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Global Credit Research - 29 Nov 2010
London, 29 November 2010 -- Moody's Investors Service has today downgraded to Caa1 from B2 the
corporate family rating (CFR) of SEAT Pagine Gialle SpA ("SEAT").
Concurrently Moody's has downgraded to B3 from B1 the rating on
SEAT's EUR550 million senior secured notes due in 2017 and to Caa2
from Caa1 the rating of its EUR1.3 billion 8% senior notes
due 2014, issued by Lighthouse International Company SA.
The Outlook on the ratings is negative.
The two-notch CFR downgrade to Caa1 reflects Moody's view
of (i) the challenges that the industry faces stemming from a continued
structural decline in the print-directory segment; (ii) the
challenges SEAT faces in its efforts to curb the resulting negative pressure
on its revenues and EBITDA from a loss in customers, by shifting
its business model towards local on-line advertising and marketing
services in Italy; (iii) a highly leveraged capital structure,
with a debt/EBITDA ratio of around 6.0x; (iv) the refinancing
risk that arises from the need to repay debt falling due from 2012 under
the senior credit facilities and the associated high funding costs and;
(v) potential liquidity pressures arising from the need to fund part or
all of the receivables under SEAT's asset-backed securitisation
programme, which will be terminated in June 2011.
In the nine months of September 2010, SEAT reported an acceleration
in the decline in revenues from the print advertising segment when compared
to 2009, to over 20% while at the same time a strong acceleration
in the growth from on-line advertising revenues to over 50%,
notably thanks to its aggressive sales strategy of multimedia packages
at lower price entry points. Italian core revenues declined by
5.9% in the period.
SEAT's strategy focuses on: (i) stabilising its declining
customer base; (ii) bringing innovative services to market;
(iii) continuing to pursue cost-cutting measures; and (iv)
implementing working capital optimisation in order to preserve cash flows.
Moody's understands that SEAT's commercial strategy may have
to be achieved at the expense of a lower ARPA (average revenue per advertiser)
as the company intends to increase penetration of local on-line
advertising and marketing services, by enhancing the range of price-entry
points. Once SEAT's customer base stabilises, the company
will benefit from better scope to market additional products and services
and build growth in the business.
Whilst Moody's recognises the merits in SEAT's business strategy,
the rating agency believes that: (i) it entails execution risk,
particularly given the significantly higher degree of competition and
still relatively low market share of SEAT in the local on-line
marketing business; and (ii) could take some time to translate into
revenue and EBITDA growth. In Moody's view there is still
limited visibility with regards to the evolution of the markets in which
SEAT operates and the company's ultimate competitive position in
the on-line segment.
Moody's expects SEAT's leverage to remain high at the end
of 2010, reflected by a debt/EBITDA ratio around 6.0x.
Moreover, in the rating agency's view, the potential
for de-leveraging over 2011 is limited. Given the need for
SEAT to repay significant amounts of debt from 2012 onwards, Moody's
understands that the company will have to undertake major refinancing
steps which might come at a cost, potentially further weighing on
the company's limited free cash flow generation capacity.
The ratings of SEAT reflect the possibility that, over the medium
term, the company may need to revise its capital structure such
that it is more sustainable, in the context of the trends and challenges
the business currently faces.
The negative outlook on SEAT's ratings reflects the ongoing pressure
on the company's business and liquidity profiles.
Moody's would consider a further downgrade of the ratings if:
(i) SEAT were to experience continued pressure on its revenue, EBITDA
and free cash flow generation; (ii) the company's liquidity
were to become clearly impaired, potentially arising from the need
to fund working capital requirements as a result of the termination of
its securitisation programme; or (iii) there were clearer signs that
SEAT were unable to avoid a restructuring of its current capital structure,
which would lead to losses for the company's creditors. A
downgrade of the ratings could also occur if the company does not de-leverage
over the next 12-18 months such that its debt/EBITDA ratio is 5.5x
In Moody's view, a positive rating action is currently unlikely.
However, to achieve positive rating pressure over the longer term,
SEAT would need to successfully turn around the business and address its
significant refinancing needs from 2011 onwards.
Moody's assigned SEAT's ratings by evaluating factors that
the rating agency believes are relevant to the credit profile of the issuer,
such as: (i) the business risk and competitive position of SEAT;
(ii) the capital structure and financial risk profile of the company;
(iii) the projected performance of the company over the short to medium
term; and (iv) management's track record and tolerance for
risk. Having compared SEAT's attributes with those of other
issuers both within and outside of its core industry, Moody's
believes the company's ratings to be comparable to those of other
issuers of similar credit risk. The principal methodology used
in this rating was Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
Moody's previous rating action on SEAT was implemented on 18 January
2010, when the rating agency assigned a provisional (P)B1 rating
to the proposed senior secured notes, due in 2017.
Headquartered in Turin, Italy, SEAT is the leading publisher
and provider of directory services in Italy and, through its wholly-owned
subsidiary, TDL, is the number three directories publisher
in the UK. SEAT also has a presence in Germany through Telegate,
the second-largest player in the German directory-assistance
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parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information.
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on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
The rating has been disclosed to the rated entity or its designated agents
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three years preceding the Credit Rating Action. Please see the
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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
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Moody's Investors Service Ltd.
Moody's downgrades Seat Pagine Gialle to Caa1; Outlook negative
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