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Global Credit Research - 27 Oct 2010
Approximately $825 million of rated debt securities affected
New York, October 27, 2010 -- Moody's Investors Service downgraded the Corporate Family Rating
of Language Line Holdings, LLC (Language Line) to B1 from Ba3 and
assigned a B3 rating to a proposed $250 million second lien credit
facility. Concurrently, Moody's affirmed the Ba3 rating
on the first lien credit facility and downgraded the speculative grade
liquidity rating to SGL-2 from SGL-1. Language Line,
LLC and Tele-Interpreters Acquisition LLC (wholly-owned
subsidiaries of Language Line) are co-borrowers under the first
lien credit facility and are expected to be co-borrowers under
the second lien facility. The rating outlook is stable.
The net proceeds from the second lien term loan together with about $100
million of balance sheet cash are expected to be used to repay approximately
$41 million of indebtedness, redeem all of the outstanding
preferred stock of Language Line, and pay a dividend to shareholders
of about $85 million. The first lien credit facility is
expected to be amended to allow for the issuance of the second lien debt
and related use of proceeds and to reset financial covenants.
The downgrade of the CFR to B1 from Ba3 primarily reflects the substantial
weakening of debt protection metrics pro forma for the refinancing and
dividend. The downgrade of the speculative grade liquidity rating
to SGL-2 primarily reflects the use of approximately $100
million of balance sheet cash in connection with the refinancing and Moody's
expectation of lower cash flow from operations as a result of significantly
higher cash interest expense in the proposed capital structure.
The B1 Corporate Family Rating reflects a relatively small revenue base,
high pro forma financial leverage for the rating category, and a
moderate decline in financial performance during the first half of 2010
after a strong period of growth from 2006 to 2009. Financial performance
in the first half of 2010 was pressured by lower levels of business activity
at company clients and a loss of certain business to competitors and in-house
solutions. The ratings continue to be supported by the company's
leading market position in the over-the-phone interpretation
segment, a broad customer base, and favorable long term growth
prospects driven by immigration, government regulation and ethnic
marketing. The ratings are constrained by price competition from
smaller competitors, the potential for certain clients to shift
to in-house solutions and the risk that the financial sponsor will
seek to add leverage and extract further dividends from the company over
the medium term. The first and second lien credit agreements,
however, will limit the company's ability to incur additional
leverage and pay dividends.
Moody's took the following rating actions (assessments revised):
Assigned $250 million second lien term loan due 2016, B3
(LGD 5, 87%)
Affirmed $50 million first lien revolver due 2014, Ba3 (to
LGD 3, 33% from LGD 3, 34%)
Affirmed $525 million first lien term loan B due 2015, (to
LGD 3, 33% from LGD 3, 34%)
Downgraded Corporate Family Rating, to B1 from Ba3
Downgraded Speculative Grade Liquidity Rating, to SGL-2 from
Affirmed Probability of Default Rating, B1
The stable outlook anticipates modest revenue and EBITDA growth in 2011,
with growth in billed minutes partially offset by modest declines in average
The ratings could be pressured if the competitive environment intensifies
resulting in further declines in revenue and profitability over the next
year. Another debt financed dividend transaction could also pressure
the ratings. The ratings could be downgraded if Debt to EBITDA
and free cash flow to debt are sustained at over 6 times and less than
As a result of the company's shift to more aggressive financial
policies and the profitability decline in the first half of 2010,
we do not anticipate upward rating momentum in the medium term absent
a significant de-levering event such as an initial public offering.
The principal methodologies used in rating Language Line Holdings,
LLC were Global Business & Consumer Service Industry published in
October 2010, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found on Moody's website.
Headquartered in Monterey, California, Language Line Holdings,
LLC provides over-the-phone interpretation services from
English into more than 170 different languages. The company is
controlled by ABRY Partners, LLC and reported revenues of about
$285 million in the twelve month period ending June 30, 2010.
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.
Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades Language Line's CFR to B1; rates 2nd lien term loan B3
250 Greenwich Street
New York, NY 10007
No Related Data.
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