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Global Credit Research - 20 Dec 2010
Approximately C$480 million of debt commitments affected
Toronto, December 20, 2010 -- Moody's Investors Service (Moody's) downgraded Cinram International Inc.'s
(Cinram) Corporate Family Rating (CFR) and Probability of Default Rating
(PDR) to Caa2 and Caa3 from Caa1 to Caa2, respectively. The
rating action was prompted by the entirely of the company's bank credit
facility coming due in May, 2011, and by the likelihood that
the ongoing acceleration of Internet access to digital libraries also
implies an accelerating decline of the company's core DVD/CD replication
activities. further, while lack of forward visibility of
Cinram's revenue stream and its related uncertain sustainability
have been concerns for some time, recent developments with respect
to on-line library access have heightened perceived risks.
As well, in addition to downgrading Cinram's CFR and PDR,
given the very near term maturity of the company's credit facility,
we continue to maintain an SGL-4 speculative grade liquidity rating
(indicating poor liquidity) and a negative ratings outlook.
The following summarizes Cinram's ratings and today's rating
..Issuer: Cinram International Inc.
....Corporate Family Rating, downgraded
to Caa2 from Caa1
....Probability of Default Rating, downgraded
to Caa3 from Caa2
....Senior Secured Bank Credit Facility,
downgraded to Caa1 (LGD2, 28%) from B3 (LGD2, 27%)
..Speculative Grade Rating, unchanged at SGL-4
...Outlook, Unchanged at Negative
The primary ratings influence is the company's poor liquidity, exacerbated
by the need to reinvent itself as its core activity, CD and DVD
replication, declines at an accelerating rate. All of the
company's debt is due in May, 2011, and the company
has not yet been able to refinance those obligations, no doubt impacted
by the company's declining revenues. The company continues
to be heavily dependent upon its legacy CD/DVD replication business.
The decline of this business may be accelerating as the activities of
Internet digital library access providers increases.
With a declining core business and lack of forward cash flow visibility
and with near-term refinance issues, the outlook is negative.
What Could Change the Rating - Up
Positive ratings and outlook actions may result from the successful refinance
of the entirely of the company bank credit facilities and a stabilization
of the company's revenue.
What Could Change the Rating - Down
Failure to refinance the company's debt in the near term.
With headquarters in Toronto, Ontario, Canada, Cinram
International Inc. is one of the world's largest independent manufacturers,
replicators and distributors of DVDs and audio CDs.
The principal methodologies used in this rating were Global Manufacturing
Industry published in December 2007, Probability of Default Ratings
and Speculative Grade Liquidity Ratings published in June 2009,
and Speculative Grade Liquidity Rating September 2002.
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
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
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Canada Inc.
Moody's Canada Inc.
Moody's downgrades Cinram's CFR to Caa2, outlook remains negative
70 York Street
Toronto, ON M5J 1S9
No Related Data.
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