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Overview -- U.S. radio and TV broadcaster LBI Media Inc. (LBI), its parent LBI Media Holdings Inc. (Holdings), and some lenders agreed to exchange about $174.6 million in senior subordinated notes due 2017 for new 11.5%/13.5% payment-in-kind (PIK) second-priority secured subordinated toggle notes due 2020 and warrants, and $30.9 million of Holdings' senior discount notes due 2013 (unrated) with new 11.5%/13.5% PIK second-priority secured subordinated toggle notes due 2020 and new Holdings' 11% senior notes due 2017. -- We are lowering the corporate credit rating on LBI to 'SD' from 'CC' and lowering the issue-level rating on the 8.5% senior subordinated notes due 2017 to 'D'. -- We expect to reassess our corporate credit rating on LBI over the next few weeks. We expect that it will likely be in the 'CCC' category. Rating Action On Jan. 3, 2013, Standard & Poor's Ratings Services lowered its corporate credit rating on Burbank, Calif.-based LBI Media Inc. (LBI) to 'SD' from 'CC'. The issue-level rating on the company's 8.5% senior subordinated notes due 2017 was lowered to 'D' from 'CC', and the recovery rating on this debt remains unchanged at '6' (0% to 10% recovery expectation). The issue-level rating on the company's 9.25% senior secured notes due 2019 remains 'CCC'. The recovery rating on this debt remains unchanged at '3' (50% to 70% recovery expectation). Rationale The rating actions follow the company's announcement that it completed the exchange transaction on Dec. 31, 2012. Under our criteria, we consider debt exchanges of highly leveraged issuers as tantamount to a default. Although the exchange transaction was not a significant deleveraging event, the post-exchange capital structure provides the company the flexibility to reduce cash flow deficits by paying interest in kind on its new exchanged debt, and by reducing October 2013 debt maturities to about $11 million from $41.8 million. However, we estimate that cash flow deficits will persist. We will reassess the corporate credit rating on further review of the exchange documents and business trends. It is our preliminary expectation that we would not raise the corporate credit rating higher than the 'CCC' category based on the company's still excessively high debt leverage, our expectation of negative discretionary cash flow, fractional EBITDA coverage of interest expense, and our expectation of continuing losses at the Estrella network. Related Criteria And Research -- Rating Implications Of Exchange Offers And Similar Restructurings, Update, May 12, 2009 Ratings List Downgraded To From LBI Media Inc. Corporate Credit Rating SD/-- CC/Negative/-- Downgraded; Recovery Rating Remains Unchanged LBI Media Inc. Subordinated D CC Recovery Rating 6 6 Ratings Affirmed; Recovery Rating Remains Unchanged LBI Media Inc. Senior Secured CCC Recovery Rating 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.