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Rating Action:

Moody's downgrades The Weather Channel Companies to B1, assigns B3 to new second lien term loan

06 Jun 2013

Approximately $2.16 billion of debt affected

NOTE: On June 17, 2013, the press release was revised as follows: In first paragraph, third sentence, correct ‘first lien senior secured credit facility rating is unchanged but updated to’ to ‘first lien senior secured credit facility rating is affirmed and updated to.’ In first paragraph, fourth sentence, correct ‘Its Probability of Default Rating (PDR) also remains unchanged at B1-PD’ to ‘Its Probability of Default Rating (PDR) is affirmed at B1-PD.’ Revised release follows.

New York, June 06, 2013 -- Moody's Investors Service downgraded TWCC Holding Corp.'s (TWCC: d/b/a The Weather Channel Companies) Corporate Family Rating (CFR) to B1 from Ba3, and assigned a B3 (LGD5-88%) to its proposed $600 million second lien senior secured term loan due 2020. Proceeds from the new term loan will be used to pay a $600 million dividend to TWCC's shareholders, which include private equity owners Bain Capital Partners, LLC and Blackstone Management Partners, LLC, as well as NBCUniversal Media, LLC (NBCU; A3 senior unsecured rating). The rating on the company's existing first lien senior secured credit facility rating is affirmed and updated to Ba3 (LGD3-36%) from Ba3 (LGD3-35%). Its Probability of Default Rating (PDR) is affirmed at B1-PD because of the addition of the second lien debt, a new debt priority which is not governed by maintenance covenants. The rating outlook is stable.

The downgrade reflects the sharp increase in leverage to 7.5x from 5.5x at 3/31/13 (including Moody's standard adjustments) as a result of the transaction. While pro-forma leverage is still high for the B1 rating category, we expect leverage to decline to under 6.5x over the next two years through a combination of EBITDA growth and debt reduction. The company will therefore be weakly positioned at its new B1 rating over the near-term, and has no financial flexibility within the rating for sustained underperformance or increase in debt.

In the past, we gave the company credit for its partial ownership by NBCU, with the expectation that NBCU as a strategic investor would exert a conservative influence on TWCC's financial policy, particularly given its veto rights regarding the payment of dividends. However, in Moody's opinion, the current dividend transaction demonstrates that NBCU is comfortable with high leverage at TWCC, and signals that it does not view TWCC as a strategic core-asset, but as an opportunistic investment. As a result of the change in our view of the relationship, we now assume less lift in the credit and ratings and so the company can support less leverage at a given rating, than it has in the past.

We note that TWCC generates significant free cash flow, with over $100 million expected per year in 2014 and beyond, and has the ability to repay debt and bring leverage down rapidly. However, we believe that the company will retain a majority of its cash flow beyond required debt amortization and/or excess cash flow sweep payments, to either make acquisitions or build capacity for future dividend payments. As a result, we expect it to de-lever at a slower pace than its capacity to do so. The B1 CFR rating assumes that leverage is not sustained above 7.0x and that it will average below 6.5x over the long-term.

The following is a summary of today's actions:

..Issuer: TWCC Holding Corp.

Assignments:

.$600 million 2nd Lien Senior Secured Term Loan due 2020, assigned B3 (LGD5-88%)

Downgrades:

.Corporate Family Rating, downgraded to B1 from Ba3

LGD Updates:

.$1,600 million Sr. Secured 1st Lien Term Loan due 2017, updated to Ba3 (LGD3-36%) from Ba3 (LGD3-35%)

.$135.6 million Sr. Secured Revolver due 2014/2016, updated to Ba3 (LGD3-36%) from Ba3 (LGD3-35%)

RATING RATIONALE

TWCC's B1 Corporate Family Rating (CFR) reflects the company's high leverage of approximately 7.5x at 3/31/13 (incorporating Moody's standard adjustments and pro forma for the dividend transaction), which is expected to moderate to under 6.5x by 2015 from improving operating performance and debt reduction. The rating also reflects the company's small scale, significant revenue concentration in providing weather related services, and cyclical volatility associated with the company's advertising revenue. The company's strong operating margins, predictable cash flows generated from the distribution of the company's most valuable property, The Weather Channel Network, to over 100 million homes, and its leading brand position as the most recognizable source for weather on the Internet (weather.com) partially mitigate these concerns. The importance of weather information in the daily lives of most Americans provides a solid and consistent audience for advertisers, which along with opportunities for further dissemination of the dominant Weather Channel brand in our view, support the company's growth prospects. The rating is constrained by the partial private equity ownership of the company, which we believe leads to higher financial risk tolerance and an increased possibility of future shareholder friendly activities, as demonstrated by its proposed dividend transaction. Though it is partially owned by NBCU which has limited veto rights relating to shareholder friendly transactions, NBCU has not exercised any influence to maintain a stronger balance sheet at TWCC, and we do not believe that it is likely to in the future.

The Ba3 rating on its first lien credit facility reflects the first priority claim on the cash flow and assets, including the assets and capital stock of TWCC's subsidiaries. The first lien facility is rated one notch higher than the B1 CFR, because of the loss absorption cushion from the second lien term loan, which is rated B3 due to its subordinated position in the capital structure.

The stable rating outlook reflects our expectation that leverage will decline and be sustained under 6.5x by 2015, through improving operating performance and limited debt reduction. In the longer term, we believe the company may de-lever materially but also expect it to increase leverage back to over 7.0x at some point to pay further shareholder returns. We anticipate the company will improve its growth prospects by investing its brand and data-based technology and maintain EBITDA margins around 45%.

The ratings could be downgraded if top line growth were to decline materially because of an unanticipated secular revenue downturn or increased competition, or if the company pursued expansions into other content verticals or businesses, or made debt-financed acquisitions and shareholder payments, which negatively impacted margins and cash flow generation, or resulted in debt-to-EBITDA sustained over 7.0x.

Debt reduction from cash flow or asset sales leading to debt-to-EBITDA sustained below 5.0x would place upward pressure on the rating. However, the company's partial private equity ownership may constrain its rating to the B category, especially if it continues to have high capacity to increase leverage to pay shareholder dividends. Meanwhile, a material increase in ownership by NBCU could have positive implications.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The principal methodology used in this rating was Global Broadcast and Advertising Related Industries published in May 2012. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

TWCC Holding Corp. d/b/a The Weather Channel Companies ("TWCC"), headquartered in Atlanta, GA is a multi-platform media and information company focused on providing weather information to consumers and businesses. Content is delivered to individuals most notably through its national U.S. cable network "The Weather Channel", the Internet and mobile. TWCC also provides weather data and forecasting services to a variety of industries, through its Weather Services International ("WSI") segment. TWCC is jointly owned by Comcast Corporation's NBCUniversal Media, LLC ("NBCU" - A3 senior unsecured rating, positive outlook) and private equity firms Bain Capital Partners, LLC and Blackstone Management Partners, LLC.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades The Weather Channel Companies to B1, assigns B3 to new second lien term loan
No Related Data.
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