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18 Mar 2009
Approximately $900 million in rated debt securities affected
New York, March 18, 2009 -- Moody's Investors Service downgraded Freedom Communications Inc.'s
("Freedom") Corporate Family Rating (CFR) and Probability of Default Rating
(PDR) each to Caa3, from Caa1 and Caa2, respectively.
Moody's also lowered the company's senior secured bank credit facility
ratings to Caa3 from Caa1. These actions conclude Moody's review
for possible downgrade, originally initiated in September 2008,
and follow the recent disclosure that the company is, as expected,
currently in default under the financial covenants of its senior secured
Details of the rating action are as follows:
Corporate Family Rating - to Caa3 from Caa1
Probability of Default Rating - to Caa3 from Caa2
Senior secured revolving credit facility due 2011 - to Caa3,
LGD3, 48% from Caa1, LGD3, 33%
Senior secured term loan A due 2011 - to Caa3, LGD3,
48% from Caa1, LGD3, 33%
Senior secured term loan A-1 due 2012 - to Caa3, LGD3,
48% from Caa1, LGD3, 33%
The rating outlook is negative.
The rating actions follow Freedom's disclosure that it has received
a default notification from its lenders in connection with its failure
to comply with the September 30, 2008 financial ratio tests stipulated
by the terms of its senior secured loan agreement. The company
and its lenders remain in discussions in an attempt to resolve the current
default; however, the company's lenders have not yet announced
whether they intend to commence legal rights and remedies as creditors
as provided by the terms of the loan agreement.
The downgrade of the CFR to Caa3 largely reflects the ongoing adverse
conditions placed upon Freedom by continuing soft market spending on newspaper
advertising (especially in the company's hard-hit sub-prime
California and Arizona markets), which has substantially reduced
the company's free cash flow, as well as the increase in Freedom's
debt burden following the complete drawdown of its revolving credit facility
in September 2008.
The downgrade of the Probability of Default rating to Caa3 incorporates
Moody's concern that Freedom is currently in technical default under the
terms of its senior secured credit agreement and that it lacks sufficient
liquidity to fund the repayment of approximately $881 million of
loans in the event that lenders exercise their legal rights to accelerate
payment of their full outstanding balance. We consider that lenders
will be willing to provide a waiver (or amendment) to Freedom's already-elevated
financial ratio tests, albeit at substantially higher cost to the
company, which in turn would place yet further pressure on the company's
liquidity profile, heightening the probability of near- to-
intermediate term default. Moreover, even assuming that a
waiver is granted we consider that the company will face an elevated probability
of default once scheduled amortization payments step up, should
the current pace of advertising sales declines continue over the near
Moreover, the Caa3 CFR reflects Freedom's heavy debt burden
(which substantially exceeds the total value of the company, according
to Moody's estimates), and its high leverage (which Moody's
calculates at approximately 10 times total debt to EBITDA at the end of
September 2008, including a partial debt attribution to Freedom's
putable common stock and adjusting for underfunded pension obligations
and operating leases).
The negative rating outlook underscores Moody's view that recessionary
market conditions are likely to continue unabated over the near term,
placing further pressure on Freedom's liquidity and leverage metrics.
In addition, the negative rating outlook incorporates the overhang
of a potential put by Freedom's minority owners, last valued
at approximately $430 million (based upon a December 2007 appraisal)
although subject to extremely high uncertainty as to any value at the
The last rating action for Freedom Communications occurred on October
7, 2008, when Moody's downgraded Freedom's CFR
to Caa1 and its PDR to Caa2. Additional research, including
the most recent credit opinion, can be found on www.moodys.com.
The principal methodology used in rating Freedom was that of the Global
Newspaper Industry, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Freedom Communications is a newspaper and television broadcasting operator
based in Irvine, California. The company recorded total revenues
of $767 million for the LTM period ended September 30, 2008.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's lowers Freedom Communications' CFR & PDR to Caa3
Senior Vice President
Corporate Finance Group
Moody's Investors Service
No Related Data.
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