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Global Credit Research - 10 Sep 2010
Approximately $425 million of rated debt affected
New York, September 10, 2010 -- Moody's Investors Service lowered the corporate family and probability
of default ratings of ProQuest LLC (ProQuest) to B2 from B1 and assigned
a B3 rating to the company's proposed $250 million senior
unsecured bonds. The proposed transaction would increase total
debt by approximately $100 million and annual interest expense
by $15 million, and the downgrade of the corporate family
rating incorporates the resultant negative impact on credit metrics.
Also, the transaction creates greater flexibility for acquisitions
ProQuest intends to use proceeds of the transaction to 1) fund an up to
$50 million distribution to its parent Cambridge Scientific Abstracts,
Limited Partnership (CSA) 2) repay its $60 million second lien
term loan in entirety 3) repay approximately $93 million of its
first lien term loan and 4) fund transaction related fees and expenses.
The remainder of the proceeds (approximately $35 million) will
be available for general corporate purposes, including potential
Pro forma for the proposed offering, Moody's considers the
first lien lenders to be in a stronger position based on repayment of
a portion of the first lien bank debt and an increase in junior capital
from the $250 million of senior unsecured bonds. In accordance
with Moody's Loss Given Default Methodology, Moody's
upgraded the senior secured first lien bank debt to Ba2 from Ba3.
Moody's believes ProQuest maintains a good market position and generates
recurring revenue from subscriptions to extensive content databases sold
primarily to libraries (with a concentration in academic libraries),
and the B2 corporate family rating incorporates these benefits,
tempered by our view that preserving this position will require continued
investment in both content and technology. The company's
high leverage and modest free cash flow limit its flexibility to manage
these investment needs, although balance sheet cash of approximately
$40 million pro forma for the proposed transaction provides good
liquidity that could fund potential acquisitions or investment projects.
Nevertheless, acquisitions would likely involve some integration
costs, delaying the potential for incremental free cash flow from
such acquisitions. Furthermore, some event risk exists related
to ProQuest's position as the largest operating entity of its owner
Cambridge Information Group (CIG) and limited visibility into the other
operations of CIG, which might draw on ProQuest's financial
support. CIG managed ProQuest more conservatively throughout 2009
than in prior years given economic challenges and the investment in a
database platform consolidation project, but the proposed $50
million dividend demonstrates the willingness to weaken the credit profile
for shareholder returns as well as growth.
....Probability of Default Rating, Downgraded
to B2 from B1
....Corporate Family Rating, Downgraded
to B2 from B1
....Senior Unsecured Bonds, Assigned
B3, LGD5, 72%
....Senior Secured First Lien Bank Credit
Facility, Upgraded to Ba2, LGD2, 16%, from
Ba3, LGD3, 39%
The stable outlook assumes ProQuest maintains an adequate liquidity profile
and that leverage trends toward 5 times debt-to-EBITDA (as
per Moody's adjustments) as investments in a platform consolidation
decline over the next several years and the company begins to benefit
from the expiration of an expensive information technology services contract.
At the B2 corporate family rating, the stable outlook builds in
tolerance for acquisitions that would cause leverage to temporarily rise
towards 6 times debt-to-EBITDA and for temporary negative
free cash flow related to integration costs, provided ProQuest maintained
adequate liquidity to manage some cash consumption.
Upward momentum is somewhat limited by Moody's expectations for
management to pursue a growth oriented financial strategy. An upgrade
would likely require some evidence of a change in financial philosophy
or permanent debt reduction.
Moody's would consider a negative outlook or downgrade based on
expectations for sustained leverage exceeding 6 times debt-to-EBITDA
or sustained negative free cash flow, whether due to incremental
distributions, acquisitions, the loss of a critical content
supplier, a material change in content licensing terms, or
inability to achieve projected cost savings. A deterioration of
the liquidity profile could also have negative ratings implications.
The principal methodology used in rating ProQuest LLC was Loss Given Default
for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA rating methodology published in June 2009. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Headquartered in Ann Arbor, Michigan, ProQuest LLC (ProQuest)
aggregates, creates, and distributes academic and news content
serving over 12,000 academic, corporate and public libraries
worldwide. Cambridge Information Group (CIG) acquired the ProQuest
Information and Learning (PQIL) business of Voyager Learning Company (fka
ProQuest Company) for $222 million in February 2007 and merged
it with its Cambridge Scientific Abstracts, Limited Partnership
(CSA) business to form ProQuest. In conjunction with the transaction,
ABRY Partners invested $63 million for a 20% stake in ProQuest
with CIG contributing CSA for the remaining 80% voting interest
and a cash distribution. Pro forma annual revenue for calendar
year 2009 was approximately $450 million.
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's information, 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.
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in assigning a credit rating is of sufficient quality and from sources
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independent third-party sources. However, MOODY'S
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's lowers ProQuest CFR to B2, assigns B3 rating to unsecured bonds
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