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27 Mar 2009
London, 27 March 2009 -- Moody's Investors Service said today that it had changed the rating outlook
for Bertelsmann AG's debt ratings (long-term senior unsecured at
Baa1) to negative (from stable). The change in outlook reflects
Moody's expectation that the current macro-economic downturn
will make it more challenging for Bertelsmann to maintain debt protection
measurements in line with its Baa1 rating (such as RCF/ Net Debt percentage
ratio in the high teens) given the company's significant exposure
to advertising revenues and discretionary consumer spending.
Bertelsmann's recently published results for 2008 evidence a weakening
performance for its book publishing activities (Random House -- sales
--6.3%, operating EBIT -- 20.8%)
and its magazine business ( Gruner+Jahr -- --2.2%/-14.8%)
and Moody's would expect further revenue declines for these activities
in 2009, which are likely to be more pronounced for Gruner+Jahr.
Results for RTL Group, Bertelsmann's most important profit
generator, remained strong in 2008, particularly due to a
robust performance from RTL Deutschland, which benefited from operational
problems at its main competitor ProSiebenSat.1. However,
Moody's believes that negative pressure on advertising revenues
in all of RTL's markets will continue in 2009 and that a reduction
of net advertising share in Germany is likely as ProSiebenSat.1
recovers some ground. While Moody's believes that Arvato,
Bertelsmann's media services should continue to benefit from good
demand for its outsourcing services, the unit's Prinovis gravure
printing business (jointly-owned with Gruner+Jahr and Springer
AG) will have to contend with ongoing weak demand trends.
Moody's acknowledges that the significant portfolio optimization
steps Bertelsmann has taken in the recent past, which included an
all but complete exit from the music business, a substantial slimming
down of the Direct Group's activities and a tax pooling arrangement
with RTL Deutschland have improved the group's profitability potential
and have removed activities with weaker competitive profiles. The
group has also taken restructuring steps in a number of units, which
should help to contain margin pressure from the falling top-line,
but also entail upfront cash outflows, the agency said.
In Moody's opinion, debt protection measurements could well
come under additional pressure in 2009 given the difficult operating environment,
notwithstanding the visible reduction of debt in absolute terms achieved
in 2008, mainly due to the use of disposal proceeds for debt reduction.
Net Debt as calculated by Moody's (including operating lease and
unfunded pension obligations) was ~Euro 7.4 billion (after ~ Euro
8.5 billion in 2007). Against this backdrop Moody's
would expect Bertelsmann to calibrate investments so as to support debt
protection ratios and to contain deviation from its own financial comfort
parameters, such as the Bertelsmann leverage factor ratio (Economic
Debt i.e. net financial debt plus provisions for pensions,
profit participation capital and net present value of operating leases
in relation to operating EBITDA) which stood at 3.2x relative to
a 3.0x target at the end of 2008. However, Moody's
notes that raising funds from further asset sales/portfolio management
will be challenging in the current deal environment.
We regard Bertelsmann's current liquidity position as adequate for its
near-term needs. Cash and Cash Equivalents on hand were
Euro 1.6 billion as of December 31 2008 and in January 2009 the
company raised another Euro 500 million by issuing a five-year
Eurobond. This should put Bertelsmann in a position to address
its substantial short-term financial obligations of Euro 1 billion
as of December 31, which include long-term bond maturities
of Euro 604 million in March and Euro 200 million in May 2009.
In addition the company has access to a Euro 1.2 billion syndicated
bank facility (due 2012), which was un-drawn at the 2008
year-end and could be utilized to cover the company's next
sizeable debt maturity which occurs in April/June 2010 when bonds totalling
~Euro 810 million mature. We would expect the company to seek further
timely term debt replacements and to demonstrate continued prudence in
managing its funding requirements and operational cash needs.
The last rating action for Bertelsmann AG was taken on 17th September
2007 when the rating outlook was changed to Stable (from Negative).
The principal methodology used in rating Bertelsmann was Moody's Large
Global Diversified Media Industry Methodology, published November
2007 which is available at www.moodys.com in the Credit
Policy & Methodologies directory, in the Ratings Methodologies
sub-directory. Other methodologies and factors that may
have been considered in the process of rating this issuer can also be
found in the Credit Policy & Methodologies directory on Moody's website.
Bertelsmann AG, a globally operating diversified media company is
based in Guetersloh, Germany.
David G. Staples
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's changes outlook for Bertelsmann (sr. at Baa1) to negative (from stable)
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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