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Global Credit Research - 08 Dec 2010
Approximately $408 million of debt affected
New York, December 08, 2010 -- Moody's Investors Service changed Miramax Film NY, LLC's ("Miramax")
bank loan ratings based upon an expected change in the debt structure
from a single class of debt to a first and second lien structure.
As a result, Moody's assigned a Ba2 rating to Miramax's proposed
$325 million 5.5-year senior secured first lien term
loan B, and assigned a B2 rating to the company's $83 million
6-year senior secured second lien term loan. The recently
assigned Ba3 rating for the company's prospective senior secured 7-year
$408 million term loan has been withdrawn. The company's
Ba3 Corporate Family Rating (CFR) and its B1 Probability of Default Rating
(PDR) are unchanged. FilmYard Holdings, LLC ("FilmYard")
will be the holding company for Miramax, which is wholly owned by
a consortium of equity sponsors led by Colony Capital. Proceeds
from the term loans will be used to finance the purchase of Miramax from
The Walt Disney Company, pay transaction costs and fund an opening
cash account for the newly created company. The equity sponsors
will contribute $245 million towards the purchase.
..Issuer: Miramax Film NY, LLC
.Corporate Family Rating -- Ba3
.Probability of Default Rating -- B1
.Senior Secured First Lien Term Loan B-- Ba2 (LGD
.Senior Secured Second Lien Term Loan -- B2 (LGD 5-72%)
.Senior Secured Term Loan -- Ba3 (LGD 3-34%)
The rating outlook is stable.
Miramax's Ba3 CFR reflects the inherent high risk associated with
the film business and the depreciating asset base represented by a vintage
content library which is expected to have declining revenue levels and
dependence on contract renewals. The rating further reflects the
lack of history given the startup nature of the company and the risk posed
by a new management team and a smaller-scale business in effectively
competing for content licensing contracts. The company's
reliance on speculative sources of revenue for the relatively high quality
of assets in the portfolio such as participations in sequel production,
Blu-ray sales and digital streaming licenses is offset by a high
level of unearned contracted revenues that have high certainty of collection
and low risk of new film production in the near to intermediate term.
The rating is supported by Miramax's strong credit metrics including
moderate pro-forma total debt-to-EBITDA leverage
of under 3.0x which is expected to consistently decline through
debt reduction as a result of strong excess cash flow sweep provisions
in the credit agreement. Moody's notes that the full repayment
of debt by maturity through free cash flow generation eliminates refinancing
risk which is key to the Ba3 rating.
The first lien term loan benefits from the cushion against loss by the
second lien term loan. Therefore, the first lien notes are
notched up from the CFR and the second lien notes are notched down from
the CFR to reflect the lower priority of claim and higher risk of loss.
The B1 PDR is a notch lower than the company's CFR due to the company's
all bank capital structure with financial covenants resulting in a higher
probability of default and a higher expected family recovery rate of 65%.
The stable outlook reflects a balance between an increase in risk over
time related to the depreciating asset base and growing dependency on
renewing contractual backlog and non-contractual revenues,
and our expectation for a disciplined decline in debt and leverage to
exceed the rate of decline in revenues and EBITDA. We anticipate
very low refinancing risk with the debt being fully repaid through free
cash flow generation over the six year term. Within the first 12
to 18 months, total leverage is expected to be in the 2.5-3.0x
range (including Moody's standard adjustments).
A rating upgrade is unlikely in the near term based on the company's
lack of history in managing these assets, and low visibility on
the revenues in later years which bear higher risk. However,
if the company pays down debt at a more rapid pace due to better than
expected library exploitation opportunities (particularly of contractual
nature), and leverage falls and we believe can be sustained at around
1.0x by the end of 2012, upward pressure on the rating could
A rating downgrade could occur if certain revenue sources and EBITDA are
significantly below expectations and the company is not on the projected
pace for debt reduction resulting in total leverage which is materially
higher than our initial expectation of under 2.0x by the end of
This is the first time Moody's has assigned public ratings to Miramax.
Moody's subscribers can find further details in the Miramax Credit Opinion
published on Moodys.com.
Miramax'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; (iii) 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
Miramax's core industry and believes Miramax's ratings are comparable
to those of other issuers with similar credit risk.
Miramax Film NY, LLC, domiciled in New York, is comprised
of the film content library developed by the independent film studio established
by the Weinstein Brothers and later acquired by The Walt Disney Company
in 1993. The catalogue consists of approximately 670 films (475
theatrical films and 195 direct-to-video films), 130
television episodes and 200+ book titles.
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
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.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's changes Miramax Film's bank loan ratings based upon change in debt structure: assigns Ba2 to first lien Term Loan B and B2 to second lien Term Loan
250 Greenwich Street
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No Related Data.
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