Approximately $215 million of debt instruments rated
New York, December 04, 2012 -- Moody's Investors Service assigned Wenner Media LLC (Wenner) a B3 Corporate Family Rating (CFR), Caa1 Probability of Default Rating (PDR), and a B3 rating to its proposed $215 million senior secured credit facility. Wenner plans to utilize the proceeds from the credit facility to refinance its existing term loan due September 2013 and to fund related fees and expenses. This the first time Moody's has publicly rated Wenner. The rating outlook is stable.
..Issuer: Wenner Media LLC
....Corporate Family Rating, Assigned B3
....Probability of Default Rating, Assigned Caa1
....Senior Secured Bank Credit Facility (Revolver), Assigned B3, LGD3 - 31%
....Senior Secured Bank Credit Facility (Term Loan), Assigned B3, LGD3 - 31%
Outlook Actions: ..Issuer: Wenner Media LLC....Outlook, Assigned Stable
Wenner's B3 CFR reflects the company's small scale, operational focus within the highly competitive and cyclical consumer magazine publishing business, concentration in three magazines and related special interest publications, negative magazine distribution and print media business trends, growing competition from digital news and advertising sources, and high leverage. Wenner has a good market position and strong brands within its target market supported by content generation, the artistic and journalistic quality of the publications, and consumer interest in celebrity, lifestyle and entertainment information. The company is smaller and less diversified overall and within the magazine industry than most of its major competitors, with more than 60% of revenue generated by US Weekly, and the bulk of the remainder from Rolling Stone. The company has good cost management and revenue trends that are somewhat better than industry averages in part due to growth at US Weekly, although declining single copy sales are contributing to EBITDA erosion.
Moody's projects Wenner will generate moderately positive free cash flow on low single digit percentage revenue and EBITDA declines over the next two years, with some downside if economic conditions deteriorate. Moody's expects debt-to-EBITDA leverage (4.2x LTM 9/30/12 incorporating Moody's standard adjustments and pro forma for the proposed refinancing) to be in a low 4x range over the next two years with reduced shareholder distributions and a proposed credit agreement that directs free cash flow toward debt reduction ($15 million required annual term loan amortization and 100% excess cash flow sweep, which percentage steps down if leverage falls) mitigating modest projected earnings declines.
Moody's expects Wenner's digital revenue will grow, but that it will be challenging to fully offset pressure on print revenue due to declines in single copy sales and lower advertising rates online.
Wenner's digital strategy is focused on content that is more breaking news oriented than in its print magazines, and on the reading experience rather than other features such as video. The company is approaching digital initiatives cautiously with the goal of cost-efficiently expanding its audience without weakening the market position and monetization of the print magazines. Cyclical advertising revenue will be roughly flat in 2012 after several years of modest growth, and Moody's expects flat to low single digit percentage declines assuming modest economic growth.
The B3 rating on the credit facility (consisting of a $15 million revolver and $200 million term loan B) reflects the senior secured collateral pledge and guarantees from substantially all material domestic subsidiaries. The credit facility is the sole class of debt and is therefore rated at the same level as the CFR. The Caa1 PDR is one notch below the B3 CFR based on Moody's use of a 65% mean family recovery rate for issuers with an all first-lien bank debt capital structure, in accordance with Moody's Loss Given Default methodology.
Wenner has an adequate liquidity position over the next 12-18 months with sufficient internal resources to meet the 7.5% required term loan amortization and limited risk of a covenant violation. Wenner's cash balance ($13 million as of 9/30/12 pro forma for the proposed refinancing) and $15 - $20 million of projected annual free cash flow provide adequate coverage of the $15 million required annual term loan amortization. An undrawn $15 million revolver provides additional liquidity support. Moody's does not expect Wenner will utilize the revolver over the next 12-15 months. The EBITDA cushion within the covenants initially exceeds 20% but is expected to tighten to a high teens percentage range by the end of 2013 due to step downs in the leverage covenant.
The stable rating outlook reflects Moody's view that the U.S. economy will continue to grow modestly, and that Wenner will aggressively manage costs and utilize its free cash flow to reduce debt such that debt-to-EBITDA leverage is maintained in a 4x range over the next 12-18 months.
An upgrade could occur if revenue and EBITDA expansion leads to consistent and growing free cash flow generation, debt pay down, and a sustained reduction in debt-to-EBITDA leverage. Wenner would also need to maintain a good liquidity position including ample coverage of required debt amortization in a range of economic environments to be considered for an upgrade.
A downgrade could occur if Wenner's debt-to-EBITDA leverage is sustained above 4.5x or if free cash flow were to weaken relative to the required $15 million annual term loan amortization. Wenner could also be downgraded if its market share erodes, if liquidity weakens, or if the company engages in leveraging acquisitions or shareholder distributions.
Please see the credit opinion on the issuer page on www.moodys.com for additional information on Wenner's ratings.
The principal methodology used in rating Wenner is the Global Publishing Industry Methodology published in December 2011. 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.
Wenner, headquartered in New York, NY, is a publisher of entertainment and lifestyle magazines in the United States. Its three titles (Rolling Stone, Us Weekly and Men's Journal) generate combined weekly/bi-weekly circulation exceeding four million. The company is owned and controlled by the Wenner family. Revenue on a GAAP basis for the LTM ended 9/30/12 was approximately $363 million and is split roughly 43% (advertising), 56% (circulation) and licensing (1%).
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John E. Puchalla VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653John Diaz MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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