TEXT-Fitch rates Nielsen's note offering 'BB'
Sept 19 - Fitch Ratings has assigned a 'BB' rating to Nielsen Finance LLC and Nielsen Finance Co. (collectively, Nielsen Finance) proposed eight year senior unsecured notes. Nielsen Finance is an indirect wholly owned subsidiary of Nielsen Holdings, N.V. (Nielsen). Proceeds of the notes are expected to be used to redeem the 11.5% senior unsecured notes due 2016 ($325 million outstanding), prepay the 8.5% senior secured term loan due 2017 ($500 million outstanding) and for general corporate purposes (including capital expenditures and working capital). The Rating Outlook is Positive. A full rating list is provided at the end of this release. Fitch views the offering, as proposed, to be favorable for the credit profile, extending maturities three to four years and reducing the $3 billion 2016 maturity balance to $2.7 billion. For additional information on Nielsen, please see Fitch's special report, The Credit Encyclo-Media Volume V, published on Sept. 13, 2012. Key Rating Drivers: --Nielsen was much more resilient during the downturn than other media companies, given the contractual and diversified nature of its revenue stream and the benign competitive environment. The company exhibited revenue and EBITDA growth, as well as positive free cash flow (FCF), through the trough of the downturn. Fitch expects Nielsen will continue to generate organic revenue growth, which should outpace the U.S. economy under all foreseeable economic conditions. --Nielsen's Watch and Buy businesses are well positioned in their respective markets. The ratings reflect the risk that competitive threats may emerge over time. Increased competition could result in revenue pressure (lost share), incremental costs (talent/sales/services), and some FCF pressure (investments in offerings). However, the complexity and significant investments associated with attempting to replicate Nielsen's offerings create meaningful barriers to entry. --The company has indicated its intention to continue deleveraging. Fitch believes Nielsen will be able to accomplish this, even absent further voluntary debt reduction, as Fitch expects EBITDA to grow in the mid-single digits, providing additional balance sheet flexibility. --Nielsen has publicly stated its goal to reach investment grade, but has not provided a leverage target or a rationale for maintaining investment-grade ratings. Fitch's concerns remain around the uncertainty of Nielsen's long-term financial policy (including a change in its investment-grade goal) and the risk to the balance sheet from a private equity exit. --At the current ratings, the above concerns are mitigated by Fitch's belief that, conservatively, Nielsen will generate FCF in the $300 million-$400 million range per annum over the next several years. This will provide Nielsen with the financial flexibility to satisfy mandatory debt amortization and make small acquisitions, while building cash for future shareholder-friendly actions. Fitch believes Nielsen's liquidity is sufficient. At June 30, 2012, liquidity was composed of $283 million of cash on hand and $408 million available under the $635 million senior secured revolver due in 2016. In the 12 months ended June 30, 2012, Fitch calculates the company generated $307 million of FCF. Fitch calculates unadjusted leverage as of June 30, 2012 at 4.2x. Before adjusting for the note offering, total debt at June 30, 2012 was approximately $6.5 billion, consisting primarily of $4.8 billion in secured term loans and revolver borrowings; $215 million of senior notes due 2014; $325 million of senior notes due 2016; and $1.1 billion of senior notes due 2018. The company has been active in managing its near-term maturities, and they are manageable over the next several years. In addition to the debt noted above, the company has $288 million of 6.25% mandatory convertible subordinated notes due 2013, which are afforded 100% equity credit under Fitch's hybrid criteria. These notes will automatically convert on Feb. 1, 2013 (less than three years) into common equity and have a set conversion rate (a max of 2.1739 and a min of 1.8116). The notching of the mandatory convertible instruments reflects Fitch's hybrid criteria, which typically notches such hybrid securities two notches down from the IDR. The notching on Nielsen Finance's senior secured debt reflects the security provided to the lenders. What Could Trigger a Rating Action Positive: Absent a clear leverage target statement, continued improvement in operating trends with gross leverage less than 4x over the next 12-24 months could result in a one-notch upgrade. Negative: Near term, the most likely drivers of rating pressure include a material debt-funded acquisition that increased gross unadjusted leverage to over 4.5x or a dividend policy that materially reduced FCF. Fitch has taken the following rating actions: Nielsen --Issuer Default Rating (IDR) assigned at 'BB'; --Mandatory convertible subordinated notes affirmed at 'B+'. Nielsen Finance --IDR affirmed at 'BB'; --Senior secured bank facility affirmed at 'BB+'; --Senior unsecured notes affirmed at 'BB'. Fitch has withdrawn the following ratings: Nielsen Company B.V. --IDR 'BB'; The ratings have been withdrawn, as Fitch does not expect Nielsen Company BV to be a future issuer of debt. The Rating Outlook is Positive. w York, Tel: +1 212-908-0549, Email: email@example.com. Additional information is available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. Applicable Criteria & Related Research: --'Corporate Rating Methodology' Aug. 8, 2012. Applicable Criteria and Related Research: Corporate Rating Methodology
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