New York, May 28, 2019 -- Moody's Investors Service ("Moody's") stated that
if the proposed Exchange Offer and Consent Solicitation relating to the
senior secured second lien notes announced by Mood Media Borrower,
LLC (Mood) on 28 May 2019 proceeds as outlined, it will constitute
a distressed exchange, a default under Moody's definition
of default. At the same time, Moody's downgraded Mood's
ratings, including its Corporate Family Rating (to Ca from Caa3),
Probability of Default Rating (to Ca-PD from Caa3-PD),
and the rating on its senior secured second lien notes (to C from Ca).
Moody's also assigned a C rating to its new proposed senior secured
second lien notes. The outlook remains negative.
Mood is seeking to exchange its existing partial cash pay second lien
notes for new second lien notes whose interest will only be paid-in-kind
(PIK). Given that Mood's financial sponsors own more than
70% of the second lien notes, Moody's expects the exchange
offer to largely close as contemplated. While the remaining holders
of the second lien notes may not elect to exchange their existing notes,
opting instead to continue to receive some cash interest, they will
be stripped of their collateral as the sponsor's ownership is sufficient
enough to approve the Consent Solicitation. Once the transaction
closes, Moody's will append the "/LD" designation
to Mood's Ca-PD for three business days. Moody's
expects the rating actions taken today to stand, whether or not
the transaction is completed.
"The proposed exchange offer will do little to improve Mood's
liquidity," said Harold Steiner, Moody's lead
analyst for Mood Media. "Performance declines are accelerating,
and we expect continued pressures to negate the short-term benefits
of the exchange," Steiner added.
Moody's took the following rating actions:
Assignments:
..Issuer: Mood Media Borrower, LLC
....Senior Secured Second Lien Notes,
Assigned at C (LGD5)
Downgrades:
..Issuer: Mood Media Borrower, LLC
.... Probability of Default Rating,
Downgraded to Ca-PD from Caa3-PD
.... Corporate Family Rating, Downgraded
to Ca from Caa3
....Senior Secured Second Lien Notes,
Downgraded to C (LGD5) from Ca (LGD5)
Outlook Actions:
..Issuer: Mood Media Borrower, LLC
....Outlook, Remains Negative
RATINGS RATIONALE
The downgrade of Mood's Corporate Family Rating and Probability
of Default Rating to Ca and Ca-PD, respectively, reflects
the company's ongoing performance pressures, weak liquidity,
and unsustainable capital structure. Even if all second lien holders
exchange their notes, the company will only save $6 million
of annual cash interest. Moody's expects free cash flow after
debt service to continue to be negative in 2019 and 2020, owing
to persistently weak earnings quality and continued declines in recurring
revenues in spite of the planned acquisition of another franchisee.
With only $18 million of cash on the balance sheet, no available
external liquidity sources, and covenant cushion erosion owing to
step downs in 2019 and 2020, a more fulsome balance sheet restructuring
or other default is highly likely over the next 12 to 18 months.
The negative outlook reflects Moody's expectation for further erosion
of revenue, earnings, and liquidity in 2019.
The ratings could be downgraded if the company defaults on its obligations
or if anticipated recoveries for creditors in an assumed event of default
scenario weaken further.
While unlikely in the near-term, the ratings could be upgraded
if the company can sustainably improve revenue, earnings,
and liquidity such that its capital structure is considered to be tenable
by Moody's.
The principal methodology used in these ratings was Media Industry published
in June 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Headquartered in Austin, Texas, Mood Media Borrower,
LLC provides in-store/on-premises digital audio and visual
media for customers in a variety of industries, including quick
serve restaurants, retailers and hotels. The company is privately
held by Apollo Global Management, LLC, GSO Capital Partners
LP, and FS/KKR Advisor, LLC. 2018 revenues were approximately
$370 million.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Harold Steiner, CFA
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
John E. Puchalla, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653