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01 Sep 2009
London, 01 September 2009 -- Moody's Investors Service said today that it had downgraded the senior
unsecured ratings of Bertelsmann AG and of its rated subsidiaries,
including RTL Group SA to Baa2 (from Baa1). The rating change reflects
Moody's expectation that Bertelsmann's debt protection measurements
will deteriorate visibly during 2009 as the current macro economic downturn
takes a toll on the company's business, which has significant
exposure to advertising revenues and discretionary consumer spending.
Moody's does not anticipate that debt protection measurements (such
as the RCF/Net Debt ratio), which had been weak for the Baa1 category,
will recover sufficiently in the immediate future to warrant maintaining
the rating. A stable outlook assumes that Bertelsmann can contain
second half revenue decline and can make further progress in cost management.
Indications that this can not be achieved could lead to renewed ratings
Bertelsmann's recently published results for H 1 2009 show a significant
revenue decline of -6.8% on a reported basis (-7.6%
organic), which is spread over all divisions. Most affected
are the heavily advertising-reliant Gruner + Jahr (-10.6%
reported, -11.5% organic) and RTL Group (-9.6%
reported, -10.1% organic) divisions,
with RTL's revenues additionally affected by key competitor ProSiebenSat1
recovering some of its market share losses. Reported revenue decline
was less pronounced at Random House (-4.2% reported,
-9.6% organic), helped by positive currency
effects, while Arvato, Bertelsmann's media services
division, managed to hold revenues relatively constant as growth
in the services and outsourcing businesses compensated for weak demand
trends at the unit's Prinovis gravure printing business (jointly-owned
with Gruner+Jahr and Springer AG). While there are signs of
a gradual stabilization of Bertelsmann's markets and Random House
should benefit from a strong second half release schedule and an end of
de-stocking in the US supply chain, visibility on key advertising
markets remains low and adds a strong element of uncertainty to Bertelsmann's
Moody's acknowledges the significant cost control measures Bertelsmann
is executing across the group, which have helped to contain the
impact of a declining top line on operating results. Measures include
staff reduction, process optimization (e.g. magazine
production process at Gruner + Jahr) and cuts in input costs (RTL
programming). As a consequence of these measures taking hold,
Bertelsmann has managed to improve reported operating margins to 6.6%
for the first half from 3.3% for the first quarter.
This gives some confidence that margins can be stabilized during the second
half. However, there will be significant cash outflows in
2009 related to the restructuring steps taken and Bertelsmann has recognized
further value impairments, mainly related to broadcasting assets,
including a reduction of the goodwill for Five, RTL's UK TV
asset to zero.
Against a backdrop of uncertainty about further macro-economic
developments, Moody's would also expect that Bertelsmann maintains
a strategic focus on further portfolio management and the sale of non-strategic
assets. This might be needed to facilitate further debt reduction
so that the company can achieve a more comfortable positioning in the
Baa2 category and also to allow it to move towards achieving its own financial
comfort targets, in particular a 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) of below 3x, which
evidences the company's ambition to be rated at the upper end of the Baa
category. This factor stands at 3.5 x for the 30 June 2009
LTM period. Portfolio management steps might also be needed to
provide the company with additional financial flexibility to move the
portfolio towards an improved growth profile as and when the current downturn
comes to an end. Moody's notes that raising funds from asset
sales/portfolio management remains challenging in the current deal environment.
Moody's regards Bertelsmann's current liquidity position as adequate
for its near-term needs. Cash and Cash Equivalents on hand
were Euro 1.3 billion as of June 30 2009, following the repayment
of Euro 805 million in long-term debt and the issuance of Euro
780 million in new long term debt during the first half of 2009.
Cash on hand together with access to a Euro 1.2 billion syndicated
bank facility (due 2012), which was un-drawn as of June 2009
should put Bertelsmann in position to address its substantial short-term
financial obligations of just under Euro 1 billion as of June 30,
2009, which include long term debt maturities of ~ Euro 750 million
in April/May 2010. Following the H1 2010 long term maturities,
amounts falling due are moderate until Q3 2012 when Euro 500 million in
long-term debt need to be repaid and the syndicated bank facilities
matures. Moody's notes that the syndicated bank facilities
and certain private placements are subject to financial covenants,
under which Moody's believes Bertelsmann to have sufficient headroom.
Moody's would expect the company to continue to seek term debt replacements
on a timely basis and to demonstrate continued prudence in managing its
operational cash needs.
Ratings affected are :
- the issuer ratings for Bertelsmann AG and RTL Group SA to Baa2
- the rating of Bertelsmann AG's / Bertelsmann Finance LLC
's Euro debt issuance programme to Baa2 (from Baa1),
- the rating of Bertelsmann AG's bonds/notes falling due
2012,2014,2015 and 2016 to Baa2 (from Baa1) and
- the rating of Bertelsmann Finance LLC's bonds/notes falling
due 2010 to Baa2 (from Baa1).
The last rating action for Bertelsmann AG was taken on 27th March 2009
when the rating outlook was changed to negative (from stable).
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 downgrades Bertelsmann's senior unsecured ratings to Baa2 (from Baa1); rating outlook is 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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