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17 Feb 2011
Approximately $452 million of rated debt affected
New York, February 17, 2011 -- Moody's Investors Service today lowered NBC Acquisition Corp.'s
("NBC" -- parent of Nebraska Book Company) Probability
of Default rating to Caa2 from Caa1. All other ratings were confirmed
as detailed below. The rating outlook is developing.
The downgrade of NBC's Probability of Default Rating to Caa2 reflects
the heightened default risk for the company, which could include
a transaction that Moody's would deem a distressed exchange,
as NBC faces significant near term debt maturities. Substantially
all debt of Nebraska Book Company (the operating entity) matures before
March 15, 2012. And because other securities will mature
during 2011, Moody's believes the company must implement a
comprehensive refinancing of its capital structure over the next six to
nine months. In addition, restrictions in the existing indentures
limit the ability of Nebraska Book Company to upstream dividends to NBC
Acquisition Corp used to fund cash interest payments on the parent company
bonds. Based on current restrictions, it is unlikely the
company would be able to fund sufficient dividends to fund the semi-annual
interest payment on the parent company notes due in September, 2011.
NBC's Caa1 Corporate Family Rating reflects the company's
significant near dated maturities. The rating also reflects NBC's
high leverage and modest interest coverage, with debt/EBITDA near
7 times and EBITA/interest expense near 1.2 times for the LTM period
ending 12/31/2010. The rating also reflects heightening competition
in the rental textbook market, primarily from online competitors,
which has had a negative impact on comparable store sales for the company.
NBC has recently undertaken actions to respond to the rising use of rental
textbooks, and is also implementing further cost savings initiatives.
The developing outlook reflects the uncertainty around NBC's ability
to execute a refinancing plan in the very near term. If Moody's
expects these plans to involve some form of impairment to existing debt
holders, ratings could be lowered. However if the company
is able to lengthen its debt maturity profile without impairing existing
debt holders, ratings could be upgraded.
Ratings could be downgraded if the company's liquidity profile were
to further weaken, or the probability of default were to otherwise
Ratings could be upgraded if the company is able to successfully address
its material near term refinancing needs while also maintaining adequate
liquidity and stable operating performance.
The following ratings were downgraded:
NBC Acquisition Corporation:
Probability of Default Rating to Caa2 from Caa1
The following ratings were confirmed and LGD assessments amended:
NBC Acquisition Corporation:
Corporate Family Rating at Caa1
$77 million senior debentures due 2013 at Caa3 (LGD 5,82%
from LGD 6, 94%)
Nebraska Book Company
$200 million senior secured notes due 2011 at B2 (LGD 2,
17% from LGD 2, 27%)
$175 million senior subordinated notes due 2012 at Caa2 (LGD 3,
49% from LGD 5, 71%)
The last rating action on NBC Acquisition Corp was on October 14,
2010 when the company's Corporate Family Rating and Probability
of Default Rating was lowered to Caa1.
The principal methodologies used in this rating were Global Retail Industry
published in December 2006, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009.
Headquartered in Lincoln, NE, Nebraska Book Company is a leading
operating of on-campus and off-campus college bookstores.
Revenues in the LTM period ending 12/31/2010 were approximately $608
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
Service information, and confidential and proprietary Moody's
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
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Please see ratings tab on the issuer/entity page on Moodys.com
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Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's lowers Nebraska Book's Probability of Default Rating to Caa2
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