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I AGREE
13 Dec 2010
C$250 million of new debt instruments rated; CFR/PDR upgraded to Ba2
Toronto, December 13, 2010 -- Moody's Investors Service (Moody's) rated Quebecor Media, Inc.,
(QMI) new C$250 million senior unsecured notes B1. At the
same time, the company's corporate family and probability
of default ratings (CFR and PDR, respectively) were upgraded to
Ba2 from Ba3 and ratings of existing instruments were upgraded by one
notch (see ratings listing below). QMI's speculative grade
liquidity rating was also upgraded, to SGL-2 from SGL-3
(to good liquidity from adequate). The rating outlook is stable.
The CFR/PDR upgrade was prompted by expectations that QMI will continue
to take advantage of its unique market position to gradually expand its
EBITDA stream without material increases in debt. We think the
dominant underlying trend of gradual EBITDA expansion will be driven by
the company's strong French-language franchise that integrates
content, television, radio, specialized publishing,
internet properties and a cable television operation that also offers
voice and internet services and a nascent wireless service. As
well, we expect modestly positive free cash flow over the next couple
of years and anticipate that leverage will remain below 3x (incorporating
Moody's standard adjustments) and that RCF/TD will generally be
near 20% even as Videotron completes the build-out of its
wireless network and absorbs related start-up losses, purchases
700 MHz wireless spectrum in 2012/2013, and upgrades its cable network
in response to Bell Canada's fiber build-out and related
IPTV product. Given the company's underlying business profile,
a generally positive business environment, and the expectation that
free cash flow will gradually expand over the next three years,
these measures are in line with the Ba2 ratings.
Proceeds of the QMI's new notes issue will be down-streamed
to subsidiary, Sun Media Inc. (Sun Media), and together
with cash on hand, Sun Media intends to use the proceeds to finance
the redemption and retirement of all outstanding Sun Media senior unsecured
notes, and to finance the settlement and termination of related
hedging contracts. The refinancing transaction does not change
QMI's consolidated debt or cash flow and is therefore credit neutral.
However, the transaction is a major step in simplifying the company's
financing arrangements. Subsequent to the transaction, Sun
Media will have only nominal remaining debt that is structurally senior
to that at the parent holding company. While still somewhat complex
with debt at operating subsidiaries that is structurally senior to QMI's,
financing arrangements become more obviously coordinated as subsidiary
debt is repaid. This simplifies liquidity management. With
ample cash on hand (C$365 at September 30), modestly positive
consolidated free cash flow over the next four quarters, ample unused
credit facilities (in particular, C$575 million at Videotron)
that do not face financial covenant compliance issues, and manageable
near term debt maturities, we have upgraded QMI's liquidity
rating to SGL-2 from SGL-3.
The ratings outlook is stable, reflecting a balance of positive
momentum provided by strong results in the cable business and the potential
of future cash drains given growth aspirations and shareholder return
requirements.
Assignments:
..Issuer: Quebecor Media, Inc.
....Senior Unsecured Regular Bond/Debenture,
B1 (LGD5, 87%)
Upgrades
.Corporate Family Rating, Upgraded to Ba2 from Ba3
.Probability of Default Rating, Upgraded to Ba2 from
Ba3
....Senior Secured Bank Credit Facility,
Upgraded to Ba3 (LGD5, 70%) from B1 (LGD5, 76%)
.Senior Unsecured Regular Bond/Debenture, Upgraded
to B1 (LGD5, 87%) from B2 (LGD5, 89%)
Outlook Actions
.Outlook, Unchanged as Stable
..Issuer: Videotron Ltee
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Ba1 (LGD3, 37%) from Ba2 (LGD3, 40%)
..Issuer: Sun Media Corporation
....Senior Unsecured Regular Bond/Debenture,
Unchanged; rating expected to be withdrawn in due course
RATINGS RATIONALE
The Ba2 CFR and PDR are primarily based upon the expectation of continuing
growth and steady margins in the Videotron cable-based products,
continuing good margins in the Sun Media newspaper business, continuing
modest positive free cash flow and stable debt/EBITDA below 3x,
despite intermediate term challenges of the start-up costs of launching
a wireless product, the beginnings of wireline video competition,
and likely content cost increases. This is augmented by very good
liquidity, demonstrated good execution and management in the businesses
and QMI's strong market position in Quebec which has facilitated
a convergence of content and distribution to produce very good operating
results. Nevertheless, QMI faces new execution risks,
increasing competition in maturing products, and ongoing capital
expenditures on the wireless build-out and another spectrum auction.
Rating Outlook
The ratings outlook is stable, reflecting a balance of positive
momentum provided by strong results in the cable business and the potential
of future cash drains given growth aspirations and shareholder return
requirements.
What Could Change the Rating -- Up
For an upgrade to be considered, it would be preferable that QMI
have a stable business platform with growth expected to come primarily
from organic developments. With that and were TD/EBITDA expected
to be in the sub 3.0x range, FCF/TD over 5%,
RCF/TD maintained in excess of 20%, and (EBITDA-CapEx)/Interest
improved to above 2.5x - in all cases on a sustainable basis
- a ratings upgrade may be considered
What Could Change the Rating -- Down
Should TD/EBITDA approach 3.5x, FCF/TD be close to break
even and RCF/TD trend towards 15%, in all cases on a sustainable
basis, the ratings may be subject to downwards pressure.
As well, significant debt-financed acquisition activity or
adverse liquidity events may prompt an adverse ratings adjustment.
The principal methodologies used in this rating were Large Global Diversified
Media Industry published in November 2007, Probability of Default
Ratings and Loss Given Default Assessments published June 2009,
and Speculative Grade Liquidity Ratings published in June September 2002.
Corporate Profile
Headquartered in Montréal, Canada, Quebecor Media Inc.
(QMI) is a privately held leading Canadian media holding company.
Through its operating companies, QMI has activities in cable distribution,
wireline and wireless telecommunications (Videotron Ltee (Videotron)),
newsmedia (including newspaper publishing at Sun Media Corporation and
Osprey Media Inc. and Canoe Inc.'s Internet portal),
television broadcasting (TVA Group Inc. (TVA)), book,
magazine and video retailing, publishing and distribution,
music recording, production and distribution, leisure and
entertainment and interactive media services (Nurun).
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information.
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
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
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.
Toronto
Bill Wolfe
VP - Senior Credit Officer
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635
Toronto
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
Moody's Canada Inc.
(416) 214-1635
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635
Moody's upgrades Quebecor Media CFR to Ba2; rates new notes B1
No Related Data.
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