will generate positive free cash flow and maintain a good liquidity position to support its ongoing operations and transition towards a digital business model. Moody's expects modestly improving operating conditions and improving profitability which likely will reduce leverage towards 4.0x Debt/EBITDA by the end of 2012.

Downward rating pressure could result from deterioration in the underlying business conditions or competitive landscape of the apartment rental listing business, cash distributions to shareholders, or debt-financed acquisitions such that leverage is expected to rise above 4.5x Debt/EBITDA. Deterioration in liquidity or an expectation that the company will have difficulty refinancing its debt maturities starting in 2016 could also have negative rating implications.

Upward rating momentum is unlikely over the near-term due to event risk associated with private equity ownership, uncertainty around the intermediate-term competitive landscape of the apartment listing business as the industry moves towards a more heavily digital environment, and a lack of scale and business diversity. However, Moody's could consider a positive action with expectations for healthier conditions in the apartment rental and housing markets, progress towards completing business transitions, demonstrated commitment to sustain leverage comfortably below 3.5x, and free cash flow well in excess of 10% of debt.

Headquartered in Norcross, Georgia, PRIMEDIA Inc. ("PRIMEDIA") is a provider of advertising-supported consumer guides covering the apartment leasing and new homes sector. In addition, the company's distribution business (DistribuTech) provides display space to publishers of consumer guides. PRIMEDIA generated approximately $230 million of revenue in 2010.

PRIMEDIA Inc. 's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside PRIMEDIA Inc.'s core industry and believes PRIMEDIA Inc.'s ratings are comparable to those of other issuers with similar credit risk. Other methodologies used include Loss Given Default for Speculative Grade Issuers in the US, Canada, and EMEA, published June 2009.

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 information, and confidential and proprietary Moody's Analytics information.

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.

New York
Benjamin Nelson
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns PRIMEDIA a B1 CFR and a B1 to its new bank facilities; outlook stable
No Related Data.
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