TEXT-S&P cuts LodgeNet Interactive rating to 'D'

Fri Jan 4, 2013 4:50pm EST

Related Topics

Overview
     -- LodgeNet failed to make its Dec. 31, 2012 scheduled cash interest 
payments on its revolving credit and term loan and Dec. 31, 2012 term loan 
amortization payment.
     -- We lowered our corporate credit rating on LodgeNet to 'D' from 'CC'.

Rating Action
On Jan. 4, 2013, Standard & Poor's Ratings Services lowered its corporate 
credit rating on Sioux Falls, S.D.-based LodgeNet Interactive Corp. to
'D' from 'CC'. The downgrade follows the company's failure to make its Dec. 31, 
2012 scheduled cash interest payments on its revolving credit and term loan 
and Dec. 31, 2012 term loan amortization payment. The company has received an 
extension on its forbearance agreement with its secured lenders who have 
agreed to accept these payments in kind and not to accelerate their claims 
until Feb. 5, 2013.

Rationale
Under Standard & Poor's criteria, we view the changing of the payment terms to 
payment-in-kind (PIK) tantamount to a default, even with the bank's consent. 
We view LodgeNet's heavily debt-burdened capital structure, and weak operating 
trends as indications of financial distress. We assess management and 
governance as "fair" as we believe there are significant risks relating to its 
private-equity ownership.

Under the terms of the company's proposed recapitalization and planned Chapter 
11 bankruptcy filing, LodgeNet's existing credit agreement will be amended to 
provide an extension in the form of a $346.4 million five-year term loan plus 
accrued interest that is being capitalized prior to the closing date. New 
investor Colony Capital will invest $60 million in exchange for all the new 
shares of common stock. Holders of the existing series B preferred stock and 
common stock will have their interests cancelled. Closing of the entire 
transaction is subject to lender approval and bankruptcy court confirmation of 
a Chapter 11 Plan.

Related Criteria And Research
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List

Downgraded; Recovery Ratings Unchanged
                                        To                 From
LodgeNet Interactive Corp.
 Corporate Credit Rating                D/--               CC/Negative/--


Downgraded
                                        To                 From
LodgeNet Interactive Corp.
 Senior Secured                         D                  CC
   Recovery Rating                      3                  3


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.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.
FILED UNDER: