Moody’s Downgrades Weather Channel Companies
Moody’s Investors Service announced it downgraded TWCC Holding’s (TWCC: d/b/a The Weather Channel Companies) corporate family rating to B1 from Ba3, and assigned a B3 to its proposed $600 million second lien senior secured term loan due 2020.
Proceeds from the new term loan will be used to pay a $600 million dividend to TWCC’s shareholders, which include private equity owners Bain Capital Partners and Blackstone Management Partners as well as NBCUniversal Media.
The rating on the company’s existing first lien senior secured credit facility rating is unchanged but updated to Ba3 (LGD3-36%) from Ba3 (LGD3-35%). Its Probability of Default Rating (PDR) also remains unchanged at B1-PD because of the addition of the second lien debt, a new debt priority which is not governed by maintenance covenants. The rating outlook is stable.
Moody’s said the downgrade reflects the sharp increase in leverage to 7.5x from 5.5x at 3/31/13 (including Moody’s standard adjustments) as a result of the transaction. While pro-forma leverage is still high for the B1 rating category, we expect leverage to decline to under 6.5x over the next two years through a combination of EBITDA growth and debt reduction. The company will therefore be weakly positioned at its new B1 rating over the near-term, and has no financial flexibility within the rating for sustained underperformance or increase in debt.
Moody’s notes that in the past, it gave the company credit for its partial ownership by NBCU, with the expectation that NBCU as a strategic investor would exert a conservative influence on TWCC’s financial policy, particularly given its veto rights regarding the payment of dividends.
However, in Moody’s opinion, the current dividend transaction demonstrates that NBCU is comfortable with high leverage at TWCC, and signals that it does not view TWCC as a strategic core-asset, but as an opportunistic investment. As a result of the change in our view of the relationship, we now assume less lift in the credit and ratings and so the company can support less leverage at a given rating, than it has in the past.
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