(SPC) X-S&P Rates Dex Media Inc. ‘B-‘; Outlook Neg
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X-S&P Rates Dex Media Inc. ‘B-‘; Outlook Neg
2013-05-17 22:05:11.871 GMT
— Dallas, Texas-based marketing solutions provider Dex Media Inc. is the parent of former Dex One Corp. and SuperMedia Inc., which emerged from bankruptcy protection in April 2013 and subsequently merged.
— We are assigning Dex Media Inc. our ‘B-‘ corporate credit rating with a negative outlook. At the same time, we are assigning Dex Media’s senior secured term loans due 2016 our ‘CCC+’ issue-level rating, with a recovery rating of ‘5’, and assigning its senior subordinated notes due 2017 our ‘CCC’
issue-level rating, with a recovery rating of ‘6’.
— The negative outlook reflects our expectation that ongoing annual revenue declines in the mid-teens percentage rate, and that steady EBITDA margin erosion could negatively affect the company’s creditworthiness and ability to meet its financial commitments over the near-to-intermediate term.
NEW YORK (Standard & Poor’s) May 17, 2013–Standard & Poor’s Ratings Services today assigned U.S. marketing solutions provider Dex Media Inc. a long-term corporate credit rating of ‘B-‘. The outlook is negative.
At the same time, we assigned the company’s four new senior secured term loans due 2016 an issue-level rating of ‘CCC+’, with a recovery rating of ‘5’, indicating our expectation for modest (10%-30%) recovery for lenders in the event of a payment default. Each of the following issued one of the four new term loans: Dex Media East Inc., Dex Media West Inc., SuperMedia Inc., and R.H. Donnelley Inc.
In addition, we assigned Dex Media Inc.’s subordinated notes due 2017 an issue-level rating of ‘CCC’, with a recovery rating of ‘6’, indicating our expectation for negligible (0%-10%) recovery for lenders in the event of a payment default.
Our rating on Dex Media Inc. reflects our assessment of the company’s business risk profile as “vulnerable.”
Dex Media’s yellow pages directory segment faces steady structural declines as advertisers and advertising spending migrates to the Internet. The company will need to continually and aggressively manage its cost structure to maintain segment profitability while facing mid-teen percentage annual revenue decline (based on our expectations). We view the financial profile as “highly leveraged” based on adjusted debt to EBITDA as of March 31, 2013, of 3.4x, and the potential for rapid decline in revenue and EBITDA. We assess Dex Media’s management and governance as “fair.”
Dex Media has a large national presence in the U.S. print and online advertising marketplace through its yellow pages print directories and online and mobile local-search and marketing solutions. In 2012 Dex Media, pro forma for the SuperMedia Inc. merger, held a leading market position in the yellow pages print directories category. The consolidated entity generated about $2.2 billion in revenue from its U.S. yellow pages print and about $500 million in revenue from its digital business.
In recent years, revenue has declined at a low- to high-teens annual percentage rate, and we expect revenue to continue its downward spiral with the shift of advertising spending to digital and mobile advertising. We also expect steady EBITDA margin erosion from the low-40% area to the mid-30% range over the next few years as the company struggles to reduce cost in line with revenue declines, and as ad dollars shift away from higher-margin print advertising toward lower-margin bundled digital offerings.
RELATED CRITERIA AND RESEARCH
— Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012
— General Criteria: Criteria For Assigning ‘CCC+’, ‘CCC’, ‘CCC-‘, And ‘CC’ Ratings, Oct. 1, 2012
— Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,
2012
— Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
— Key Credit Factors: Methodology And Assumptions On Risks In The Advertising Industry, Aug. 18, 2009
— Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
— 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
— 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
— 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
Ratings List
New Ratings
Dex Media Inc.
Corporate Credit Rating B-/Negative/–
Subordinated notes due 2017 CCC
Recovery Rating 6
Dex Media East Inc.
Senior Secured
Term loan due 2016 CCC+
Recovery Rating 5
Dex Media West Inc.
Senior Secured
Term loan due 2016 CCC+
Recovery Rating 5
R.H. Donnelley Inc.
Senior Secured
Term loan due 2016 CCC+
Recovery Rating 5
SuperMedia Inc.
Senior Secured
Term loan due 2016 CCC+
Recovery Rating 5
Ratings Withdrawn
To From
Dex Media East Inc.
SuperMedia Inc.
R.H. Donnelley Inc.
Dex One Corp.
Dex Media West Inc.
Corporate Credit Rating NR D/–/–
Dex Media East Inc.
Dex Media West Inc.
R.H. Donnelley Inc.
SuperMedia Inc.
Senior Secured NR D
Recovery Rating NR 5
Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor’s public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Primary Credit Analyst: Minesh Patel, New York 212-438-6410;
minesh.patel@standardandpoors.com Secondary Contact: Chris E Valentine, New York 212-438-1434;
chris.valentine@standardandpoors.com